Why China’s energy crisis is a big issue

Overview September 28, 2021 shows Wujing Coal-Electric Power Station in Shanghai.

Hector Retamal | AFP | Getty Images

BEIJING – Local Chinese authorities last week ordered a power outage at several factories, reflecting a system and macroeconomic growth in response to a number of directives from Beijing.

As a result, while some economists have cut their forecasts on China’s GDP growth, others are still waiting to see the results.

Here is a general overview of how energy congestion has developed:

Coal supply is declining, prices are rising

A.D. At the end of 2020, China stopped importing coal from Australia, once Asia’s largest exporter. Political tensions between the two countries have escalated after Beijing backed an investigation into the cholera epidemic.

Meanwhile, in the cold winter of winter, the demand for coal increased. Some cities have reportedly restricted the use of electricity in homes and factories.

Coupled with global price increases, coal, the primary fuel for electricity production, fell more than 40% to 1277 yuan per metric ton ($ 119.53) over 12 months, according to the Zhengzu Commodity Exchange. Information from the wind information.

Renewable energy falls

But as China tried to shift to renewable energy, a severe drought hit the Yunnan power plant. Water generation is declining by more than 4 percent every month in July and August, according to the National Development and Reform Commission.

Wind power also slowed growth, down 7 percent in August a year ago and 25.4 percent in July, the commission said.

Analysts say China’s climate goals are modest than expected in the next five-year plan. Climate change monitoring, a non-profit, evaluating efforts to achieve the goals of the Paris Agreement, said in a September 15 report that China’s policies and practices were “insufficient.”

Most of the electricity in China still comes from coal. According to wind data, year-on-year growth in electricity consumption is at an all-time high.

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Power distribution begins

In addition to high temperatures, factories are demanding more electricity as they rush to meet international orders for Chinese goods. During the outbreak, exports doubled.

Analysis of the Eurasian group said in May that “demand for power has increased.” “Several industrial centers, including China’s east coast, Guangdong, He Jiang, Jiangsu and Shandong, have warned of temporary power shortages during the summer,” they said.

In June, the government-sponsored Security Times reported some power restrictions in parts of Guangdong Export Center.

Meanwhile, coal mines have been declining in the wake of national efforts to reduce carbon emissions. According to wind data, coal reserves of major power plants reached a ten-year low in August.

In mid-August, however, China’s Economic Planning Agency (ECA) urged local authorities to take action against 20 regions – about 70% of China’s total production – in Nomura.

Some officials cut off electricity overnight

Some recent activities were very spontaneous. For example, on September 23, the state of high-tech business environment in Hanan County immediately imposed power restrictions, according to a CNBC report. The ban will last until Thursday, the day before the start of the Chinese National Day, October 1-7.

On Sunday, the state-run Security Times reported heavy power outages for factories in the town of Dongguang at the Guangdong Production Center. The report also cites a sudden power outage in several areas of northeastern China, including residential areas in Linging Province.

“Power outages are not delivered on time,” said Wayne Biyao, general manager of Kianhe Technology Logistics Company in Guangdong Province. The situation is similar in the ports of Shanghai and Ningbo.

The decline in production has reduced demand for exports, and export prices to the West Coast of the United States have dropped to $ 9,000 per container, he said, noting that since September 24.

In total, Reuters reported that more than a dozen provinces and territories had restricted the use of force.

For context, Guangdong province accounts for about 23% of China’s exports, and Loning accounts for 1.6%, according to official data from January to August.

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Sudden power outages have also halted foreign investment in China’s supply chain. Some businesses that plan to invest tens of millions of dollars in China are now looking at Southeast Asia, says Johan Anel, partner of Asian Vision Consulting.

This week, China’s Grid and the National Development and Reform Commission pledged to ensure energy, especially for residents, and said they would take steps such as allowing more coal production and importing coal.

The commission said the demand for energy this summer could be higher than last summer and winter.

Heat coal prices have nearly doubled this year, and by mid-Thursday by around 1,319.80 yuan, more than 1%.

Economic impact

Many Chinese factories are shocked when investors worry about the collapse of the real estate sector, with giant investors warning of default. With related industries such as construction, real estate accounts for about a quarter of China’s gross domestic product, Mudi said.

After nearly two decades of rapid, debt-ridden expansion in the industry, regulators have enacted stricter rules on how much developers can borrow.

When it comes to economic impact, Dan Wang, chief economist based in Shanghai, Shanghai, China, said: “It is paying more attention to restrictive policies in the real estate market.”

She said the power outage was mainly due to the inability of the authorities to fix the price of electricity in the state. According to Wang, the rush to meet the global demand for factories has also reduced capacity.

“The impact of the power outage is equal to the impact of natural disasters,” he said.

Some economists expect even greater pressure. Nomura, one of the largest investment banks in China, followed Goldman Sachs on Tuesday with China’s gross domestic product forecast.

“The power outage may not be enough, but combined with the downturn in the real estate sector and the regional Covs epidemic, I will be more concerned about GDP growth in Q4,” said Zhi Zhang, chief economist at Pinnacle Property Management. “I have reduced my forecast for Q4 from about 4% to 4%.

Economists in other financial institutions are often looking forward to seeing the significant decline in forecasts.

It is also a measure of action against major Internet technology companies suspected of monopolistic practices. Hundreds of thousands of jobs – and revenues — have been put into question by the reorganization of post-school unprofessional education companies in July.

Consumer spending, which is the main driver of China’s economic growth, has also slowed since the epidemic, as restrictions on the virus have prevented many people from traveling and eating.

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