What is behind the power outages in China | The Asian giant’s electricity crisis and its international impact

China is going through an energy crisis with an impact on a good part of its manufacturing production and therefore on the growth of the world’s second-largest economy in the third quarter. The government enforces light cuts in homes and industries to remedy the imbalance between the shortage of energy supply and the renewed demand induced by the recomposition of the world economy, of which the Asian country is one of its main factories. Collateral effect of last year’s production brake, geopolitical tensions with Australia and commitments to reduce the use of coal are part of the basket of arguments taken into account to understand the crisis.

According to Deutsche Welle, Nine Chinese provinces suffer power cuts. Governments themselves are asking factories to suspend production. The sectors concerned are those with high energy intensity, such as aluminum, steel, cement and fertilizer. Households were also required to limit the use of water heaters and microwaves.

“There are major power outages, as well as heavy factory closures, that can hurt global value chains. In fact, It’s not clear China’s economic forecast for the third quarter will come true“, he explained to this newspaper Gustavo Girado, director of the postgraduate degree in “Specialization in Contemporary Chinese Studies” at the National University of Lanús (UNLa).

China’s situation is framed global energy market in tension. Europe is on hold in the face of winter due to the rise in gas prices, already close to $ 30 per million BTUs, compared to values ​​of around $ 5 a year ago, and Asia is also facing these prices for its imports.

Impact

Goldman Sachs investment bank believes that Power outages in China affect 44% of industrial activity and reduced the Asian giant’s growth estimate for this year by 8.2 to 7.8 percent. Morgan Stanley and the Japanese financial firm Nomura also lowered their estimates.

“There is a long series of complicated reasons. But no matter what you say, there can be no breakdowns in our energy transition. In a modern society, homes cannot cope with the lack of electricity, ”Jiang Liping, vice president of the State Grid Energy Research Institute, said on Wednesday. State grid It is the largest state-owned electricity company in China.

The The price of coal is at an all time high of $ 213 per tonne, but a little over a year ago it hit a low of $ 40. Consequently, the price of aluminum, the dominant market in China, is at its highest level in 13 years. A tonne of this metal is listed at $ 2,800 on the London Stock Exchange, while last year, barely triggered by the pandemic, it was at $ 1,429 per tonne.

The reasons

Energy analysts warn China’s electricity problems stem from steadily rising demand after the pandemic partially halted in as opposed to an offer that doesn’t respond as quickly.

Chinese thermal power plants depend on coal, which explains 60% of its energy matrix. Its biggest supplier was historically Australia, the world’s largest producer. However, the political confrontation between the two countries cut off this supply, against the backdrop of increasingly demanding decarbonization commitments from the Xi Jinping government.

The government of Guangdong Province, China’s main manufacturing hub, also noted that low water levels in hydropower plants, which account for 20% of installed electric power, also play a role in energy shortages. Meanwhile, from Liaoning Province, one of the most affected by the cuts, reference was made to the decrease in wind production.

“There is a supply crisis in several commodity chains which is part of a larger phenomenon, which is the move from the globalization of costs to the globalization of risks. The globalization of costs has been driven since the post-Cold War era by the relocation of production based on the lowest possible costs, in a context of relative political stability, low logistics costs and abundant energy. Today we are witnessing a globalization of risks, marked by the dispute between the United States and China, pandemic disorder, climate change and the possibility of cyber attacks“Esteban Actis, doctor in international relations and professor and researcher at the National University of Rosario (UNR), explained to Página / 12.

“The supply does not adjust as quickly as before and this increases the pressure on prices and supply. The energy crisis is primarily a response to the fact that the recovery in demand in recent months has generated bottlenecks following massive braking last year“, Aggregate acts.