China is failing to produce enough electricity to power its industries, keep its street lights glowing, traffic lights working and households functional. What we are looking at is the systematic breakdown of the world’s second-largest economy over something as basic as electricity and power generation.
In fact, China’s power crisis is escalating with every passing day. And now it is likely to trigger a revolution against the Chinese Communist Party (CCP) even as China faces a lingering threat of an economic contraction due to a sudden halt in industrial activity.
China fails to meet its energy goals
China, which is dependent on thermal power for fulfilling over half of its energy demand, is reeling under a tight supply of thermal coal. Xi Jinping has banned shipments of Australian coal and Beijing cannot find an alternative for the fossil fuel coming from Australia.
The situation is so bad in China that only 10 out of 30 mainland regions have managed to achieve their energy goals in the first half of the year.
Chinese industries shutting down
Morgan Stanley wrote a note to its clients on Monday, in which it stated that steel, aluminium and cement industries in China have been hit by the power outages and had to curb their output. There has been a 7 percent reduction in China’s aluminium production capacity, while 29 per cent of its cement production capacity has been hit by the ongoing power crisis in China.
Morgan Stanley also stated, “Production cuts, if prolonged, could knock 1 (percentage point) off GDP growth in Q4, led by materials production.”
Lu Ting, a leading analyst at Nomura Holding, also predicted a shrinkage in the Chinese economy in this quarter. Lu said, “With market attention now laser-focused on Evergrande and Beijing’s unprecedented curbs on the property sector, another major supply-side shock may have been underestimated or even missed.”
According to Bloomberg reports, the electricity shortages in China are worsening, and widening geographically. It’s getting so bad Beijing is now asking some food processors (like soybean crushing plants) to shut down. A report says, “from aluminum smelters to textiles producers and soybean processing plants, factories are being ordered to curb activity or — in some instances — shut altogether.
The downturn in the Chinese economy is quite natural given the slowdown in industrial activity. This is particularly disappointing for Chinese businessmen who were expecting an upsurge in economic activity on account of a post-pandemic recovery, as well as the Chinese workers who would have expected better living conditions due to rising business profits. Going ahead, lay-offs and retrenchments might become a natural course of action in the Chinese industries.
Tough winters ahead and growing public resentment
The Chinese power outages started from the Communist country’s industrial hubs in Southern China. However, the Chinese power sector crisis is now expanding to Northern Chinese regions that are already in the middle of a tough winter season.
A notice of power outages was also issued to many households in many Northern Chinese cities last week. As per Liberty Times, the power supply for some ordinary households was suddenly cut off, despite low temperatures in Northern China, which has caused public anger.
According to Liberty Times, there were multiple power outages throughout the day in some places, and in some cases, the outages extended to over 12 hours. Interestingly, power rationing has been concentrated in prefecture-level cities and rural areas.
Power outages are particularly troublesome for Northern China as temperatures have already dropped to below 10 degrees in the region and people need electricity to keep themselves warm.
By mid-October, the energy demand will rise further as people would need heating devices to survive the cold winter. However, given the tight supply of coal in China and the deficit in electricity generation, a power shortage crisis seems imminent. Ultimately, the CCP will find it tough to curtail public anger and resentment over its failure to provide something as basic as electricity supply.
MNCs to exit China?
China’s economic slowdown might just be the tip of the iceberg. As electricity shortages intensify and industrial production dwindles, China’s local supply chains will also get affected. Ultimately, many multinational corporations operating in China will also have to exit the Communist country. As per Nikkei, suppliers to Apple Inc. and Tesla Inc. halted production at some of their sites in China on Sunday. So, at some level, the MNCs have already started getting affected.
Make no mistake, the MNCs had a big role to play in enabling China’s stunning economic growth. However, the multinational corporations operating in China used to bank on business-friendly conditions and infrastructure on offer. China is losing whatever it had to offer with its power shortages crisis. At the end of the day, the people of China will have no one to blame but Xi Jinping and the CCP for the crisis they find themselves in.
