Several 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.
Guangdong province — a manufacturing center responsible for $1.7 trillion, or more than 10%, 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 companies across the province to shut down for a few days per week. Some local authorities are warning that power rationing could last through the end of the year.
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.
It’s the worst energy shortage in China since 2011, when droughts and surging coal prices pushed 17 provinces or regions to curb electricity use. 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.
A one-two punch to the economy
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.
“The power rationing will inevitably hurt the economy,” said Yan Qin, lead carbon analyst for Refinitiv.
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% of China’s electricity last year, according to the National Bureau of Statistics, and have been major drivers of the recovery in 2021.
Guangdong-based Chengde New Material, one of the country’s largest stainless steel producers, told clients late last month that it would shut operations for two days per week until power no longer needs to be rationed. The company expects production volumes to decline by 20%, or as much as 10,000 tons of steel per month.
“The companies are not happy about this,” said…
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