China Power Crunch is Next Economic Shock?
8 Minutes Read
• China’s power crunch, caused by tight coal supplies and toughening emissions standards, has hurt production in industries across several regions and poses a risk to already strained global supply chains.
• Widening power shortages in China’s north-east have left homes without power and halted production at numerous factories, while some shops operated by candlelight as the economic toll of the squeeze mounted.
• Factories across nation ordered to curb activity or shut down closed to avoid exceeding limits on energy use imposed by Beijing to promote efficiency
• Beijing’s green goals coinciding with surging energy prices
Power cuts to meet official energy use targets have forced Chinese factories to shut down and left some households in the dark Photograph: Olivia Zhang/AP.
China's Power Crunch
Widening power shortages in China’s north-east have left homes without power and halted production at numerous factories, while some shops operated by candlelight as the economic toll of the squeeze mounted.
Residents in the north-east, where autumn temperatures are falling, reported power cuts and appealed on social media for the government to restore supplies. Rationing has been implemented during peak hours since last week, while residents of cities including Changchun said cuts were occurring sooner and lasting for longer, state media reported.
China’s power crunch, caused by tight coal supplies and toughening emissions standards, has hurt production in industries across several regions and poses a risk to already strained global supply chains.
Drive for Economic Equality
Xi Jinping’s drive for economic equality comes at a delicate moment for China.
Manufacturers face existing shortages of processor chips, disruptions in shipping and other lingering effects of the global shutdown of travel and trade to fight the coronavirus pandemic.
In the north-east, factories were idled to avoid exceeding limits on energy use imposed by Beijing to promote efficiency. Economists and an environmental group say manufacturers used up this year’s quota faster than planned as export demand rebounded from the coronavirus pandemic. In the city of Liaoyang, 23 people were hospitalised with gas poisoning after ventilation in a metal casting factory was shut off after a power outage, according to state broadcaster CCTV.
The suspension of production at some factories prompted concerns over the possible shortage of goods ahead of Christmas, including smartphones and devices.
Apple components supplier Eson Precision Engineering said on Sunday it would halt production at its factory in Kunshan, west of Shanghai, until Thursday “in line with the local government’s power restriction policy.” Eson said the suspension shouldn’t have a “significant impact” on operations. Apple didn’t immediately respond to a question from Associated Press about the possible impact on iPhone supplies.
The impact on homes and non-industrial users comes as night-time temperatures slip to near-freezing in China’s northernmost cities. The National Energy Administration has told coal and natural gas firms to ensure sufficient energy supplies to keep homes warm during winter.
Liaoning province said power generation had declined significantly since July, and the supply gap widened to a “severe level” last week. It expanded power cuts from industrial firms to residential areas last week. The city of Huludao told residents not to use high energy-consuming electronics like water heaters and microwave ovens during peak periods, and a resident of Harbin city in Heilongjiang province told Reuters that many shopping malls were closing earlier than usual.
Economic Growth Outlook
The power squeeze is unnerving Chinese stock markets at a time when the world’s second-largest economy is already showing signs of slowing. The Chinese economy is grappling with curbs on the property and tech sectors and concerns around the future of cash-strapped real estate giant China Evergrande.
Stricter emissions standards have in part driven the power shortages.
China has vowed to cut energy intensity by about 3% in 2021 to meet its climate goals. Provincial authorities have also stepped up the enforcement of emissions curbs in recent months after only 10 of 30 mainland regions managed to achieve their energy goals in the first half of the year.
The ruling party also is preparing for the Winter Olympics in Beijing, and the nearby city of Shijiazhuang in February, a period when it will want clear blue skies.
The power pinch has been affecting manufacturers in key industrial hubs on the eastern and southern coasts for weeks. At least 15 Chinese companies have said in exchange filings that production had been disrupted by power curbs, while more than 30 Taiwan-listed firms with China operations had stopped work to comply with the power limits.
The fallout of the power shortage has prompted some analysts to downgrade their 2021 economic growth outlook for China, and also warned of possible global supply shortages to textiles, toys and machine parts.
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