China may be plunging headlong into an energy supply crisis that could hit Asia’s largest economy hard just as the Evergrande crisis put its financial system in check.
The crackdown on energy consumption is being driven by rising demand for electricity and rising coal and gas prices, as well as Beijing’s strict targets to cut emissions. It hits the country’s gigantic manufacturing industries first: From aluminum smelters to textile producers to soy processing plants, factories are being ordered to reduce activity or, in some cases, shut down entirely.
Almost half of China’s 23 provinces missed energy intensity targets set by Beijing and are now under pressure to curb energy use. Among the hardest hit are Jiangsu, Zhejiang and Guangdong, industrial powers that account for nearly a third of China’s economy.
The worsening energy crisis in China, perhaps overshadowed by attention to whether Evergrande will default on its huge debts, is reflecting an extremely tight energy supply globally that has already seen chaos engulf markets in Europe. The economic rebound from COVID lockdowns have boosted demand from households and businesses as lower investment from miners and drillers limits production.
But China’s energy crisis is partly caused by itself, as President Xi Jinping tries to ensure a blue sky at the Winter Olympics in Beijing next February and shows the international community that he is serious about decarbonizing China. the economy.
The economy is at risk of severe shortages of coal and gas, which are used to heat homes and power factories, this winter. It has had to ration energy in the colder months before, but it has never had to with global prices for these fuels at current levels.
China’s heating coal futures have more than quadrupled in the past month, breaking new records time and time again as concerns about mine safety and pollution limit domestic production while continuing to ban shipments of the main. supplier Australia. Meanwhile, natural gas prices from Europe to Asia have risen to seasonal highs as countries try to outbid each other for rapidly depleting supplies.
In previous winter power surges in China, many have turned to diesel generators to fill power shortages on the electrical grid. The danger this year is that government policies have further limited the power industry’s potential 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 impact is also being felt in China’s giant food sector. Soybean crushers, which process the crop into edible oils and animal feed, were ordered to shut down 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 unaffected by power supply restrictions, according to the report.
Several smaller companies are also beginning to report to the stock exchange that they have been ordered to halt or halt activity. 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 that could tangle supply chains and consume the profits of a host of multinational companies.
In Jiangsu, a province near Shanghai with an economy almost as big as Canada’s, steel mills have closed and some cities are turning off street lights. In nearby Zhejiang, around 160 energy-intensive companies, including textile companies, closed down. While in Liaoning, in the far north, 14 cities ordered emergency power outages that were attributed in part to rising coal prices.
The cuts are a new threat to an economy facing multiple pressures after a V-shaped rally last year. And as with Europe’s energy woes, the contraction poses a challenge for policy makers: how to pursue environmental goals without damaging still fragile economies. Beijing is targeting 6% annual growth after a 12.7% expansion in the first half.