Energy crisis, rolling blackouts in China could disrupt global supply chain - The Globe and Mail

A man uses his smartphone flashlight to light up his bowl of noodles as he eats his breakfast at a restaurant during a blackout in Shenyang in northeastern China's Liaoning Province, Wednesday, Sept. 29, 2021. People ate breakfast by flashlight and shopkeepers used portable generators Wednesday as power cuts imposed to meet official conservation goals disrupted manufacturing and daily life. (AP Photo/Olivia Zhang)

Olivia Zhang/The Associated Press

Officials in China have vowed to ensure people are able to heat their homes this winter as the country grapples with a major power crunch.

Surging coal and gas prices, as well as rising demand for electricity amid a boom in exports has led to major power shortages across China, with more than half of all provinces reporting some limitations.

This has led to rolling blackouts in some areas, while factories and plants have been forced to close or suspend operations during certain hours to conserve power.

The impact on industries is broad and includes power-intensive sectors like aluminum smelting, steel-making, cement manufacturing and fertilizer production. Suppliers for Tesla and Apple have also reportedly been forced to halt production.

Analysts are concerned knock-on effects of the power crisis could affect the wider Chinese economy, potentially dwarfing any problems resulting from the collapse of real estate giant Evergrande, which has dominated headlines in the last month.

Goldman Sachs and Nomura, the Japanese financial holding company, revised down projections for Chinese economic growth this year as a result. Shares in Chinese chemical producers, carmakers and shipping companies have tumbled, while renewable energy stocks have soared.

“The power curbs will ripple through and impact global markets,” Nomura analyst Ting Lu told Bloomberg. “Very soon the global markets will feel the pinch of a shortage of supply from textiles, toys to machine parts.”

While China is attempting to move to greener energy production, coal still fuels some 67 per cent of power generation, Nomura said in a report Monday. Coal costs are soaring worldwide, but strict government limits on electricity pricing have prevented power companies from passing these rises onto consumers, leading some to cut production.

Even some provinces with plenty of energy to go around are still experiencing power shortages as their governments try to hit national energy consumption targets for the third quarter. In August, the National Development and Reform Commission (NDRC) warned that two thirds of all provinces missed their targets in the first half of this year.

This led some local governments to impose rolling blackouts this month, often with little warning. That led to traffic chaos after street lights stopped working, with reports of people being trapped in elevators or forced to walk up dozens of flights of stairs, and even hospitalizations. In northern Liaoning province, 23 workers at a foundry ended up with carbon monoxide poisoning after a blackout shut down the ventilation system, state media reported.

In an opinion piece published Sunday in the People’s Daily, the mouthpiece of the Communist Party, local governments were told not to be “too aggressive” or “slam the brakes too hard” in controlling energy consumption.

“No matter how tight the power supply is, we must give priority to guaranteeing residents’ electricity use,” the piece said, warning of potential societal unrest if this is not the case.

At a press conference Wednesday, officials from the NDRC echoed this guidance, saying that the Party “attaches great importance to the work of ensuring energy supply during the heating season.”

The NDRC said it will release advanced coal production capacity, increase coal imports and try to increase domestic natural gas production in order to relieve the current crisis. On Thursday, authorities in Heilongjiang province, said they would ramp up the amount of electricity imported from across the border in Russia, easing local power shortages.

However, on the same day, the China Coal Industry Association warned in a statement that coal inventory at power plants is low, and it is “not optimistic” ahead of the winter peak demand season.

There was evidence of public anger over the blackouts being censored online. Both FreeWeibo and FreeWeChat, services which monitor censorship on China’s biggest social media platforms, showed many posts being deleted.

In an editorial this week, Global Times, a nationalist state-run tabloid, attacked foreign media for launching “a new wave of criticism bad-mouthing China’s economy and raising the alarm,” adding that “this power crunch is not a crisis for China.”

“China is prompt in discovering and discerning problems, and public opinion has played a positive role in it,” the paper said.

While the manufacturing hubs of southeastern China have been among the worst-hit economically this month, residents of northern provinces are fearful that shortages could continue into the bitterly cold winter, bringing widespread misery and potential death.

“Even with prior notice, no electricity equals no heating, how would we live through this winter?” wrote one user on Weibo, China’s equivalent to Twitter.

The temperature regularly plunges below -20ºC across northeastern China, where households are largely dependent on coal for heating — though some have moved to electric heaters in recent years.

One Weibo user in Jilin province, on the border with North Korea, said that without power “taking a hot bath is impossible, eating a hot meal becomes a luxury, are we really going to live like ancient human being? Drill wood for fire, read our books by oil lamp?”

With reports from Alexandra Li and Reuters.

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