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World Production Affected by China’s Energy Crisis and Power Outages

Goldman Sachs estimates that Chinese economic growth in the third quarter of 2021 will be 0% due to electricity rationing

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The power crisis in China has strongly affected world production. In the last few days, 20 of the 31 provinces in which China is subdivided have suffered power outages, forcing companies to stop production for at least four hours for each blackout.

Millions of households in northeast China have also been left without power as strict rationing mandates have begun to be implemented. The risk of continued widespread supply chain disruptions has markets that have already been affected by the container crisis facing the world worried.

People living in Liaoning, Jilin and Heilongjiang provinces complained about the lack of heating, power outages and traffic lights out on the streets, with the only illumination being streetlights from cars passing by.

Like the European Union, China is suffering from a shortage of thermal coal on which up to half of the country’s power generation depends. Coal futures prices doubled in 2021.

The causes of power rationing in China

There are several reasons why the price of coal has doubled in China: the recovery of the economy at the beginning of the year raised the demand for energy, however, the available coal is not enough to cover the upturn of the entire global industry. On the other hand, fuel supplies have also been halted by the closures of both the port of Yantian due to the COVID outbreak and the port of Shanghai due to Typhoon Chanthu.

A particularly hot summer has also increased the use of electricity, which is needed to keep the precious air conditioning that ventilates Chinese homes, offices and factories running.

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China’s electricity rationing is partly due to Beijing’s own crusade against the use of coal. (Image: EFE)

The Chinese Communist Party’s goal of cutting carbon emissions to ensure blue skies in Beijing for the Winter Olympics in February next year has put even more artificial shackles on already constrained coal supply chains.

Nor has the country benefited from the Beijing-Canberra row, following statements by the Australian government calling for a more detailed investigation into the origin of the coronavirus. In response, Xi Jinping’s regime imposed an embargo on coal imports from Australia.

Rationing will have long-lasting repercussions on its economy

Power cuts are already causing stress on supply chains and companies such as Tesla and Apple; Esson, a semiconductor supplier to both companies, announced that it would suspend operations at its factory in Kunshan City, Jiangsu Province, from September 26 to October 1 due to electricity rationing.

In Kunshan alone, 10 semiconductor companies announced that they will temporarily close their facilities until September due to power rationing. Semiconductor production is also unable to meet demand, so these closures will generate more restrictions to those already existing in this industry on which the manufacture of computers, machinery, automobiles and household appliances depend.

The China Electricity Council has issued a statement saying that the Chinese government “will ensure the supply of winter coal, power companies continue to increase purchases in the market regardless of the cost, under a situation of substantial losses.”

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Hundreds of manufacturers have had to pause production due to electricity rationing in China. (Image: EFE)

The consequences of the energy crisis in China are already making themselves felt in Chinese industrial production, and Goldman Sachs estimates that the growth of the Chinese economy during the third quarter of 2021 will be 0% because of power rationing.

China’s power tariffs are highly regulated by the government, and although they could raise the cost of electricity tariffs for households, the Xi Jinping regime believes that this could be the most unpopular measure to cushion the crisis facing Chinese power generators.

China’s electricity rationing could soon further affect prices in the United States, as the Asian giant is still one of the main sources of goods for American retailers.

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