September 30th, 2021
China has ordered some industries to shut down & some to operate 2-4 days a week, as power cuts become a daily routine. Find out more about China’s electricity crisis!
By Jaideep Singh Mann
China has ordered some industries to shut down & some to operate 2-4 days a week, as power cuts become a daily routine. Office workers to use stairs for the first 3 floors, and traffic lights are shut in some areas!
MAPPING EXTENT OF THE PROBLEM
– The three main industrial Chinese provinces- Jiangsu, Zhejiang & Guangdong that account for around 1/3rd of the economy of China, are facing power cuts.
– In Jiangsu, steel mills & streetlights are shut. In Zhejiang, 160 industrial units had to be shut down.
– China has to shut down everything from aluminium smelters to textiles, & even food processing units like soybean plants.
– Half of china’s region has missed energy consumption targets (they consume more than the target) & are facing pressure to reduce power usage. Traffic lights are turned off in some areas.
– In fact, Guangdong province has been advising residents to cut down on air conditioner usage & to rely on natural light instead of using home lighting appliances. Liaoning, Jilin and Heilongjiang all suffered blackouts over the weekend.
– Power restrictions are likely to continue until March next year, and also water cuts to become normal. Office workers to use stairs for the first three floors, shopping malls to keep advertising signs on for fewer hours.
REASONS FOR POWER SHORTFALL
– Coal shortage: China is the biggest coal consumer in the world. 70% of China’s electricity is generated using coal. China wants to reduce pollution & meet carbon neutrality by 2060 & has capped the growth of coal mining.
-China is a country now caught between the global struggle to develop but also be green.
-China’s coal production grew by 6% this calendar year but power output surged 14%, leading to coal shortfall. Power plants are also not willing to produce more as coal prices are rising and electricity prices are government-controlled.
-Mines find it difficult to meet the newly implemented tighter environmental standards. Financial institutions have also stopped funding coal miners as China wants to reduce the usage of coal in overall energy production.
– Importing coal is also constrained by an unofficial ban on Australian coal import because of political differences. Indonesia could not produce enough coal this year due to excessive rains. Covid restricted coal exports from Mongolia.
– Also winters are severe in china & hence the electricity consumption increases & hence china is also trying to reduce usage now to have enough in the upcoming winter season.
IMPLICATIONS OF THIS PROBLEM
-Chinese factory activity shrunk to its lowest point in the month of September 2021 since Covid hit the country in February of last year.
-Global investment banks have cut their forecasts for the country’s economic growth.
-According to Goldman Sachs, 44% of China’s industrial activity has been affected by power shortages and electricity cuts. The company also cut China’s growth forecast to 7.8% down from its previous prediction of 8.2%.
– This shortage will further worsen the supply chain problem, slow China’s growth. Prices of certain commodities will surge (aluminium, steel, coal, gas) & inflation will increase.
WHAT IS CHINA DOING TO IMPROVE THE SITUATION
-The National Development and Reform Commission ( NDRC) has identified the energy supplies in the northeast as its main priority for this winter. There are a number of industrial hubs located in the northeastern region of China. Not being able to operate at full efficiency will not only impact China but also the rest of the world as Chinese exports decline.
-The NDRC has outlined various measures to tackle this problem. The measures include ensuring full supplies of coal, promoting electricity rationing, and working closely with generating firms to increase output.
-As per China Electricity Council, coal-fired power companies are working towards expanding their procurement channels. This is necessary for guaranteeing winter heat and electricity supplies. However, finding new sources of coal may not be an easy task amid tensions with Australia and a drastic fall in coal output in Indonesia.
The views expressed in this article are those of the author alone and not the WorldRef.
Explore WorldRef services & industries to learn how we are making your global expansion easier and economical!