Forget Evergrande, power crisis is the next big economic shock for China

China is in the middle of a power crisis that has turned critical – slowing production in factories and threatening economic growth.

“Unprecedented” power outages in China have triggered factory shutdowns and hampered production for companies supplying Apple and Tesla.

Surging prices for coal and gas — as well as strict orders from Beijing to cut emissions — are being blamed for the power supply shock.

Aluminium smelters, textiles producers and soybean processing plants have been ordered to slow activity or shut altogether, Bloomberg reports.

Some traffic lights in Shenyang, the capital of the Liaoning province, suddenly stopped working. Picture: Weibo

Many of China’s regions have missed energy consumption targets set by Beijing, including Jiangsu, Zhejiang and Guangdong.

And China’s thermal coal inventory – which is used to generate electricity – is at a record low.

China’s total coal inventory is at 11.31 million tonnes, according to South China Morning Post. That’s only enough to meet demand for only about two weeks.

The power outages are threatening to further disrupt strained global supply chains for semiconductors and other vital goods, the Wall Street Journal reported.

Goldman Sachs estimated that as much as 44 per cent of China’s industrial activity had been impacted. It lowered its annual economic growth forecast for China, forecasting a 1-percentage-point decline in annualised GDP growth in the third quarter, and a 2-percentage-point drop from October to December.

A man stands at a doorway below power lines in Beijing on September 28, 2021. Picture: AFP

Analysts at Nomura said on Monday a number of factories had been forced to cease operations due to either government mandates to meet carbon targets or surging prices and coal shortages.

It cut its annual GDP growth forecast to 7.7 per cent.

The power crunch comes amid reports Beijing has asked state-backed firms to pick up assets from the heavily-indebted Evergrande.

Beijing-backed state media Global Times called the power cuts “unexpected” and “unprecedented”.

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

“Power cuts eight times a day, four days in a row … I’m speechless,” a person from Liaoning wrote on Chinese microblogging site Weibo.

Another said shopping centres were closing early and a convenience store was using candlelight, Al Jazeera reported.

“It’s like living in North Korea,” they wrote.

Widespread outages

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.

Nearly 60 per cent of the Chinese economy is powered by coal, but supply has been disrupted by the pandemic, put under pressure by tough emissions targets and squeezed by a drop in coal imports amid a trade tiff with Australia.

Coal prices have surged nearly 150% since February this year. Picture: Business Insider

Earlier this month, coal prices hit a record high, with restrictions imposed on businesses and homes during the supply crunch.

Still, China’s power demand in the first half of the year exceeded pre-pandemic levels, according to the National Energy Administration.

Goldman Sachs said power cuts had led heavy industries to cut output, leading to “significant downside pressures”.

Major companies impacted

Apple supplier Unimicron Technology said factories in two regions were told to stop production from midday Sunday through Thursday.

Dozens of other companies, including a parts supplier to carmaker Tesla, were told to halt production this week, according to stock exchange filings.

And in Beijing, utility giant State Grid told AFP on Tuesday that a series of upcoming power outages in the capital — which will last nearly 10 hours at times — are part of a “planned maintenance”, a statement that appeared to downplay state media reports that they are due to the nationwide power crunch.

The northeastern rust belt, with thousands of power-hungry cement kilns and steel smelters, has been among the areas worst affected.

A factory in northeast Liaoning had to rush 23 workers to hospital due to carbon monoxide poisoning after ventilators suddenly stopped working during a blackout, state broadcaster CCTV reported.

Footage on local media Beijing News showed cars travelling a busy highway in the city of Shenyang in complete darkness without traffic lights or street lamps.

– with AFP

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Originally published as Forget Evergrande, power crisis is the next big economic shock for China