How will China’s economy die? Many thought China would go to war with the US or its allies. Yet, others believed that secession of suppressed provinces like Tibet and Xinjiang would mark the end of China as a country and its role as the world’s factory. However, all it took to kill China’s export-based economy is something a lot more basic– power shortages. China is presently facing a lot of pain due to an alarming energy crunch.
- The suppliers of key components to leading MNCs like Tesla and Apple have been hit by electricity shortages.
- The power cuts have reached households from factory floors.
- All Chinese industries from toys to food processing, and heavy industries like steel and aluminium manufacturing have been hit by the energy crisis.
Why is China facing blackouts?
It all started last year when Chinese President Xi Jinping started imposing unofficial bans on Australian coal. The Chinese power sector and various industries are finetuned to work with Australian coal that carries a high calorific value. As a direct consequence, for the past year, China, a country overly dependent on thermal power, has been facing repeated blackouts.
Presently, China is facing high coal prices and surging natural gas prices, due to which even generators have to slow output.
How big is China’s power crisis?
Well, China’s power crisis is bigger than you would think. At least 20 provinces in China have been hit by some kind of power cuts and outages. These provinces make up over two-thirds of China’s Gross Domestic Product.
The manufacturing powerhouses of China- Jiangsu, Zhejiang and Guangdong provinces are the worst hit. Together they account for one-third of the Chinese economy and lead China’s colossal exports industry. Strict measures have been announced to cut electricity use in these provinces and manufacturers have warned that it could lead to lower outputs in the three provinces.
The power sector crisis in China is so bad that the Guangdong province had to restrict as much as 11% of peak power demand that comes out to around 15 gigawatts of power supply. So, China doesn’t really have the liberty of targeting insignificant sectors of the economy and sweeping power restrictions have to be imposed. Semiconductors, ceramics, stainless steel, fertilizers and food processing units, you simply cannot think of a Chinese industry that remained immune from the ongoing power crisis.
Power cuts hit households
The 2020 winters were harsh for China. Xi Jinping had then blocked shipments of coal coming from down under. However, the upcoming winters are expected to be even worse. For the past year, China has been facing coal supply shortages and the situation has only started exacerbating now.
Meanwhile, the power crisis situation is turning even more serious. China is imposing electricity cuts even on the households. This is rather strange because the Chinese government usually imposes electricity cuts on industrial units in cases of tight power supply.
Caixin reported Northern provinces of Liaoning, Jilin and Heilongjiang suffered blackouts over the weekend. In China’s Northern provinces, temperatures have already dropped below 10 degrees in some places and with winters approaching, you can expect power demand to rise quickly. Meanwhile, the tight power supply in the Communist country suggests that the people of China will find it tough to use heating devices this winter.
The local media of Jilin province has given an ominous prediction- get ready for power restrictions till the end of March next year. It has also predicted water supply cuts due to the power crisis.
The situation is, of course, worse in the Southern Guangdong province where the provincial energy administration has asked all walks of society to prevent widespread electricity outages. Factory workers have been forced to work out and take stairs for the first three floors. Shopping malls have been asked to keep advertisement lights on for fewer hours, and houses have been asked to use natural lights and limit air conditioner usage.
Even the Chinese mega-cities like Shanghai and Beijing have been caught up by frequent power cuts.
Global supply chains to get affected
China’s power woes are all set to take a toll on its economy. Nomura has cut its GDP growth forecast for China to 7.7% from 8.2%. There is also a possibility of further cuts in China’s GDP growth forecast as the country’s power crisis escalates quickly.
Meanwhile, the growing coal and natural gas prices are also pushing the general price levels in the Chinese economy. People’s Daily, a Chinese Communist Party (CCP) mouthpiece, predicted that shortages would compel companies to raise prices of goods for Chinese consumers, thereby pushing inflation.
With all the devastation in the Chinese economy, the global market is expected to be hit by shortages of almost all kinds of goods. Industries of all kinds are shutting down or are forced to curtail activity in China. From smartphone maker Apple to automobile companies like Tesla and Toyota, many companies watch as their Chinese suppliers shut down production.
There is a serious shortfall in China’s manufacturing activity this year. Moreover, the Communist nation was already facing a lot of problems due to port disruptions. A part of Ningbo port, which is one of the world’s busiest ports remained idle for several weeks last month due to a COVID outbreak. Similarly, the commercially active Yantian port in Shenzhen was shut in May.
Bloomberg quoted Clark Feng, whose Vita Leisure Co. buys tents and furniture from Chinese manufacturers to sell overseas as saying, “We were already struggling to ship goods overseas, and now with the production capacity restriction, it’s definitely going to be a huge mess.” Feng added, “We already had to deal with so many uncertain factors, and now there’s one more. It will be harder to deliver orders, especially for the holiday season.”
In fact, China’s port crisis in May and June that led to a worse-than-Seuz Canal congestion of ships had already hurt the global supply chains. Now, the world will have to look elsewhere as reduced industrial activity in China is simply becoming unsustainable.
The bigger problem is that China’s port crisis simply didn’t end. Eight out of ten of the world’s busiest ports are located in China and they were operating below capacity at least till the end of August. Again, slow shipping activity is pushing global prices and contributing to rising inflation.
China unable to tackle power shortages
The Chinese State media claims that the government is ramping up efforts to improve the power supply. However, you can’t really expect things to work out. The fact remains that any effort to improve the power supply will be first devoted towards avoiding blackouts in Chinese houses.
The CCP must be worried about social unrest building up in the country that could easily turn into a social revolution against the ruling elite if the power crisis isn’t resolved. You cannot simply expect China to manage its dipping industrial output even if there is a recovery in the power sector.
China’s power crisis is a major opportunity for its rivals. The Quad has been talking about changing global supply chains and making them secure. The Quad countries are trying to curtail China’s role in the global supply chains. And now, their task has been made easier by China’s power shortages caused by Xi Jinping’s short-sightedness.
All the crises that China is facing across its different industries create a lot more room for them to decouple from the Chinese economy and create a new global economic structure that doesn’t involve China as the world’s factory.
