After Evergrande, China may head towards power supply crisis

After Evergrande, China may head towards power supply crisis

China may be the first to bow down in a power supply shock that could hit Asia’s biggest economy as hard as the Evergrande crisis sends a shock wave through its financial system.

Electricity consumption is being acted upon by rising electricity demand and rising coal and gas prices, as well as Beijing’s strict goal of cutting emissions. It comes first among the country’s vast manufacturing industries: From aluminum smelters to textile producers and soybean processing plants, factories are being ordered to curb activity or – in some cases – shut down entirely. Is.

Nearly half of China’s regions missed the energy consumption targets set by Beijing and are now under pressure to curb electricity use. Among those most affected are Jiangsu, Zhejiang and Guangdong – a trio of industrial powerhouses that account for nearly a third of China’s economy.

Analysts at Nomura Holding Inc., including Ting Lu, warned in a note forecasting China’s economy, “Market attention is now focused on Evergrande and Beijing’s unprecedented sanctions on the property sector, bucking another major supply-side shock.” Can be judged by doing or even remembered. Will shrink in this quarter.

Also read: China increases monitoring of Evergrande property projects funding

The deteriorating electricity shortage in China – perhaps ascribed to whether Evergrande will default on its vast loans – reflects the extremely tight energy supply globally already seen in chaotic markets in Europe. The economic rebound from the COVID lockdown has fueled demand for homes and businesses as low investment from miners and drillers reduced production.

But China’s energy crisis is partly of its own making as President Xi Jinping tries to ensure blue skies at next February’s Winter Olympics in Beijing and shows the international community what he wants to do about de-carbonizing the economy. Serious.

The economy is at risk of a severe shortage of coal and gas – used to heat homes and power factories – this winter. Earlier electricity had to be rationed in the colder months, but it never had to do with the global prices of these fuels at the level they are now.

In signs that the power crisis is starting to hit homes as well as businesses, Guandong province urged residents to rely on natural light and limit air-conditioner use after some factories cut power Is.

eye watering prices

China’s thermal coal futures have surged over the past month, setting repeated records, as mine safety and pollution concerns disrupt domestic production while it bans shipments from top supplier Australia. Meanwhile, natural gas prices from Europe to Asia have reached seasonal highs as countries try to outdo each other for rapidly dwindling supplies.

In last winter’s power boom in China, many have turned to diesel generators to address power shortages from the electricity grid. Zeng Hao, chief expert at consultancy Shanxi Jinzheng Energy, said this year, government policies have further limited the energy industry’s ability to ramp up production to meet increased demand.

Also read: Evergrande crisis: Revised script may have to be written on China

Yunnan Aluminum Co, a $9 billion producer of the metal used in everything from cars to soda cans, has cut production because of pressure from Beijing. The blow is also being felt in China’s vast food sector. Soybean crushers, which process the crop into edible oils and animal feed, were ordered to shut down in the city of Tianjin this week.

According to Nikkei, suppliers of 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 – remained unaffected by power supply restrictions, the report said.

Many smaller companies are also starting to notify the stock exchange that they have been ordered to stop or stop activity. While they may be overlooked by major foreign investors who do not cover these firms, the end result could be shortages of everything from textiles to electronics components that could affect the supply chains and profits of a host of multinationals. I can eat

In Jiangsu, a province near Shanghai with an economy almost as large as Canada’s, steel mills have shut down and some cities are turning off street lights. About 160 energy-intensive companies were shut down, including textile firms in nearby Zhejiang. In Liaoning, in the far north, 14 cities have ordered emergency power cuts, which were partly attributed to rising coal prices.

“The power embargo will and will affect global markets,” Nomura’s Lu said. “Very soon global markets will feel a supply crunch, from textiles, toys to machine parts.”

Cuts are a new threat to the economy, which has faced several pressures after a V-shaped rebound over the past year. And as with Europe’s waste of energy, the squeeze poses a challenge for policymakers: how to advance environmental goals without harming still-weak economies. Beijing is targeting full-year growth of 6%, after expanding to 12.7% in the first half.

“Policy makers are willing to accept slow growth for the rest of this year to meet carbon emissions targets,” said Larry Hu, head of China’s economics at Macquarie Group. “GDP target of over 6 per cent is easily achievable, but emissions targets are not easy to achieve given the strong growth in the first half.”

– With the assistance of Alfred Kang.

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