Energy Crisis

China blows a fuse amid energy shortages and blackouts

Industrial activity dives as Beijing moves to contain ‘social stability’ fears in power crisis

China faces an energy crisis that has sparked power cuts across the country and threatened economic recovery from the Covid-19 pandemic. 

Surging coal and natural gas prices along with a crackdown on fossil fuel emissions have created the perfect storm for Beijing.

At the same time, the “shortages” risk undermining “social stability” amid “residential blackouts” and rising consumer costs.

“Governments of various levels should [consider] the practical needs of enterprises, businesses and residents before limiting or cutting the power supply,” state-controlled China Daily warned in an editorial earlier this week.

“They should not only care about carbon emission reduction. [That] is incompatible with the requirements of high-quality development … If the economy collapses under that pressure, there will be no development, green or otherwise,” it said.

Power points: The list of provinces hit by the energy freeze is starting to grow. They include the regions below.

  • Anhui
  • Guangdong
  • Hebei
  • Heilongjiang
  • Hunan
  • Jilin 
  • Liaoning
  • Shandong
  • Tianjin

What was said: “Now it is rather common for coal-fired power plants to lose money as they generate electricity. Some are even trying not to generate electricity in order to stop economic losses,” Han Xiaoping, the chief analyst at energy industry website china5e.com, told state-run Global Times.

Delve deeper: “Residents in several northern provinces have already been dealing with blackouts, while traffic lights being turned off are causing chaos on the roads in at least one major city,” Bloomberg, the business and news agency, reported.

Economic hit: “The power-supply shock in the world’s second-biggest economy and the biggest manufacturer will ripple through and impact global markets,” analysts at financial group Nomura, said in a research note as reported by the Reuters news agency.

Shock waves: “The supply shocks have prompted us to further cut our year-on-year third and fourth quarters, and GDP growth forecasts to 4.7% and 3%, respectively, from 5.1% and 4.4%,” Nomura analysts pointed out.

Running on empty: Goldman Sachs has estimated that 44% of China’s industrial activity has been hit by the electricity squeeze. That could wipe out one percentage point of annualized GDP growth in the third quarter. As for the final three months of the year, it could be as high as a two-percentage-point decline, the investment bank stated.

China Factor comment: Volatility in the energy sector threatens to create volatility in society. The ruling Communist Party of China will be aware of the risks and will move heaven and earth to contain them. 

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