China’s power shortage threatens more supply chain chaos and may hit GDP

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On Monday, there was an “unexpected and unprecedented” power outage in three northeastern provinces. According to the Global Times, The state-run tabloid. The newspaper reported on Tuesday that power rationing in Heilongjiang, Jilin and Liaoning provinces “caused significant disturbance to people’s daily lives and business operations”.
Power shortages have also hit Guangdong Province, the main industrial and shipping center in the South.Local officials Said Monday Many companies are trying to reduce demand by working two or three days a week.

China’s State Grid Corporation of China said on Monday that it will “go all out to fight the tough battle for power supply” and make every effort to protect residents’ consumption.

China suffered a similar power crunch in June, but the situation is getting worse due to a perfect storm. Its industry is facing soaring energy prices and huge pressure from Beijing to cope with carbon emissions.

The world’s largest polluter is trying to fulfill its promise that its carbon emissions will peak by 2030. This requires their provinces to use less fossil fuels per unit of economic output, for example by reducing the burning of coal to generate electricity. At the same time, as the global economy recovers from the pandemic, demand for Chinese-made goods has surged. Result: There is not enough power to operate.

On Monday, steam spewed from the cooling tower of a coal-fired power plant in Nanjing, eastern China's Jiangsu province.

Major international suppliers are preparing to deal with the impact of companies that are already facing delays due to shortages and global shipping delays.

Pegatron-a Taiwanese company that produces components and assembles iPhones for the following products Apple (AAPL) — Said Tuesday that it is working with “local [Chinese] Government policy of “activating energy-saving mechanism” And adjust the production line, Responding to CNN Business’ request for comment on the power crisis. Pegatron has a large factory in Kunshan City, East China, Taiwan media reported The authorities are restricting power supply.
Dale Gai, director of Counterpoint Research, said that power rationing may bring new problems to the technology supply chain, although it may not be as good as Global shortage of computer chips This has impacted everything from cars and washing machines to other electronic products.

Power outages in areas where smartphone modules are usually assembled may cause some short-term delays.

Gai said, “The components may be delayed by about a week.” “It’s still manageable, but it’s a delay.”

Cut growth forecast

This shock even prompted economists to lower their growth expectations for the world’s second largest economy this year.

Nomura analysts on Friday lowered their forecast for China’s economic growth in 2021 by 0.5 percentage points to 7.7%, citing that “more and more factories” have to “stop operations” or because of local energy consumption requirements. Either it was due to a power outage. Coal prices are rising and shortages.

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Goldman Sachs analysts followed suit on Tuesday, lowering their 2021 GDP growth forecast from 8.2% to 7.8%, citing “recent production cuts in a series of high-energy-intensity industries”.

They pointed out that, given that the Chinese economy is already at risk, there is a “considerable uncertainty” in the last quarter of this year. Evergrande debt crisis ——This embarrassing conglomerate has caused some analysts to worry about potential risks Lehman Brothers Moments For China.
The issue of energy supply is not new to China.This summer, many provinces in China Warning shortage This is the country’s worst power crisis since 2011.
But the latest reports are even more worrying. The severe shortage in parts of the Northeast will “continue for some time.” CCTV report.
China's construction boom is emitting carbon dioxide
China has largely escaped the pandemic downturn Due to the boom in construction and manufacturing: But real estate projects and factories require a lot of electricity to operate, so a lot of coal is needed.

According to a research report issued by the Center for Energy and Clean Air Research (CREA) in May, the focus on infrastructure and construction prompted China’s carbon emissions to hit a record high in the first quarter of 2021. The agency said this is the fastest growth rate in more than a decade.

Macquarie economist Larry Hu wrote in a research report on Monday: “The economy is more driven by the industrial sector than the consumer sector.” “Unfortunately, the energy intensity of the industrial sector is much higher than The consumer sector.”

After the pandemic Commodity boom At the same time, given the increase in demand and the decline in the mining industry, ambitious climate targets have driven coal prices soaring. Hu pointed out that the price of thermal coal, which is mainly used for power generation, has soared from 671 yuan (US$104) per ton to about 1,100 yuan (US$170) this year.Trade tensions with Australia have led to China Set up barriers to imported coal From that country.

Ambitious climate goals

Several analysts believe that the biggest contributing factor may be the motivation to achieve President Xi Jinping’s goals. China will achieve carbon neutrality by 2060.
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Hu Jintao pointed out that the Chinese government’s goal is to reduce the “energy intensity” per unit of GDP this year by 3%.

In August, China’s National Development and Reform Commission (NDRC) convened almost all major regions in China and asked them to control or monitor energy consumption and intensity for the rest of the year.

According to the agency, in the first half of this year, nine of China’s nearly 30 provinces and autonomous regions increased their energy intensity. These include Guangdong Province in southern China, which is a major factory center. A timber mill recently slashed its production capacity by more than half due to power restrictions. According to the Global Times.

The National Development and Reform Commission stated in its August announcement that another 10 provinces, including Heilongjiang and Liaoning, did not meet energy requirements.

“Beijing’s unprecedented determination to enforce energy consumption and intensity restrictions may bring valuable long-term gains, but the short-term costs of the real economy and financial markets are huge,” wrote Nomura analyst.

Keep control

Some Chinese state media have also called for a balance between meeting climate goals and allowing the power crisis to run out of control.

All regions “cannot be too aggressive” or “slam the brakes” in controlling energy consumption, Read a review article published by People’s DailyOn Sunday, the mouthpiece of the ruling Communist Party.

“This is related to economic and social development, and they must be clear where they should work and maintain a balance,” the article wrote. “Otherwise, it will catch people off guard, especially for certain industries, where they may be forced to stop production in a short period of time.”

— Lauren Lau, Eric Cheung, Laura He and CNN Beijing Branch contributed to this report.

Correction: An earlier version of this article incorrectly described the measures Pegatron has taken in response to the power squeeze.

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