China is currently faced with an acute power shortage. This has added troubles to an economy, which is already facing challenges of COVID-19 and impacted by US–China trade war. The paper seeks to analyse main causes and implications of the power crunch on the recovering economy and the people at large.
The annual growth rate of merely 2 percent in year 2020 was primarily caused by the pandemic. However, the economy was already struggling with its bad debt problem, which rose to 300 percent of its GDP even before the pandemic (2019) and the trade war put a downward pressure on Chinese economic growth. Hopeful of economic recovery from the pandemic, China has set a growth target of over 6 percent for the year 2021.[i] However, one of the worst power supply shortages witnessed by the country since the month of September 2021 has been a setback for the economic growth.
Lin Boqiang, Director of the China Center for Energy Economics Research at Xiamen University has stated that “There is a nationwide electricity shortage to some extent, and the main cause is greater-than-expected electricity demand growth driven up by earlier economic recovery and higher prices for energy-intensive products.”[ii] Factories in 20 out of 31 provinces and regions of China have been impacted due to power supply crisis, forcing many factories to shut down or halt their production in recent days.[iii]
Thermal power constitutes majority of the electricity generation in China. Rising prices of coal has contributed to power shortage. Currently, the price of standard coal has exceeded by over 1,000 Yuan (about US$155) per ton, which is a new high in last 20 years.[iv] Experts also believe that the situation became worse by a ban on coal import from Australia. Producers from Australia exported US $14 billion of thermal and coking coal to China until the government banned the trade in mid-2020.[v] At the same time, a recovering economy (from the pandemic) created renewed demand for electricity. Chinese government data indicate that electricity consumption in China increased by 13.8 percent from January to August this year. This has further contributed to the problem.
China’s environmental policy and international commitment might have also contributed to the current power situation in the country. In early 2021, Beijing announced reduction in energy consumption per unit of GDP by around 3 percent by the year end. While speaking at the UN General Assembly in virtual format on September 21, 2021, Chinese President Xi Jinping stressed on “the need to accelerate transition to a green and low-carbon economy and achieve green recovery and development. China will strive to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060”[vi]. Some experts have quoted the goal of carbon neutrality as one of the probable reasons for the current power shortage.[vii] But the fact remains that the focus on green development may help China in the longer term as past economic practices have caused very serious damages to environment in China.
China is preparing for the Winter Olympics, which is hosted by Beijing and nearby Shijiazhuang cities in February 2022. China aims to achieve 100 percent green electricity supply to all venues of the Winter Olympics.[viii] It seems that like 2008 Beijing Olympics, China wants to project its image as an environment friendly country. The green energy targets might have added to the widening gap between power demand and supply.
The power shortage has badly affected the production of manufacturing sector of the economy. China’s most industrialised provinces, such as Jiangsu, Zhejiang and Guangdong are among the worst hit by severe power crunch. Several Chinese and foreign companies have said that their production have been disrupted or stopped by power curbs/limits. Evidence suggests energy intensive industries such as steel, aluminium, cement and fertilisers have been adversely affected by power curbs.[ix] Further, manufacturers in key industrial hubs and several key suppliers of big multinational companies such as Apple and Tesla have halted production at some plants. Global investment bank Goldman Sachs has estimated that about 44 percent of the China’s industrial activity has been affected by power shortages. The investment bank has also lowered China’s prediction of growth for this year to 7.8 percent from previous prediction of 8.2 percent.[x] Such energy crisis also poses a threat to global supply chain. Consequently, it may affect economies of other countries as well.
The power shortage has also moved from factories to people’s houses affecting livelihood and everyday life. Chinese state media has reported that power shortage have affected daily livelihood of some provinces in Northeast China including: Heilongjiang, Jilin and Liaoning.[xi] For many youngsters in China power blackouts has been a first time experience. The blackouts have reminded a harsh reality of high rise buildings many of whom now have non-functioning elevators. China’s ‘Golden Week’ holiday started from October 1. The power shortage has disturbed the holiday in parts of the country.[xii] Moreover, people are worried about upcoming winter season and there seems no immediate solution to the problem.
According to the National Energy Administration of China, the Government has taken multiple steps “to cope with emergency of tightened power supply to meet people’s power needs and ensure economic growth and social stability”[xiii]. Special teams have been dispatched to many affected provinces and regions. In an attempt to increase power generation, China’s National Development Reform Council has encouraged affected provinces to sign medium- to long-term supply contracts for thermal coal. However, Chinese experts have noted that “the government needs to make a big push to reduce energy-intensive demands, boost coal supplies and curb soaring coal prices.”[xiv] The power crunch is an outcome of China’s structural problems and it can only be addressed in gradual manner. This will certainly affect the recovery of Chinese economy.
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*Dr. Sanjeev Kumar, Senior Research Fellow, Indian Council of World Affairs, New Delhi.
Disclaimer: Views expressed are personal.
Endnotes
[i] “China targets GDP growth of over 6 pct in 2021, revs up modernization drive” Beijing, 5/3/2021, available at http://www.xinhuanet.com/english/2021-03/05/c_139787818.htm (accessed on 1/10/2021)
[ii]“Restrictions on electricity use expected to be eased” Beijing, 28/9/2021 available at https://global.chinadaily.com.cn/a/202109/28/WS61525701a310cdd39bc6beb1.html (accessed on 29.9.2021)
[iii] “China’s Factory Activity in Shock Slowdown as Energy Crisis Hits Home” 30/9/2021 available at https://www.theguardian.com/world/2021/sep/30/chinas-factory-activity-in-shock-slowdown-as-energy-crisis-hits-home (accessed on 1/10/20-21)
[iv]“China moves to meet people's power needs amid rare shortages”. Beijing,30/9/2021 available at http://www.news.cn/english/2021-09/30/c_1310219153.htm (accessed on 30/9/2021)
[v]“China’s Australian coal ban worsens rolling power crisis” 28/9/2021, available at https://www.theaustralian.com.au/world/chinas-australian-coal-ban-worsens-rolling-power-crisis/news-story/d385759ac151300c90b7e4e47cd3d3f6 (Accessed on 1/10/2021)
[vi]“Xi Jinping Attends the General Debate of the 76th Session of the United Nations General Assembly and Delivers an Important Speech” Beijing, 22/09/2021, available at https://www.fmprc.gov.cn/mfa_eng/zxxx_662805/t1909172.shtml(accessed on 25/9/2021)
[vii] “What has caused China’s electricity shortages, and is Beijing’s carbon-neutral goal solely to blame?” Hong Kong, 28/9/2021, available at https://www.scmp.com/economy/china-economy/article/3150313/what-has-caused-chinas-electricity-shortages-and-beijings (accessed on 3/10/2021)
[viii] “Countdown to Beijing 2022: Organizers shaping up for final preparations with 200 days to go” Beijing, 18/7/2021, available at http://www.xinhuanet.com/english/2021-07/18/c_1310068595.htm (accessed on 5/10/2021)
[ix] “China power cuts: What is causing the country's blackouts?” 01/10/2021, available at
https://www.bbc.com › news › business-58733193 (accessed on 3/10/2021)
[x]“Ibid
[xi] “Power shortage in NE China's provinces affects local livelihood” Beijing, 26/9/2021, available at https://www.globaltimes.cn/page/202109/1235157.shtml (accessed on 29/9/2021)
[xii] “Power shortages see light shows canceled” Beijing, 30/9/2021, available at http://www.chinadaily.com.cn/a/202109/30/WS6155140da310cdd39bc6c890.html (accessed on 3/10/2021)
[xiii]“China takes multiple measures to cope with power shortages”, Beijing, 28/9/2021, available at http://www.news.cn/english/2021-09/28/c_1310215518.htm (accessed on 30/9/2021)
[xiv] “Measures to cater to rising power demand” Beijing, 01/10/2021, Available at
https://www.chinadaily.com.cn/a/202110/01/WS61569e6ca310cdd39bc6cc74.html (accessed on 3/10/2021)