Relationship with Australia, GDP outlook

China needs to boost its coal supply to avoid an economic slowdown this quarter, but Beijing’s frosty relationship with Australia could make that difficult, according to investment bank Mizhuo.

The world’s second-largest economy is facing an electricity shortage due to a combination of factors. These include extreme weather conditions, increased demand for Chinese exports and a national effort to reduce carbon emissions, as President Xi Jinping noted.

China is an industrial powerhouse and the biggest emitter of carbon dioxide on the planet. The country produces most of its electricity by burning coal, but the stock of major power plants hit a 10-year low in August.

“While China clearly needs as much coal as it can get its hands on [fourth-quarter] slowing down due to tyranny of power shortages, geopolitical tensions with Australia have put Down Under’s most convenient source of high calorific value coal at risk, ”said Vishnu Varathan, Head of Economics and the strategy for the Treasury Department for Asia and Oceania at Mizuho, ​​in a note Monday.

Indonesia is well positioned to take advantage of the demand spillover, but its ability to process shipments can be a bottleneck, Varathan said.

China faces risks in rapidly sourcing coal due to various constraints including logistics and regulations. This implies that a “stuttering of economic activity and the ensuing problems in the regional supply chain cannot be totally avoided,” Varathan said.

Already, some banks have lowered China’s growth prospects due to the electricity crisis.

Many observers appear to be concerned about a “significant level of energy price shock,” Varathan said.

The power shortage in China could cause the prices of many export products to rise, which could lead to a slight increase in consumer inflation in advanced economies, according to Kevin Xie, senior economist for Asia at the Commonwealth Bank of Australia.

Restrictions on electricity supply will reduce economic growth and exacerbate the slowdown caused by problems in China’s residential construction sector, Xie said in a note last week.

“Energy-intensive industries will be the most affected by electricity rationing. The combined share of the industrial sector in affected provinces with electricity rationing is around 14% of Chinese GDP,” he said. -he adds.

So far, policymakers in Beijing have given no indication as to whether China will resume its imports of Australian coal. The media reported last week that Indian companies had recovered around 2 million tonnes of Australian coal at a reduced price from Chinese warehouses.