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Why China’s power crisis is so big


A general view shows the Shanghai Ujing Coal Power Plant on September 2, 2021.

Hector Retamal | AFP | Getty Images

BEIJING – Local Chinese authorities last week ordered the sudden disconnection of power to many factories, trying to respond to a number of Beijing directives and macroeconomic development.

While some economists have lowered their forecasts for China’s GDP growth, others are still waiting to see the extent of the impact.

Here is a comprehensive overview of how the power crisis was created:

Coal supply decreases, prices rise

In late 2020, China stopped buying coal from Australia, once the Asian giant’s largest source of imported coal. Political tensions have risen between the two countries after Australia backed an investigation into how the Beijing coronavirus epidemic was handled.

Meanwhile, winter has historically been colder weather that has increased the demand for winter coal. Some cities have reportedly restricted the use of electricity in homes and factories.

In addition to the global warming in commodity prices, the price of thermal coal, the primary fuel for power generation, has risen by more than 100% per metric ton ($ 119.53) in December 2020 on the Zhengzhou Commodity Exchange. Information from air data.

Renewable energy is off

But as China seeks to shift to renewable energy, severe drought has hit hydropower plants in Yunnan province. According to the National Development and Reform Commission, electricity generated from water decreases by more than 4% per month in July and August each year.

The commission said wind-generated electricity also slowed its growth, rising 7% in August to 25.4% in July.

Analysts also say that China’s climate target in the latest five-year plan is more modest than expected. Climate Action Tracker, an international non-profit organization that reviews countries’ efforts to meet the goals of the Paris Agreement, called China’s policies and actions “inadequate” in a report released on September 15.

Plenty of electricity in China is still generated by coal. According to data obtained through the wind, the year-on-year growth in electricity use has been the highest in a decade.

Read more about clean energy from CNBC Pro

The power ration begins

In addition to extreme temperatures, factories are demanding more electricity as they rush to meet global orders for Chinese products. Exports have doubled in the wake of the epidemic.

“Energy demand has increased with China’s economic recovery,” Eurasia Group analysts wrote in May. They noted that “several industrial centers on the east coast of China, including Guangdong, Zhejiang, Jiangsu and Shandong, have warned of possible temporary power supply shortages during the summer season.”

In June, the state-backed Securities Times reported some power restrictions in parts of the Guangdong export center.

Meanwhile, the supply of coal is declining due to the closure of mines in a national effort to reduce carbon emissions. According to wind data, the coal list of major power plants reached a ten-year low in August.

But in mid-August, China’s economic planning agency announced that 20 regions যা which had failed to meet carbon-related targets of about 70% of China’s GDP per numura যা had persuaded local authorities to take action.

Some authorities cut off electricity overnight

Some of the recent moves were quite abrupt. For example, on 2 Sep September, the management of a high-tech business zone in Hunan Province ordered a power restriction, which took effect immediately. The ban will run until Thursday, October 1, the day before China’s National Day holiday.

On Sunday, the state-backed Securities Times reported that large power connections had been cut off to factories in Guangdong’s Dongguang city production center for the same week. The report also found sudden power outages in many parts of northeastern China, including residential areas in Liaoning Province.

“Power outages mean that products cannot be delivered on time,” said Wen Biao, general manager of Qianhe Technology Logistics Co., Shenzhen, Guangdong Province. The situation is similar in Shanghai and the port city of Ningbo, he said.

The decline in production has reduced demand for overseas shipping, and shipping prices on the U.S. West Coast have dropped from $ 9,000 to 15 15,000 per container, he said, referring to the decline starting Sept. 24.

All in all, Reuters reported that power use was restricted in more than 10 provinces and territories.

In this context, Guangdong Province accounted for about 23% of China’s exports by price, while Liaoning by 1.6% from January to August, according to official data.

Read more about China from CNBC Pro

The sudden power outage has put a damper on whether foreign businesses will invest more in the China-based supply chain. Some businesses that planned to invest millions of dollars in China are now looking to Southeast Asia, said Johan Annell, a partner at consulting firm Asia Perspective.

This week, China’s State Grid and the National Development and Reform Commission promised to ensure electricity, especially for residents, and said they would take steps to increase coal production and increase coal imports.

According to the commission, the demand for electricity this winter may exceed the maximum level of this past summer and winter.

The price of thermal coal has nearly doubled this year, and traded at 1,319.80 yuan, down about 1% per metric ton as of noon on Thursday.

Economic impact

The shock for many Chinese factories comes when investors are worried about a collapse in the huge real estate sector as ted-on property giant Evergrand warns of default. According to Moody’s, with related industries such as construction, real estate accounts for about one-fourth of China’s GDP.

After nearly two decades of rapid, debt-fuel expansion in the industry, regulators have taken strict action on how many rules they can take.

When it comes to economic impact, Hang Seng, China’s chief Shanghai-based economist, Dan Wang, said he would “focus more on policies restricting the property market.”

He blamed the price of electricity mainly on the inability of the authorities to adjust the price of electricity, which is basically fixed by the state. Wang said factory congestion has also created additional capacity to meet global demand.

“The impact of power restrictions is equivalent to a natural disaster,” he said.

Some economists expect more serious effects. Among major investment banks, Nomura lowered its China GDP forecast on Friday, followed by Goldman Sachs on Tuesday.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, said: “Power cuts may not be significant enough, but given the recession in the property sector and the regional covidian outbreak, they make me more concerned about GDP growth in the fourth quarter.” “I lowered my forecast for Q4 from 5% to 4%, with a negative risk.”

Economists at other financial institutions have largely stopped short of forecasting and are waiting to see how important the decline in output will be.

There are also allegations of monopoly practices against large internet technology companies in the weight of growth. A sudden order in July that restructured post-school tutoring companies as unprofitable has called into question millions of jobs and incomes.

Consumer spending, the main driver of China’s economic growth, has also been sluggish since the epidemic because covid-related restrictions have prevented many people from traveling and eating.



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