China’s Energy Crisis Puts Global Economic Recovery at Risk

China’s Energy Crisis Puts Global Economic Recovery at Risk

VOA News

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Soaring prices for natural gas and electricity in Europe have caught international media attention in recent weeks but a pandemic-related energy crisis is also buffeting China, where coal stocks are perilously low. The energy crunch in China will have greater consequences for the global economy than Europe’s energy squeeze, they warn. Some Chinese regions are rationing energy to factories and two-thirds of the country experienced blackouts last week as China grapples with its worst power shortages in a decade. Government-run media have maintained an optimistic tone but even the Global Times, the English-language Chinese Communist Party news outlet, recently acknowledged “there were some gaps that may have caused the collapse of the (northeast) power grid, which added to the regional power shortage.”   As in the Europe and the US, rebounding demand has strained the capacity of energy generation in China and because of weather conditions, renewables have produced less power than predicted, say energy industry analysts. They say the problem has been compounded by the introduction of punitive measures by the Chinese communist government in its bid to meet fossil fuel energy reduction targets set by Beijing to fulfill China’s commitment to cut its carbon emissions by 65% before 2030. In September, regional Communist Party officials were told they would be held responsible for any failure to meet carbon reduction goals. According to the National Development and Reform Commission, which has broad planning control of China’s economy, 20 provinces have failed to meet their carbon goals for 2021. The provinces include Guangdong and Jiangsu, which account for more than a third of the country’s economic output.    Factories affected Energy prices have more than doubled this year in China amid soaring electricity demand from factories and slower than expected output from the country’s coal mines. Twenty out of China’s 31 provinces are now rationing electricity, impacting aluminum, steel, cement, and fertilizer production. Power suppliers have told heavy energy users to reduce consumption in the daytime hours and for factories to alternate shutdowns every few days in China's northeastern industrial hubs. Last week, the Japanese bank Nomura warned of the potential for “another major supply side [global economic] shock,” saying the risks have “been underestimated or even missed.” Nomura, along with Goldman Sachs, has lowered economic growth projections for China and is now forecasting the country’s economy to contract by 0.2% this quarter with weak lower-than-expected growth thereafter.  That scenario, if it plays out, threatens to slow the global post-pandemic economic recovery and to cause higher inflation, warn economists. China’s energy crunch is “set to have a rippling effect across the world” from Asia to Europe, according to Howie Lee, an economist at Singapore’s OCBC Bank. Official government figures suggest that Chinese factory activity last month shrunk to the lowest level since February 2020, when coronavirus lockdowns crippled the economy.   Bloomberg reported last week that Vice Premier Han Zheng, who oversees China’s energy sector, has ordered the state-owned energy companies to secure supplies of gas and coal for its power stations, which provide more than 50% of the country’s electricity generation, to ensure basic livelihoods and to maintain supply chains stable. The order came during an emergency meeting last week with officials voicing alarm at the possibility of outages continuing to March. Despite being the world’s largest coal producer, China on Monday had only 14 days of coal stockpiles on hand to be able to power the country and it will need to increase its coal imports. But sourcing coal imports will be difficult and costly, partly due to a Chinese embargo imposed last year on coal imports from Australia, the world's largest coal exporter.  Beijing imposed the embargo in retaliation after Canberra called for an international investigation into the origins of the coronavirus.  With Beijing ordering state-owned energy companies to secure supplies, global energy markets are likely to see a bidding war for supplies of coal and natural gas, boosting prices worldwide. Capital Economics, an economic research consultancy in London, told clients last week: “Power shortages seem unlikely to ease any time soon.” “China’s power shortages are a reflection of the global strain in energy markets and won’t be resolved overnight,” said Julian Evans-Pritchard, the consultancy’s senior China economist. “Power rationing will constrain industrial activity until demand weakens enough to bring the domestic electricity market back into equilibrium,” he added. Information from Bloomberg was used in this report.

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