China is in the middle of a huge power crunch as extreme weather, surging demand for energy and strict limits on coal usage delivers a triple blow to the nation’s electricity grid.
It’s a problem that could last for months, straining the country’s economic recovery and weighing on global trade.
Guangdong province — a manufacturing center responsible for $2.2 trillion or more than 10 per cent, of China’s annual economic output and a bigger share of its foreign trade — has been rationing power for over a month.
The restrictions have forced factories across the province to shut down for a few days per week.
It’s not just Guangdong. At least nine provinces have said they are dealing with similar issues, including Yunnan, Guangxi and the manufacturing hub of Zhejiang, forcing regional authorities to announce power curbs across an area of China the size of the United Kingdom, Germany, France and Japan combined.
The power crunch even contributed to a slowdown in factory activity growth in China in June, the country’s National Bureau of Statistics acknowledged on Wednesday.
Power plants are reluctant to produce a lot of electricity when the coal they burn is expensive: Beijing controls the cost of power, so producers can’t simply raise their prices.
This time around, the post-pandemic commodities boom and severe weather are once again forcing coal power plants to curb output, while also hampering hydroelectricity.
But there’s a key difference: China is also grappling with how to meet President Xi Jinping’s push for a carbon neutral China by 2060.
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That ambitious target for the world’s biggest coal consumer has led the country’s coal mines to produce less, resulting in higher prices, according to Yao Pei, chief strategist for Chinese brokerage firm Soochow Securities.
The shortages could deliver a one-two punch that may knock China’s fragile recovery off course, while spelling further trouble for global supply chains that are already struggling to cope.
