China power cuts could force it to import Australian coal again

With a power crisis plaguing China, it could be forced to crawl back to Australia for its coal, but others predict the trade war will continue.

China could be forced to come crawling back to Australia for its coal. Picture: The Daily Telegraph

China’s power crisis, which has seen rolling blackouts and factories shut down, and warnings that its coal supply is only enough to last for another two weeks may mean the country is forced to crawl back to Australian supplies.

More than two-thirds of China’s electricity comes from coal-fired plants and while 90 per cent is supplied from domestic production, the country used to import $1 billion worth of Australian coal.

However, earlier this year amid increasing diplomatic tensions between the two countries, China banned imports of Australia’s third biggest export.

Now it’s facing coal shortages that would be difficult to meet demands by ramping up domestic production at short notice, which means China will be looking outside to bring in more coal.

With coal in short supply globally some experts believe that it could force Beijing to ease its ban on buying up the Aussie commodity.

A general view shows the Wujing Coal-Electricity Power Station. Picture: Hector Retamal/AFP

Ralph Leszczynski, head of research at shipbroker Banchero Costa & Co, said the Chinese government might be forced into easing the ban on Australian coal as that would allow more of the commodity to be imported and ease some pressure on domestic coal prices, he told The Sydney Morning Herald.

But others believe China’s President Xi Jinping will continue to be “vindictive”.

Michael Shoebridge, director of defence, strategy and national security at the Australian Strategic Policy Institute, said Beijing is willing to get companies and citizens to pay more for energy and even face limited black outs before returning to buy Australian coal.

“No one in the Chinese Communist Party leadership or their wealthy families will suffer from this, others bear the cost,” he told news.com.au.

“China’s President Xi Jinping is also able to spin this vindictive approach to trade with Australia as somehow showing commitment to climate change – even though one effect of Beijing’s approach is to burn more of Chinese domestic, low grade and dirtier coal. That irony will be lost in the wash.”

At least 17 provinces and regions – accounting for 66 per cent of the country’s gross domestic product – have announced some form of power cuts in recent months, mainly targeting heavy industrial users, according to Bloomberg Intelligence.

Chinese President Xi Jinping is unlikely to back away from the trade war with Australia. Picture: Reuters

Public protests

The outages have sparked public anger, shut down traffic lights and cut phone reception in some areas.

The situation could prompt citizen protests, said David Uren, senior fellow at the Australian Strategic Policy Institute.

“The Chinese authorities are very sensitive to social unrest … and the past form is that when there is social unrest, the authorities crack down very hard on the protesters, but they also respond to it with concessions of one form or another,” he said.

It was “striking” that China was experiencing the power shortage when it was only autumn in the country, he added.

“The really big power demand comes in winter with heating, so things may get worse in terms of power blackouts and difficulties,” Mr Uren said.

The power cuts are occurring before the biggest demand period. Picture: Leo Ramirez / AFP

The power shortages will have an impact on China’s economy as the country grapples with a number of issues, he noted.

“I think the Chinese authorities have a lot of issues on their plate at the moment. Their determination to meet emissions commitments has got a very high political priority at the moment and of course they are also having problems in the property sector with heavy debts of (property developer) Evergrande,” Mr Uren said.

“I think they are going to struggle to keep economic growth going at the rates they want, the question is at what point do they decide they need to support economic growth above other objectives in the interest of social stability.

“I think that will come but it’s impossible to predict when it will come.”

Aussie coal could be back on China’s import list. Picture: Ian Waldie/Getty Images

Failure of one of the biggest property developers

China Evergrande has trillions of assets on its books, which contributes 2 per cent to the country’s entire economy, while the company employs 123,000 employees and has 3.8 million contractors.

Robin Usson, credit analyst, at the international business of Federated Hermes, has predicted the company will ultimately file for bankruptcy in the coming weeks.

“Its eventual default will undoubtedly impact a multitude of partners, including construction and design firms, materials suppliers and other agents,” he said.

“Many buyers who purchased property from Evergrande off plan will potentially lose money as will direct investors in its shares and bonds.”

The halted under-construction Evergrande Cultural Tourism City, a mixed-used residential-retail-entertainment development, in Taicang, Suzhou city, in China's eastern Jiangsu province. Picture: Vivian Lin/AFP

But Mr Usson said the Chinese government would likely allow Evergrande to fail, but in the manner of a “controlled explosion”.

“China’s leadership values order above all else, and we believe it is working behind the scenes to limit the social and economic domino effect of the company’s demise,” he added

“We expect to see some companies asked to take over uncompleted Evergrande projects, while more banks will be instructed to extend loans to companies hit by the contagion.”

Mr Usson added the opaqueness of the Chinese market means that some things are hard to predict but “Evergrande is far from China’s ‘Lehman event’ as some commentators have suggested”.