China is facing, like many other countries worldwide, an energy crisis. Since September, high coal costs and inflexible electricity prices have caused shortages that forced local governments to implement rolling blackouts for energy-intensive industries. However, China’s ruling party has ordered power companies to secure winter power at any cost.
China’s energy crisis pushed the government to extend power restrictions in at least 20 provinces and regions as it struggled to cope with the power shortage that affected more than 66% of the country’s gross domestic product.
Several companies closed their operations as millions of homes in the country faced a blackout situation. It has forced leaders to order their coal mining companies to raise coal production so that prices can be reduced, and miners will also be allowed to exceed their annual quota.
There are remaining concerns over whether further blackouts will occur, and what impact the current situation with supply shortages and supply chain issues may have in the longer term. Justin Floyd, CEO of ecommerce and distribution chain company RedCloud, explains the domino effect that a crisis in a country like China, has worldwide.
Floyd believes that no one “has been paying any attention really”, to the matter at hand, and thinks the situation “presents a much more serious problem in today’s world than climate change does to tomorrow’s world”.
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By GlobalDataThe supply crisis in China
China is currently facing multiple problems, from the supply shortages to the power crisis, with power issues being the third biggest problem going on there, as a massive amount of their factories shut down.
China’s power supply shortage is multifaceted but there are three overarching factors: restrictions on import of Australian coal; the Chinese Government’s plans to reduce carbon emissions amid adverse weather conditions; and a surge in exports.
John Breen, lead analyst for global risks at Sibylline, said in relation to Australian coal that “the Chinese Government enforced an import ban in October 2020 after Canberra supported calls for an investigation into Beijing’s handling of the Covid-19 pandemic”.
He continued: “Beijing has turned to Indonesia to shore up its coal supply, but constraints around logistics and regulations have frustrated procurement efforts. Meanwhile, a historically cold winter period across China drove demand for coal, while a global surge in commodity prices saw thermal coal rising some 40%.”
According to Floyd, China’s decision to go against the import ban and unload Australian coal was “an incredibly counterproductive decision”, as the country signed up to heavily reduce carbon emissions before the year 2030.
He explains that there will be rapid consequences for, “signing up to the climate control programme, for a country that is so vastly dependent on coal”.
As Floyd further explains: “If you’ve got no energy, your factories are on kind of a complete standstill, and when your factories are on standstill, you’re not producing any goods; what we’re seeing is the global impact it has by highlighting how many countries have been and are reliant on China.” But apart from the production side of things, there is one aspect that, according to Floyd, shouldn’t be overlooked: the issues the country has faced with Covid-19.
He says: “I suspect the death rate, and the infection rate, were so much higher than anybody really understood. I don’t think anybody will ever really know, but you’re looking at a huge impact on the workforce there and with death through to people just being utterly incapacitated, for a country that’s relied on for its huge manual workforce, that’s a problem.”
Reliance on Chinese exports
There is a domino effect following the current degree of consumerism of society; as Floyd explains: “We have consumed far more than what we’ve created for far too long.”
China is one of the countries that has been most relied upon for that consumption and similar to Covid, how it unfolded in “almost a delayed reaction” according to Floyd, the same is happening for the power crisis and the global supply chain shortages.
Breen says: “At the same time, rising global demand is driving Chinese exports, which were up 25.6% in August year-on-year. As economies reopen on the back of the Covid-19 pandemic, the global demand for Chinese goods is intensifying pressure on the country’s already strained energy infrastructure – major industrial hubs like Guangdong have already faced power supply shortages due to high temperatures over the summer.
“As a result, China’s state-asset regulator has called on grid firms to prioritise energy for residential use through the winter, and several provinces, including major industrial hubs, have restricted their power supply to factories.”
While power supply is currently at the forefront of all issues globally, including in China, Floyd insists: “We have kind of reached what we sold really, to a certain extent, because the reliance on one country for so much of that product was always going to be a dangerous situation.
“Global supply chains have always been extremely fragile. We’ve lived on a produced just in time environment for way too long. We’ve taken that situation for granted for way too long.”
Overcorrecting on climate
There seems to be a repeated pattern whenever an official body, in this case governments, realise there is a matter that should require their full attention, climate change being one. For instance, the UK Government has been focusing and investing money to tackle climate change – and rightly so.
However, it has caused officials to overlook, forget, or pay less attention to immediate matters at hand. In realising that mistakes have been made, or that they are ignorant about a topic others are focusing on, the auto-response is to overcorrect these mistakes.
Floyd insists that this pattern of overcorrecting, or playing catch up, is also happening in China with their current ongoing crisis. He says that after the Paris Agreement fell apart, especially across Europe, “there’s been a real focus on how to fix climate change, and the answers have been raised so much”.
He continues: “The fact is that, as a world, we’ve been so reliant on things like coal, for example, and of the way we get gas and the way we put electricity together. The lack of investment, it’s gone into other areas.
“When you suddenly overcorrect, you play catch up, you’re bound to have a problem. One example, I think, of an overcorrection that occurred was the reaction to the pandemic – it was so extreme.
“One thing that surprises me is that anyone is surprised. How did we really not see this coming?”
