Pitch dark streets because the lanterns are suddenly switched off, shopping centers that close earlier and have dimmed their neon signs. Factories that have to suspend production: Tesla’s production lines were temporarily idle, and Apple could not manufacture as usual either. State television reported 23 workers in northeastern Liaoning Province who had been treated for smoke inhalation in a hospital because their factory’s ventilation system suddenly failed and the men inhaled toxic fumes. All of these reports have one and the same cause: in large parts of China, electricity has suddenly become scarce. And it lasts.
In Jiangsu, a province near Shanghai, a number of steel mills have closed. In some places, residents are not allowed to use kettles or microwaves. Around 160 energy-intensive companies were closed in nearby Zhejiang. And in Fushun, a city in Liaoning, authorities are notifying residents of several municipalities and rural areas of a blackout of up to 15 hours on Wednesdays and Thursdays. Chambers of Commerce Abroad are already starting surveys among their member companies. Who is affected? How many hours has the power been turned off? Are there any production losses to complain about?
One reason for the misery lies in the central government’s climate targets. Beijing wants to reduce electricity consumption by three percent this year. The provincial governments have therefore recently tightened the requirements for electricity consumption again. China’s head of state and party leader Xi Jinping announced at a United Nations summit on climate change at the end of 2020 that the country would reduce its carbon dioxide emissions per unit of gross domestic product by more than 65 percent by 2030 compared to 2005 levels.
Savings are made, no matter what the cost
However, according to the country’s main planning authority, the National Development and Reform Commission (NDRC), only ten out of 30 regions achieved their energy-saving targets in the first six months of this year. By August, electricity consumption across the country rose by around ten percent compared to the same period in the previous year. In response to this collective excess, the NDRC announced tougher sentences in mid-September. Local officials should be held accountable for limiting absolute energy needs in their regions. Now electricity is saved, no matter what the cost.
A second problem is the rising price of coal. Most of China’s electricity is still generated from coal. The ongoing trade dispute with Australia, the world’s second largest coal exporter, has resulted in shipments to China being severely restricted. In addition, the local authorities tightened safety standards for Chinese mines after a series of accidents. Coal prices on the Chinese futures markets have risen by around 50 percent in the past three months.
The result: For many power plant operators it is currently not worthwhile to generate electricity, the price is fixed by the state, energy companies lose money with every kilowatt hour, the more electricity they provide, the greater the financial damage. So most power plant operators adhere to the energy saving guidelines from Beijing.
All of this comes at an inopportune time for the Chinese economy. The People’s Republic had actually recovered well from the Corona crisis at first, but the dynamic has weakened in recent months: supply chain bottlenecks, semiconductor shortages and tougher measures against corporate debt are taking their toll. In addition, there are contact restrictions due to the occurrence of the more contagious Delta variant in several provinces. Now the energy debacle: “The power supply shock of the second largest economy and the largest manufacturing industry in the world will spread to the global markets and affect them,” note the analysts of the financial house Nomura and lower the forecast for the growth of the gross domestic product this year 7.7 from 8.2 percent previously.