China is witnessing an unprecedented power supply crisis that has turned critical in recent days threatening entire power grids as industrial production grinds to halt and traffic lights fail amid power rationing.
With more than half of the country enduring power cuts, making it one of the most extreme energy rationing in the nation’s history, especially as it hit regular households. It has triggered widespread alarm among much of the population and plunging the nation’s industrial sector into chaos. Poor communication and unclear timeline for power rationing has worsened the confusion with many angry and confused residents taking their complaints to social media, saying the electricity cuts have come during peak hours without sufficient warning.
The power cuts are mainly due to insufficient coal supply. As temperatures drop in the China’s northeast, residents have started to turn up the heating, driving up electricity usage. Power cuts are common in China and are usually restricted to industrial users, but their frequency has risen since the second half of last year and have now been extended to households. Many companies, including small firms, have had to shift production to overnight, reduce output or cease operations entirely.
Experts also expect the wide-reaching impacts from the dramatic cuts in energy consumption to last until the end of the year. They warn that further disruptions risk aggravating inflation while thrashing production. The latest setback comes after some analysts raised alarms over China’s economic outlook in recent weeks. Goldman Sachs estimated that as much as 44% of China’s industrial activity has been hit by power shortages, potentially causing a one-percentage-point decline in annualised GDP growth in the third quarter, and a two-percentage-point drop from October to December. It said on Tuesday that it was cutting its 2021 GDP growth forecast for China to 7.8%, from the previous 8.2%. Nearly 60 percent of the Chinese economy is powered by coal.
The coal shortages, stringent greenhouse gas emissions standards and strong demand from industry has sent thermal coal prices skyrocketing which is making power plants lose money. Authorities have opted to restrict demand for electricity through rationing as raising electricity prices may be a sensitive proposition. The quality of Chinese coal is too poor to generate enough power and it’s too polluting. In addition, some regions have already started to store coal for the winter, which has aggravated the coal shortage. China has banned all Australian coal, but it does not rely on imports for thermal coal. Last week, recognizing the critical shortage of locally produced thermal coal, the National Energy Administration pushed several northwestern provinces to increase production. However, China now faces mounting pressure to ramp up coal imports and ensure supplies during the upcoming October holidays. However, it may not be easy at a short notice.
The other probable reason for the power cuts may be authorities’ desire to meet provincial targets for reductions in energy consumption as China aims to hit peak emissions before 2030 and carbon neutrality by 2060. There have, however, been concerns that the provincial energy curbs are short-sighted and unfair to users, especially household consumers. State-run media criticised local officials for using forceful means to achieve their annual environmental performance goals, suggesting they should not take a “one-size-fits-all” approach to curbing power usage. Few commentators also hit out at provinces for being too bureaucratic in advancing emissions reduction targets, which would hurt short-term economic growth.