The next shock in preparation for the Chinese economy: the energy crisis | Business and Economy News



China may be plunging head-first into an electricity supply shock that could hit Asia’s largest economy hard, just as the Evergrande crisis is sending shockwaves through its financial system.

The crackdown on electricity consumption is driven by growing demand for electricity and soaring coal and gas prices, as well as Beijing’s strict targets to cut emissions. First, there are the country’s gigantic manufacturing industries: from aluminum smelters to textile producers and soybean processing plants, factories are ordered to curb activity or, in some cases, shut down. completely.

Almost half of China’s regions have failed to meet the energy consumption targets set by Beijing and are now under pressure to reduce their energy consumption. Among those most affected are Jiangsu, Zhejiang and Guangdong, a trio of industrial powers that make up nearly a third of China’s economy.

“With market attention now focused on Evergrande and Beijing’s unprecedented restrictions on the real estate sector, another major supply-side shock may have been underestimated or even missed,” analysts warned. of Nomura Holding Inc., including Ting Lu, in a note, predicting the Chinese economy. will decrease this quarter.

China’s worsening electricity crisis – perhaps overshadowed by attention to the possibility of Evergrande defaulting on its gigantic debts – reflects an extremely tight global energy supply that has already seen chaos invade European markets. The economic rebound from Covid lockdowns has boosted demand from households and businesses, as lower investment by miners and drillers limits production.

But China’s energy crisis is partly on his own initiative as President Xi Jinping tries to secure blue skies for the Beijing Winter Olympics next February and shows the international community he’s serious about it. subject of the decarbonization of the economy.

The economy is threatened by a severe shortage of coal and gas – used to heat homes and power plants – this winter. He had to ration electricity during the previous colder months, but he never had to do so with the world prices of these fuels at the levels they are now.

There are signs that the electricity crisis is starting to affect homes as well as businesses, with Guandong Province urging residents to rely on natural light and limit the use of air conditioning, after turning off the power. electricity in some factories.

Stunning prices

China’s thermal coal futures have surged over the past month, repeatedly setting records as concerns over mine safety and pollution limit domestic production as it continues to ban mines. shipments from the main Australian supplier. Meanwhile, natural gas prices from Europe to Asia have hit seasonal highs as countries try to outbid each other for rapidly depleting supplies.

One of the reasons for limiting electricity consumption is that China wants to reduce its emissions in time for the Winter Olympics scheduled for February in Beijing. [File: Qilai Shen/Bloomberg]

In previous winter surges in China, many turned to diesel generators to fill power shortages in the power grid. This year, the danger is that government policies further limit the potential of the energy industry to increase production to meet increased demand, said Zeng Hao, chief expert at consulting firm Shanxi Jinzheng Energy.

Yunnan Aluminum Co., a $ 9 billion producer of the metal used in everything from cars to soda cans, has cut production due to pressure from Beijing. The shock is also being felt in the Chinese food giant. Soybean crushers, which process the crop into edible oils and animal feed, were ordered to close this week in Tianjin City.

According to Nikkei, suppliers to Apple Inc. and Tesla Inc. halted production at some of their sites in China on Sunday. Foxconn’s facilities in Longhua, Guanlan, Taiyuan and Zhengzhou – the world’s largest iPhone manufacturing complex – were not affected by the power supply restrictions, according to the report.

A number of small businesses are also starting to notify the stock market that they have been ordered to curb or shut down. While they may be overlooked by major foreign investors who don’t cover these companies, the end result could be a shortage of everything from textiles to electronic components, which could scold supply chains and eat away at profits from a business. multitude of multinational companies.

In Jiangsu, a province near Shanghai with an economy almost as large as Canada’s, steelworks have closed and some cities are putting out streetlights. In neighboring Zhejiang, around 160 energy-intensive businesses, including textile companies, have been closed. While in Liaoning, in the far north, 14 cities ordered emergency power cuts, attributed in part to soaring coal prices.

“Power outages will reverberate and impact global markets,” said Lu de Nomura. “Very soon, global markets will feel the pinch of a supply shortage of textiles, from toys to machine parts.”

The cuts pose a new threat to an economy facing multiple pressures after a V-shaped rebound in the past year. And as with Europe’s energy cuts, the tightening poses a challenge for policymakers: how to pursue environmental goals without damaging the still fragile economies. Beijing is targeting 6% annual growth after expanding 12.7% in the first half of the year.

“Policymakers appear ready to accept slower growth for the rest of the year in order to meet the carbon emissions target,” said Larry Hu, head of the Chinese economy at Macquarie Group. “The GDP target of over 6% is easily achievable, but emissions targets are not easy to meet given the robust growth in the first half of the year. “


Leave A Reply

Your email address will not be published.