[New post] ‘Unprecedented’ China Power Outages: Close Factories and Threaten GDP Growth/What are the Causes?
User ID posted: " https://www.youtube.com/watch?v=eONGlAKxJzs 'Unprecedented' China Power Outages: Close Factories and Threaten GDP Growth/What are the Causes? by China Insights The recent "power cuts" in China are disastrous, affecting at least 20 out of 34 provinces"
The recent "power cuts" in China are disastrous, affecting at least 20 out of 34 provinces and jurisdictions and growing in scope. We reported before that China's power shortages would become a norm in 2021 and explained the reasons. If you're interested, please check out the September 24th episode. In this video, we will briefly review the causes of China's power shortage. First, let's look at the blackouts in China and how they have affected the economy.
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The recent power cuts in China are disastrous affecting at least 20 out of 34 provinces and jurisdictions and growing in scope we reported before that China's power shortages would become a norm in 2021 and explain the reasons if you're interested please check out the September 24th episode in this video we will briefly review the causes of China's power shortage first let's look at the blackouts in China and how they have affected the economy this is happening in three provinces in northeastern China they are currently experiencing the most severe power outages and restrictions around September 26th many residents in this region receive similar messages from their local power companies on their cell phones dear electricity customers in order to ensure the stability of the power supply in the province the provincial power dispatch center will restrict power consumption at irregular intervals in the near future and the power bureau may suspend power supply at any time according to higher dispatch instructions and local load conditions by then areas within the power supply network may shut down at any time so please be prepared for blackouts many cities in the northeastern provinces have been experiencing blackouts and power restrictions without warning since September 23rd and the duration of each power blackout is becoming longer from one or two hours a day increasing to one or two days residents lives are thrown into chaos Chinese media reports that local people are rushing to buy and stock up on candles candle producers have reported that candle orders have increased more than 10 times in a week on September 26th a water company in Jianlin province released a notice it reads irregular unscheduled unplanned and unannounced power outages and restrictions will continue until March 2022 as power and water interruptions become the norm but later the water plant issued an apology for causing the panic suppliers of apple incorporated and tesla incorporated located in two key northeastern cities Shenyang and Dalian complained the power restrictions and outages also hit their factories in addition to the three provinces in the northeast several provinces in southern central and eastern China have also experienced massive power restrictions in multiple locations resulting in production shutdowns for example in the eastern province of Jijiong local printing and dying companies were asked to shut down their operations from September 19th until the end of the month the government of Foshan city in southern China has asked some companies to start working two days a week and stop working five days some local business owners have told overseas media that they do not know the reasons their factories can survive for a month or two but if the power interruptions continue any longer they will have to close down leaked online documents from a southern coastal province indicate that the province's power department predicts a massive power shortage lasting through October to December even in Beijing residents have been notified that some areas would be without power from September 27th to October 8th due to a planned maintenance the announcement has sparked concern among Chinese people when the power shortage has even affected China's capital city according to mainland Chinese media at least 20 provinces and regions which account for over 66 percent of the country's GDP have now announced some form of power restriction in recent months mainly for heavy industry a Morgan Stanley report released on September 27 found that China's steel aluminum and cement industries suffered the most from the power restrictions the aluminum industry has seen a seven percent reduction in capacity and the cement industry has cut production by as much as 29 the report predicts that the paper and glass industries could also be hit hard leading to tighter supplies production of chemicals dyes furniture and soybean meal have also been affected a Goldman Sachs report published on September 28th estimates that the current electricity shortage is affecting 44 of China's industrial activity and is likely to reduce GDP by one percentage point on an annualized basis in the third quarter and by two percentage points in the fourth quarter of 2021. In a report released on September 24th by Nomura Securities a financial services group and global investment bank based in Tokyo it predicts that a storm of power shortages in the world's second largest economy and the largest manufacturer would ripple through and affect stock markets around the world and that the global supply of textiles toys and mechanical components could be affected the blackout in China is similar to the widespread power cuts that occurred in the winter of 2020 only in 2021 it came a little earlier the Chinese officials have not been able to unify their rhetoric on the cause of the blackout first of all there is a widespread narrative on many social media platforms in China that due to the rapid recovery of China's economy and a large number of overseas orders flocking to the country the Chinese government has moved ahead to limit production capacity therefore this is an international battle for the pricing power of commodities or a financial war between countries but some Chinese who are victims of blackouts are skeptical of such statements because the current blackouts have even led to power restrictions in hospitals and traffic lights unable to function I went to the hospital this morning for back pain and hey the power is out the doctor said that the ICU in the operating room had emergency power supply but other departments didn't have power yet so I was told to go home and wait an internet user in China wrote in order to win the trade war with the us China shuts down power to its own hospitals is there such logic in the entire milky way the official Chinese media including the top party media such as the people's daily then introduced a more specific reason the government is controlling the total amount and intensity of energy consumption limiting the amount of coal and electricity used by high energy consuming industries such a policy has been implemented in China for 15 years each year the government sets a national target for total energy consumption which is then broken down into provinces and regions for implementation so in reality each province and region in China follows a different energy consumption standard the Chinese media also claims that in 2021 China one of the few economies in the world to have started production despite the covet impact has attracted a large number of international orders resulting in a manufacturing boom and therefore a significant increase in electricity consumption some provinces have almost used up their annual targets in the first half of the year so they have to urgently curtail their energy consumption in the second half as a result they have to pull the plug on electricity usage but the smart Chinese have noticed a flaw in this argument the Chinese government issued an early warning in the first half of the year for provinces that had consumed too much energy so areas with imposed power cuts should be highly correlated with areas receiving such warnings and the higher the warning level the worse the outages should be however this is not the case people find no correlations between the two sets of data now the province with the most severe power restrictions did not even reach the second level of warning for its energy consumption in the first half of the year this has made people in Jialin province wonder what the province is doing by being so aggressive with power cutbacks moreover the claimed policy has existed for 15 years so why has the massive blackout only occurred in China in the past two years in addition China has also experienced recurring outbreaks in the first half of 2021 the claim of economic prosperity in China sounds rather doubtful so this policy of the Chinese government is somewhat related to the current power shortage but it's not the root cause maybe not even the primary cause later on the Chinese official media also started to admit that the price hike of coal was one of the reasons leading to the power shortage we analyzed this issue in the September 24th episode China's coal industry is highly market oriented and its prices continue to rise in line with market conditions however electricity prices are a product of the planned economy and are set by the government when the electricity generated can't cover the cost of coal the power plants are running at a loss the more electricity they generate the more they lose which is a sure route to bankruptcy to avoid bankruptcy the power plants have to cut their production currently thermal power plants account for 70 percent of China's electricity generation although China has more than 100 000 hydropower stations the hydroelectric power generation has been down in 2021 compared to 2020 so is the Chinese government able to solve the problem of power shortages on September 28th the governor of Zhulian province in the northeast said that he would press ahead with coal procurement plans from Russia, Indonesia and Mongolia on the same day the China electricity council which represents China's power supply companies also announced that power supply companies are now expanding procurement channels at all costs to ensure winter heating and power supply it called on power producers to sign more medium and long-term coal procurement contracts before the winter to increase coal stocks at power plants one businessman from the northeast of China told Reuters that Russia has to meet the demand from Europe, Japan and South Korea first and that Indonesia's coal shipments have been limited by rainy weather in the last two months while Mongolia's coal exports are mainly transported by truck and the volume is too small Australia is a high quality source of coal for Beijing its coal is low in ash low in sulfur and high in heat many Chinese power plants relied on Australian coal for production in the previous 10 years now some equipment cannot adapt to the lower quality coal and has stopped production however relations between the two countries have been at a full-blown standstill since Australia asked to launch an investigation into the origin of the pandemic in 2020 in an interview with CBS during a visit to the us on September 26th Prime Minister Morrison said the phones always open at our end there is no Australian obstacle to direct dialogue at a political level between Australia and China but the China side has not shown an interest he also said he hadn't talked with xi for almost two years so the route for imported coal does not look good what about China's domestic hole Chinese media reports that coal inventories at Chinese power plants are now at historic lows with only 10 days of cold left in stock at eight provinces along China's coast the governor of Jialin province said that he had requested the power companies to send their staff to the mines in inner Mongolia province to implement the cold purchase and sale transportation contracts in reality the hike in coal prices in China has to do with a shortage of domestic coal and the shortage of domestic coal has to do with the CCP's latest policies China will strive to peak carbon dioxide emissions before 2030 and achieve carbon neutrality before 2060 this requires tremendous hard work and we will make every effort to meet these goals China will step up support for other developing countries in developing green and low carbon energy and will not build new coal-fired power projects abroad along with this directive from the CCP the development of China's coal industry has been subject to additional restrictions such as not allowing new coal mines to be built for example many mines in Inner Mongolia are considered illegal by the government's new standards and require additional procedures to continue their operation a total of 150 government department seals are required to validate an existing coal mine which is incredibly time consuming the increased layers of restrictions in the coal industry have also made it more challenging to increase domestic production a short-term increase in coal production in Inner Mongolia to supply northeast China looks very unlikely so why is the CCP recently taken a high profile interest in environmental issues such as carbon neutrality the CCP is likely eager to have the new US administration remove the many restrictions on technology and trade and improve relations with the US environmental issues are something that the ccp might have perceived as the most significant breakthrough for the new us president it was also explained in the September 28th episode when we discussed the release of Huawei, CFO Meng Wanzhou to China many of these events we have witnessed do not happen in isolation if you continue to follow our channel we can help connect the dots between these critical events likely the big picture will become increasingly clear and you may be able to foretell where China and the Chinese communist party are going
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