China’s Power Shortfalls Begin to Ripple Around the World
Electricity crunch adds to a global energy squeeze that risks upsetting the post-pandemic economic recovery
China is struggling with widespread power shortfalls, dealing a blow to the recovery of the second-largest economy and risking disruption to global supply chains and heightened inflationary pressure around the world.
The power crunch, on a scale unseen in more than a decade, highlights how some of Beijing’s changing policy priorities, including its effort to limit carbon emissions, can ripple through a global economy that has been reshaped by the pandemic.
“There’ll be a cascading effect,” said Mike Beckham, Oklahoma-based cofounder and CEO of Simple Modern, which makes products such as insulated water bottles and backpacks. “As we started to comprehend the ramifications of what’s happening, we realized that this is potentially bigger than anything we’ve seen in our business careers.”
Two weeks ago, one of Mr. Beckham’s main suppliers, based in Quzhou city in eastern China, was told by the local government that it could only operate four days a week, instead of the usual six. In addition, it must adhere to a power-usage cap, which cuts the capacity of the factory by about onethird as a result.
Mr. Beckham anticipates U.S. retail prices for many products could increase by as much as 15% next spring, as appetite from retailers stays strong.
The shortages reflect a combination of factors. Coal prices have surged because of a shortage of domestic coal supplies, made worse by import cuts from Australia and Mongolia. That has prompted power stations to reduce output to avoid losses because of official caps on their selling prices.
Meanwhile, from the top, Beijing is seeking to enforce energy-efficiency targets, leading to officially sanctioned reductions in energy usage by some industries.
At the same time, demand for electricity has soared since the end in April 2020 of China’s pandemic-induced shutdown, as factories increased production to meet rising consumer demand in the West.
The power crunch in China adds to a global energy squeeze that risks upsetting the post-pandemic recovery.
Surging demand, swings in the weather and lackluster production have driven up natural-gas prices. The surge has hit output at European factories and household energy bills. It is also fueling anxiety in Europe and the U.S. over whether dwindling supply will be sufficient to power economies through the winter.
The U.K. government recently stepped in with subsidies to reopen a fertilizer plant closed by rising energy costs, which supplies a significant share of the country’s carbon dioxide, a byproduct needed in food processing. The French government said last week it would block any increase in household gas and electricity bills until the spring.
The China power crunch also risks heaping further pressure on global supply chains by pushing up prices for raw materials and essential components.
“Global markets will feel the pinch of a shortage of supply from textiles, toys to machine parts,” wrote Ting Lu, chief China economist at Nomura Holdings, in a note to clients on Sept 27.
He added that the resulting supply shock will likely further push up global inflation, especially in developed markets such as the U.S.
Steve Cooke, managing director of Cre8tive Brand Ideas Ltd., a Solihull, England-based distributor of promotional merchandise such as branded bags, clothing, pens and computer accessories, said he relies on suppliers who source 80% of their products from China.
Already this year, rising freight costs and supply-chain bottlenecks have pushed up his costs and lengthened delivery times for his customers. He said he expects those pressures to intensify as the power crunch squeezes production.
“We rely so much on China, it’s incredible,” Mr. Cooke said.
China’s leadership has responded as shortages swept through the country. On Sept 27, Vice Premier Han Zheng, who supervises the nation’s energy policies, summoned leaders of the country’s top state-owned energy companies to a closed-door meeting and ordered them “to increase coal supplies by all means,” according to two people familiar with the discussion and a summary of the meeting seen by The Wall Street Journal.
Participants were asked not to bring their cellphones to the meeting with Mr. Han.
Power rationing began in some Chinese provinces in late August but started to spread across the country in mid-September, when it began to hit households in northeastern China, which experienced sudden blackouts.
Newcastle thermal coal, a global benchmark for the variety burned to generate power, late last month breached record levels set during the 2008 global financial crisis to top $201 a metric ton, up 141% from the start of the year.
Prices of higher-grade metallurgical coal, used for steelmaking, are up 158% from the start of the year to a record $615 a metric ton in China, nearly twice its last high set in 2016.
In September 2020, President Xi Jinping pledged that China would strive to reach peak carbon emissions before 2030, a broad goal that has flowed into wide-ranging efforts to curb energy consumption.
The mission weighed on production of Chinese coal, already increasingly intermittent because of a spate of accidents at mining sites. Close to 60% of China’s power is generated by burning coal.
“For the coal industry, it will continuously be restricted by environmental and safety inspections,” said Shougang Fushan Resources Group Ltd., a producer based in China’s biggest coal province. “The shortage in coal supply, especially coking coal supply, cannot be alleviated in a short period of time.”
Fueled by China’s economic boom, coal demand earlier this year rose by around 20% year-over-year, before ratcheting down to single-digit levels in more recent months, official data show. In comparison, coal supply has fluctuated between shrinkages in some months and low single-digit increases in others.
In some provinces, strict energyefficiency targets also played a role in the power curbs. In August, China’s economic planning agency released a report card that identified a number of provinces as being off-track in meeting their energy-efficiency requirements. In mid-September, these provinces began to target some high-energy industries in their power rationing.
The domestic shortfall of coal has been exacerbated by an unofficial Chinese ban on imports of coal from Australia, previously a major supplier, since late last year over Canberra’s call for an independent global inquiry into the origins of Covid-19. Imports from Australia and other countries generally account for up to 10% of Chinese coal consumption.
In addition, lower-than-usual supply of renewable energy has exacerbated the power supply issue in some provinces. The southwestern province of Yunnan, which produces hydropower, has been struggling with droughts throughout the year. In China’s Northeast, output from wind farms was extremely low for a few days due to the weather.
Acute electricity shortages are also partly due to the rigid pricing of electricity, said Dan Wang, an economist at Hang Seng Bank in Shanghai.
China’s government has long kept a cap on how much utilities can raise electricity prices, which are low by global standards. That reduced power plants’ appetite to generate power as
This is the first time in my 15 years in China that the power cut has lasted so long. THOMAS BROERTJES A manager at Foshan Oufeng Furniture Co in Guangdong
prices of coal kept surging.
About 70% of coal-fired power plants in the county suffered losses as of June as coal prices soared, according to the China Electricity Council, which represents power generators.
Several regions, including Shanghai, Sichuan and Inner Mongolia, have eased price caps on on-grid tariffs, which are paid by companies to power plants. Starting on Oct 1, industrial users in China’s manufacturing hub of Guangdong province will need to pay up to 25% more to use electricity during peak hours.
China’s economic planning agency, the National Development and Reform Commission said on Sept 29 it would increase coal production, import more coal, increase domestic gas production and pass through some higher energy costs to end-users.
During an internal meeting led by a top official of the economic planning agency on Sept 30, coal-production facilities were instructed to continue operation throughout the national holiday from Oct 1 to Oct 7, according to a summary of the meeting seen by the Journal.
Mr. Han, the vice premier, has ordered officials to control excessive consumption from high energy-consuming industries such as aluminum, steel, cement and petrochemicals.
“This is a system-shocking moment for both policy makers and companies,” said David Fishman, Shenzhen-based manager at the energy consulting firm Lantau Group.
Ramping up gas and coal supplies are short-term solutions but Beijing would need to think about diversifying its energy sources long-term, he said.
“This is the first time in my 15 years in China that the power cut has lasted so long,” said Thomas Broertjes, a manager at Foshan Oufeng Furniture Co. in Guangdong.
About two weeks ago, the local government began sending daily messages to the factory manager to announce whether they are allowed to operate that day.
China last suffered major electricity shortages in the early 2000s, in large part driven by rapid industrialization. Electricity demand dropped sharply after the global financial crisis that began in 2008.
The power shortage, on top of ongoing shipping bottlenecks and strict limits on travel into China, has also prompted Mr. Beckham of Simple Modern to evaluate the viability of moving some production back to the U.S. as the business environment in China has grown increasingly unpredictable.
“The party in China always prioritizes its objectives. As an outsider, it’s often hard to understand their motives,” he said.
It was after dusk when the first bang went off somewhere in a war-like zone. “They are just warming up,” said a young dropout waiting for his friends amid an explosion near the bridge at Din Daeng intersection in Bangkok.
The tussle between young protesters and crowd control officers has continued for over two months. The neighbourhood has turned into a battlefield where tear gas and rubber bullets are exchanged with fireworks and slingshots.
Growing from the sidelines, this anti-government protest is taking on a life of its own. A group of youths have developed the Thalugaz (penetrating gas) group, which follows the principle of retaliatory non-violence. It departs from usual anti-government protests, especially the student-led rallies.
The clashes are sparking debates on their legitimacy. On the one hand, protesters have come under fire for vandalism, including torching traffic police kiosks and royal portraits. On the other hand, officers have been denounced for lack of professionalism in dispersal operations such as in the hit-and-run accident where an officer’s car hit a young protester and crossfire shooting.
In light of this, Life spoke to three young protesters who joined a protest last week to oust the government because its coronavirus mismanagement is causing economic hardship.
CALLING FOR A GOOD LEADER
Like sitting around a campfire, a small group of protesters take turns venting their anger, citing the government’s failure. Just a stone’s throw, a middle-aged woman sings the folk song Ror Pee Tee Din Daeng (Wait For You At Din Daeng), which provides a romantic setting to the protests. Another teenager stares into space and smokes an e-cigarette.
“I want to be a mechanic. I want to buy and add accessories to my bike. It makes me feel happy,” said Ben, 20, who graduated from high school, but dropped out of vocational college due to financial problems in 2019. If possible, he wants to continue studying.
Ben lives with his blue-collar parents in Don Muang. After leaving school, he began to sell food products online to support himself and his girlfriend.
However, with the coronavirus, things have gone from bad to worse. It is very difficult to make ends meet.
“I joined the demonstrations last year to express dissatisfaction with the government’s mishandling of the pandemic, including inadequate financial relief and unemployment. Above all, I don’t see any future,” he said.
Ben said he disagrees with violent clashes but when officers cross the line, protesters strike back. Nevertheless, he admitted that some hardliners are deliberately being provocative, which can lead to a tough crackdown. He has been hit in the rib by three rubber bullets.
“I was arrested on Aug 18. An officer told me that he didn’t want to come here but nai sang ma (my boss gave an order),” he said.
When asked how a good country should be, he said it should uphold the rule of law and respect diverse political views.
“I want the government to rewrite the charter. I don’t want to interfere with monarchy reform,” he said.
Following crackdowns, the number of demonstrators, most of whom are young students from vocational training colleges, has dwindled in size. However, some of the protesters are adults and seniors, including outspoken elderly protester Worawan Sae-aung or Pa Pao.
Another teenager sits casually on his bike. Petch, 20, dropped out of junior high school and became a security guard before the coronavirus led to a massive layoff. He lives with his parents in Bang Sue. When construction camps closed, his father lost his job and income. Meanwhile, his mother sells less because people are spending less.
“I come here to call for the ouster of Tu [Prayut’s nickname]. I disagree with violence, but we didn’t start it. However, I am worried that people will brand us hotheads,” he said.
The youngest boy, 17, who asked not to be named, was a vocational student and part-time rider. However, the coronavirus forced him to take online classes, which does not provide a hands-on experience. He lives with his parents in Bang Kae, but they were laid off and are struggling to earn an income from menial jobs.
“I don’t see any future here. I don’t want anything lofty but at least a mediocre life. We want the government to improve. We do not want to confront officers but there has not been any negotiation,” he said.
Our conversation came to an end at 7.30pm because the night-time curfew remains in place. The Thai Lawyers for Human Rights reported that crowd control officers rounded up 16 protesters, nine youths and seven adults, between 9.30-10.30pm. Since July, police have arrested over 630 protesters for breaking the law.
GETTING TOUGH
The Metropolitan Police Bureau has considered the protesters to be rioters and not demonstrators because they instigate unrest, damage public property, and violate laws, including the emergency decree and the communicable disease act.
Pol Maj Gen Piya Tawichai, the deputy commissioner of the MPB, said daily anti-government protests will continue but shrink because protesters are facing tough legal action.
“From now on, protests are likely to occur at two places, Nang Loeng and Din Daeng, but the number of protesters will not be high. In coming days, legal action will be intensified,” he said.
However, there is still controversy surrounding the case of a 15-year-old boy who was shot with a real bullet in the neck on Aug 16 who has been in a coma since. On Sept 30, police arrested a man in Kanchanaburi for allegedly shooting the teenager.
Pol Maj Gen Piya said the suspect, who stayed in a flat in Din Daeng district, was upset by demonstrators and randomly shot them.
SNOWBALLING INTO TIT FOR TAT
Assoc Prof Phichai Ratnatilaka Na Bhuket, a political scientist at the National Institute of Development Administration (Nida), said the current conflict stems from the interaction between protesters and crowd control officers.
Initially, demonstrators gathered to call for the resignation of Gen Prayut. As a result, authorities put in place containers and barricades for safety reasons as the location is close to the prime minister’s residence. When protesters encroached, officers responded by using water cannons, tear gas, and rubber bullets. Since then, retaliation has ensued.
“Later on, those suffering due to the economy also joined the protests, which further led to an escalation of violence. Therefore, the area has symbolically accommodated those who are dissatisfied with crowd control officers. Meanwhile, demonstrators who have stuck to their demands have gathered elsewhere. I don’t know who started the violence, but when one cracked down, the other struck back,” he said.
Phichai said authorities can take the lead in de-escalating tension because they have greater potential to use violence. Crowd control officers should monitor protesters from a distance rather than confront them. Also, they should negotiate with demonstrators to find common ground.
“The situation will improve if the government has the will to resolve the problem rather than leave officers to it,” he said.
WE DO NOT WANT TO CONFRONT OFFICERS BUT THERE HAS NOT BEEN ANY NEGOTIATION