China is currently grappling with a huge power crunch as extreme weather, increasing demand for energy and strict limits on coal usage deliver a triple blow to the nation's electricity grid. This problem could last for months, straining the country's economic recovery and weighing on global trade.
According to CNN, nearly a dozen Chinese provinces have said they are facing a power crunch in recent weeks, including some of the country's most important engines for economic growth.
The Guangdong province, which is a manufacturing centre responsible for USD 1.7 trillion - more than 10 per cent of China's economic output - has been the rationing power for over a month. The restrictions have forced companies across the province to shut down for a few days per week.
At least nine more 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 current situation signifies the worst energy shortage in China since 2011, when droughts and surging coal prices pushed 17 provinces or regions to curb electricity use. Even the country's National Bureau of Statistics on Wednesday acknowledged that the power crunch even contributed to a slowdown in factory activity growth in China in June.
The current power situation is also posing a challenge to Chinese President Xi Jinping's push for a carbon-neutral China by 2060. 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.
A shortage of electricity could reduce output across virtually every sector of the economy, including key construction and manufacturing industries. Such businesses used nearly 70 per cent of China's electricity last year, CNN reported citing the National Bureau of Statistics.
Klaus Zenkel, chair of the European Union Chamber of Commerce in South China, said that as many as 80 of the chamber's member companies might have been affected by the government's orders to suspend operations for a few days a week, adding that domestic manufacturers have been forced to stagger production.
"It [the power shortage] might add to the shipping delays which can be felt around the globe," said Henning Gloystein, director of energy, climate and resources at Eurasia Group.
Through the first five months of the year, power consumption in South China exceeded pre-pandemic levels -- up 21 per cent from the same period in 2019, according to the China Southern Power Grid, a big state-owned grid operator.
Moreover, coal is still involved in generating some 60 per cent of the country's power. But the government is wary of that figure rising any higher -- and so has been trying to reduce coal consumption as it tries to achieve its goal of becoming carbon neutral by 2060.
Meanwhile, there's a huge strain on energy production. Renewable energy sources, such as hydropower, have been hobbled by drought.
Gloystein said that trade tensions with Australia -- which in 2019 was responsible for nearly 60 per cent of China's thermal coal imports -- have created a strain, reported CNN.
Beijing imposed trade barriers against Australian coal last year after Canberra called for an independent investigation into the origins of COVID-19.
Power shortages are likely to continue for at least the next few months, especially as demand stays high in the hot summer months, according to Yan Qin, a lead-carbon analyst for Refinitiv, one of the world's largest providers of financial markets data and infrastructure.
