A new crisis is looming in China … it will affect the global economy

As the markets closely monitor the situation surrounding the possible bankruptcy of real estate giant Evergrande, a crisis in another part of the energy sector is looming in China.

Experts warn of the power shortage crisis in China, as well as the repercussions of exposing China, the second economy of the year, to a shock and its impact on the global economy.

According to a report released by Bloomberg, citing data from Nomura Holdings, nearly half of China’s provinces have not been able to meet government electricity consumption targets and are under pressure due to the need to reduce electricity consumption.

Restrictions on electricity consumption in the world’s second-largest economy

As an example of restrictions imposed in China, the media pointed out that 20 Chinese provinces have already imposed restrictions on the electricity consumption of industrial enterprises and residential buildings.

The restrictions affected 3 economically important provinces namely Jiangsu, Zhejian and Guangdong, which account for up to a third of China’s GDP.

Regarding the gravity of the situation, the media reports that 143 companies have been completely shut down in Jiangsu Province, a province near Shanghai, while more than a thousand factories have been forced to operate in a “two-way” system. of them”.

In Guangdong province, Chinese authorities have ordered businesses to keep electricity consumption below the full load level of 15%, while around 160 businesses and factories have been closed.

Among the factories that have shut down are factories producing parts for the American companies “Apple” and “Tesla”. Experts fear that the blackout will affect the global supply of semiconductors if the blackout continues into the winter season.

A sign of the sensitivity of the issue, the lack of electricity has not only affected the business sector, but also the population, as calls have appeared in the media from the authorities to ration electricity consumption. .

China’s energy shortage has lowered estimates of Chinese economic growth this year, and “Nomura” has lowered its forecast for Chinese economic growth in the last three months of this year to 3% instead of 4.4%.

Why is China suffering from an electricity shortage?

Experts identify two main causes of the crisis in China in the field of energy consumption. The first is the high, if not record, price of gas and coal. For example, gas prices are rising dramatically in Europe, and they are recording historic highs every day. Today, Tuesday, they reached the level of 1427 dollars per thousand cubic meters.

Along with gas, coal prices have increased in Europe, and recently also recorded record highs, reaching the highest level since 2008, as well as the Zhengzhou Stock Exchange saw a rise in coal prices, which rose by 40 % in just one month.

The second reason is due to the environmental targets set by the Chinese government. Analyst Alexander Kovalev says that China’s main problem now is its reluctance to increase coal production.

The analyst adds that the electricity rationing measure, which was launched this year, was intended as a tool to reduce carbon dioxide emissions in the short term, given the sharp increase in the prices of most vectors. energy in China.

How will the power shortage in China affect the global economy?

Production problems in China caused by power shortages as well as energy difficulties in other countries can cause inflation to rise around the world.

Investment banker Yevgeny Kogan believes that the rise in prices could affect all commodities, and he does not rule out that energy problems, which are present in various parts of the world and not just in China, will lead to a new wave of growth in the prices of finished products.

Therefore, the analyst wonders about the reaction of the US Federal Reserve (the central bank) to this, will it raise interest rates before the due date?

Experts did not specify the period during which the energy crisis will continue and indicated that China could divert electricity from heavy industries such as steel, cement and aluminum, indicating that this could resolve the crisis. .

Source: Bloomberg