China has ordered coal mines to increase production immediately as the energy crisis threatens the world’s second-largest economy and forces Xi Jinping’s administration to backtrack on climate change commitments.
In Inner Mongolia, one of China’s largest coal-producing regions, energy officials have instructed two local miners to increase their capacity by 100 meters per tonne, according to a report in the state-controlled national financial newspaper Securities Times.
The latest effort by the Chinese authorities to address the severe power shortage comes after it forced or shut down high-tech manufacturing plants, damaged homes in some parts of northeast China and warned that important industries such as food production could also be hit.
The intervention of Russian President Vladimir Putin and U.S. Energy Secretary Jennifer Granholm has also pushed energy markets in Europe, the United Kingdom and India under tight gas supplies and volatile commodity prices.
Gavin Thompson, Asia-Pacific commodities expert at research consultant Wood Mackenzie, said China, like other fuel markets, was facing a shortage and needed to “balance work” in using coal to light its lights.
“It simply came to our notice then [international climate conference] COP26 and just weeks after President Xi announced that China would no longer build coal factories abroad. But the short-term reality is that China and many others have no choice but to increase their use of coal to meet their electricity needs.
The impact of China’s decision to increase supplies was immediately felt in the Chinese market as they reopened from a week-long national holiday. The thermal coal futures traded in Zhengzhou opened about 3 percent higher on Friday but quickly fell to 11 percent. The CSI coal index of listed Chinese mines fell as much as 5.5 percent.
The decision to rapidly expand coal production in several mines in Inner Mongolia was made as China was forced to back down from its own trade embargo on Australian coal, highlighting the severity of the power crisis.
The Financial Times reported this week that Australian coal cargoes have been quietly unloaded at several Chinese ports, easing sanctions on Chinese state-owned groups from Australia amid widespread political and security tensions between Canberra and Beijing.
Chenjun Pan, an expert on Rabobank’s China agriculture sector, hoped that China’s food supply network, such as cold chain storage facilities, would feel “some impact” due to their intense power consumption.
However, he added that while coal shortages and rising energy prices may seem like “short-term, cyclical” problems in China, the episode highlights the long-term structural challenges of transitioning to a clean energy system.
“All sectors need to be considered [this] Seriously, ”he said.
The power crisis has been blamed on a combination of weak coal production and regulated electricity prices. The energy crisis has put pressure on China’s economic planners who are already facing a crisis in China’s highly hated property group Evergrande.
The Society General said it had revised its third-quarter GDP forecast for China from 5.5 percent to 5 percent.
“There is a lot of downward pressure on the Chinese economy right now. . . Judging from the latest high-frequency data, the power crisis has already caused significant damage to the industry, ”said the bank’s analysts. “As a result, we expect industrial production growth to slow significantly in September.”
Li Shao, a Beijing-based campaigner for Greenpeace, said the power crisis has exposed the problem of China’s dominance over coal, which accounts for more than half of the country’s energy consumption.
China’s domestic coal production reached 9.9 billion tons last year. Xi praised China for its commitment to achieve maximum carbon emissions before 2030 and to reach carbon neutrality by 2060.
Additional report by Emma Zhao in Beijing
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