Here’s how China’s power shortage in 2021 affects the world economy

The Chinese power shortages have been caused due to a plethora of factors

Here's how China's power shortage in 2021 affects the world economy

Here's how China's power shortage in 2021 affects the world economy

China faces power blackouts quite frequently, however, this year several factors have facilitated the biggest upheaval for electricity suppliers.

The challenge lies predominantly within China’s northeastern industrial centers as winter comes around, and is a problem that could affect the entire world.

What has caused major power shortages in China?

China has struggled to counterbalance electricity supplies with demand in the past. This has put many of China’s cities in jeopardy of power cuts.

In summer and winter, when power consumption is at its peak, the power outage problem becomes especially severe.

However, the 2021 power shortages have been caused due to a plethora of factors that have pushed the country into such a grave situation.

As countries across the globe begin to reopen, post the dramatic effects of the COVID19 pandemic, the demand for goods made in China has been on the surge. This necessitates Chinese factories to run with an abundance of power.

Beijing has imposed several regulatory measures to transform China into a carbon-neutral country by 2060. Hence, coal production units have been inactive even as the Chinese depend on coal for over 50% of their power.

Now, as electricity demand has surged, coal prices have hit an all-time high.

However, with the Chinese government stringently monitoring the electricity prices, coal-fueled power plants are reluctant to function at a loss. Thus, coal power plants have been radically minimizing their output.

China’s power cuts affect the global economy

Surging prices for electricity and natural gas in Europe have received immense attention from international media in recent weeks.

The energy calamity in China will cause bigger penalties for the global economy when compared to the European energy crunch.

Some Chinese areas are restricting energy supplies only to factories and 2/3rd of the nation witnessed power cuts last week as China wrestled with the worst power outage in 10 years.

Chinese government-run media houses have maintained a positive tone. But the Chinese Communist Party news wing, The Global Times, recently indicated that there might have been some breaches that facilitated the collapse of the northeast power grid, which in turn accelerated the local power discrepancy.

Similar to the United States and Europe, recovery demand has stressed the capability of Chinese energy generation. Even the persistent weather conditions looming over China have caused renewables to produce much less power than estimated, indicated analysts from the energy industry.

It has been indicated from anonymous sources that the electricity shortage has been accumulated by the injection of penal measures by the communist government in China. These punitive measures have been drafted to acquire fossil fuel energy recession targets, established by Beijing, to accomplish China’s commitment to reduce its carbon emissions by 65% before 2030. In September 2021, officials of the local Communist Party were instructed that they would be pinned responsible for the incapacity of meeting the established carbon reduction targets.

Twenty provinces in China have been unsuccessful in meeting their 2021 carbon goals, according to the National Development and Reform Commission (responsible for controlling the Chinese economy). Jiangsu and Guangdong, responsible for over 1/3rd of China’s economic output, are a part of these 20 provinces.

Owing to surging electricity demand from factories and sluggish output from the Chinese coal mines, energy prices have surged to more than 50% this year. Out of 31 Chinese provinces, 20 provinces are now rationing aluminum, fertilizers, steel, electricity, and cement production. Power distributors have instructed heavy energy users to regress consumption during the day and factories to initiate alternate shutdowns every few days in the northeastern industrial centers.

Nomura, a Japanese bank, cautioned about the probability of another major global economic shock, last week. The Japanese bank stated that the associated risks were underestimated and miscalculated. Nomura and Goldman Sachs have receded their economic growth expectations for China and are now foretelling the nation’s economy to shrink by 0.2% this quarter. The banks estimate the country’s growth to become weaker hereafter.

If these predictions come true, the global post-pandemic economic recuperation will be under great threat through the rise of inflation, warned economists from around the world.

According to Howie Lee from Singapore’s OCBC Bank, China’s power shortage will have an undulating effect from Asia to Europe.

Government figures indicate that Chinese factory activity in September 2021 had crunched to its bottommost level since February 2020, when the pandemic set its roots in the world.

The overseer of China’s energy sector, Vice Premier Han Zheng, reported to Bloomberg that he has instructed the state-owned energy firms to procure supplies of coal and gas for its power stations. These power stations have been reported to contribute to more than half of China’s electricity generation. The order saw light during an emergency meeting conducted last week with officials expressing alarm at the probability of shortages continuing to March 2022.

Irrespective of being established as the globe’s biggest coal producer, on Monday China possessed only 14 days of coal supplies to power the nation. The importing of coal has become the greatest need of the hour. However, importing coal will prove to be expensive and difficult owing to a Chinese prohibition levied in 2020 on coal imports from Australia (the globe’s biggest coal exporter).

Beijing prohibited the importing of coal from Australia in response to Canberra’s calling for an investigation, on an international scale, regarding the origins and source of the coronavirus.

With Beijing’s orders to state-owned energy firms to secure energy provisions, an emerging war for supplies of natural gas and coal betwixt global energy markets are not far off. This would inherently boost the prices of energy supplies across the world.

An economic research consultancy housed in London, Capital Economics, stated that the power scarcity challenges will not see a recession any time soon.

Capital Economics senior China economist, Julian Evans-Pritchard, stated that the Chinese power efficiencies are an echo of the global stress on energy markets. The compulsion of constrain on industrial activities via power rationing will remain so until demand recedes enough to facilitate equilibrium in the local electricity market, Pritchard added.

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