[Epoch Times October 14, 2021]Since September, at least 20 provinces in China have been hit by electricity shortages. Major manufacturing provinces such as Jiangsu, Zhejiang and Guangdong have all been severely hit. The area is the most serious, and even residents’ electricity use is severely restricted. At present, the electricity shortage is still continuing. On the 11th, Liaoning Province just issued the fifth orange warning of electricity shortage.
So, what measures has the CCP currently taken to deal with the power shortage? What is the effect? What impact will China’s power shortage have on the world?
Let’s talk about these topics next.
Coal mines increase production, but the status quo frequently fails the CCP’s commitment to reduce emissions
We have talked about the reasons for China’s large-scale power shortage. The main reason is the insufficient supply of coal, the price of coal power is upside down, and power plants are unwilling to generate electricity at a loss. The reason for the shortage of coal is mainly due to the fact that the Chinese Communist Party’s crackdown on coal mine corruption, strict control of coal mine safety, and the realization of emission reduction commitments have led to a decline in coal mine production capacity.
However, the most direct reason for the power rationing of the Bolhazha is that in September, the CCP’s Development and Reform Commission issued the assessment results of the “dual energy consumption control” for each province. It is warned not to participate in the application of related industry projects in 2021. Therefore, in order to achieve the assessment target, the provinces have taken the switch to cut off the power.
In other words, this time the nationwide power cuts are being cut off. Fundamentally, it is not a problem with the power supply department itself, but the result of the central government’s “dual control of energy consumption” as a political task.
However, with the huge increase in winter power demand in Northeast China and the huge pressure of nationwide power shortages, the Chinese Communist Party has recently ordered the two major coal-producing regions in Shanxi and Inner Mongolia to act immediately to increase coal production capacity by 160 million tons. Solving the urgent need for residents to use electricity in winter.
According to official data from the Communist Party of China, Inner Mongolia’s coal production in 2020 will account for more than a quarter of the country’s production. However, starting from April to July this year, the authorities launched an anti-corruption investigation against the coal industry and banned coal super-energy production, which led to a decline in output. Now, in the face of a severe power shortage crisis, the authorities have issued orders to increase production at 72 coal mines in the Inner Mongolia Autonomous Region.
Another Shanxi province is China’s largest coal-producing province, with more than 600 coal mines in the province. However, in the past few days, Shanxi, known as the “Nine Droughts in Ten Years”, has encountered sudden heavy rainfall, which directly caused 60 local coal mines to stop production.
To make matters worse, Shaanxi, another large coal-producing province next to Shanxi, suffered a roof fall in the Hujiahe Coal Mine in Xianyang on the 11th. Lu media reported that 4 people were killed and 68 were injured. Shaanxi’s raw coal production ranks third in China. According to public information, the Hujiahe Coal Mine is one of the thirteen mines planned by the Binchang mining area in Shaanxi. The mine construction scale is 5 million tons a year. The Binchang mining area is 13 in China. One of the coal bases.
However, a trader from Beijing estimates that it will take at least two to three months for coal mines to increase production.
In addition to requesting increased coal production capacity, the CCP’s Banking and Insurance Regulatory Commission has also taken action. On October 5, the Banking Regulatory Commission issued a notice requiring bancassurance institutions to “do everything possible” to support the work of ensuring supply and price stabilization and give priority to eligible mines and power plants. Loans are used to increase the production of thermal coal and electricity. It is strictly forbidden to borrow illegally and cut off loans to prevent campaign-style carbon reduction and credit “one size fits all”.
On the 9th, Chinese Premier Li Keqiang also proposed at a meeting of the National Energy Commission that all localities should proceed from reality and correct some places with “one size fits all” curtailment of electricity and production or campaign-style “carbon reduction” to ensure the industrial chain and supply chain. The stability of the country and the sustained and stable economic development.
As you all know, the CCP is currently paying special attention to the issue of energy reduction because at the end of this month, the 26th United Nations Climate Summit (COP26) will be held in Glasgow, UK, and in February next year, Beijing will host the Winter Olympics.
However, Bloomberg said in the report that people familiar with the matter disclosed that the top Chinese Communist Party leaders told state-owned coal companies that for the remainder of this year, even if they exceed the annual quota limit, they must fully produce coal because the government will not tolerate blackouts.
At present, Xi Jinping’s carbon reduction goal is to reach the peak of carbon emissions by 2030, and to achieve “carbon neutrality” by 2060. Although from the perspective of Western countries, China’s current emission reduction targets are still far behind, so the climate envoys of the United States and the European Union still want to continue to pressure China to set truly adequate emission reduction targets. But now it seems that Beijing’s commitment to protecting the climate must have fallen through.
Buying energy “at all costs” is bound to aggravate global inflation
As mentioned earlier, in order to ensure the demand for heating and power supply in winter, the CCP requires the increase of domestic coal production capacity. In addition, the CCP also requires power plants to purchase coal at all costs, including expanding imports.
However, it is not easy for China to find new coal suppliers. The Voice of America also mentioned in the report that Russia needs to meet Europe’s energy needs first, and Indonesia’s coal exports have been affected by continuous heavy rains. Because coal from Mongolia can only be transported by truck, it cannot be truly rescued.
Now, the CCP has also begun to import coal from Kazakhstan and North Korea. According to Reuters, China has also begun to unload a small batch of Australian coal docked at China’s docks. As we all know, China strictly prohibits the import of coal from Australia this year. Now, a small amount of Australian coal has to be allowed to enter China, which shows the degree of tension in China’s power shortage.
In addition, as early as the beginning of October, Bloomberg mentioned that an insider revealed that Vice Premier Han Zheng asked China’s large state-owned energy companies, including state-owned enterprises such as coal, power generation and oil, to “at all costs” to ensure this year. Winter supply. Therefore, China’s largest state-owned importer has been busy purchasing spot supplies.
The report said that Sinopec has issued a bidding document and plans to purchase at least 11 batches of liquefied natural gas by March next year. Smaller importers, including Beijing Gas Group Co., Ltd. and Guangzhou Gas Group Co., Ltd., also plan to purchase LNG cargoes in October and November.
However, because Beijing has not provided sufficient subsidies for recent purchases, despite the government order, Shenzhen Energy Group Co., Ltd. and another second-tier company have decided not to purchase cargo. At present, the cost of each LNG spot is more than 130 million US dollars, compared with approximately 17 million US dollars in the same period last year, which is a 6.6 times price increase, discouraging buyers.
Experts believe that China’s increase in winter LNG purchases at this time means that it has to compete with energy-depleted Europe for natural gas resources, which will inevitably aggravate global supply shortages. This is definitely bad news for European governments and consumers, because they will have to deal with rising prices of natural gas and electricity.
Data show that in September, China’s coal imports increased by 76% year-on-year, and natural gas imports increased by 22% year-on-year. And China’s coal futures prices have soared to record levels. According to Bloomberg News, the price of thermal coal futures on the Zhengzhou Commodity Exchange rose to 1,640 yuan per ton on the 13th.
China’s liberalization of electricity prices intensifies unemployment and inflation
With the increase in coal prices, on October 12, the National Development and Reform Commission of the Communist Party of China issued a notice calling for an orderly liberalization of on-grid tariffs for all coal-fired power generation. Starting from the 15th, the trading price of coal-fired power generation market will fluctuate from the current float of no more than 10%, no more than 15%, to no more than 20%, and high energy-consuming companies will not be subject to market price increases. 20% limit. The spot price of electricity is not restricted by the new range.
This means that the price of electricity will increase substantially. At present, at least 8 provinces and cities, including Inner Mongolia, Sichuan, Ningxia, Shanghai, Shandong, Guangdong, Hunan, and Anhui, have allowed on-grid tariffs to be increased.
The increase in electricity prices will inevitably lead to an increase in the production cost of the factory. Analysts predict that China’s September PPI may have a year-on-year increase of 10.5%, exceeding 10.1% in August 2008 and setting a new high since the record was established in October 1996.
At the same time, the supply chains of technology companies such as Apple and Tesla have also been affected by China’s electricity shortage, and there have been delays in delivery. Nikkei Asia News reported that China’s power shortage has brought uncertainty to the technology supply chain, and technology companies are accelerating the withdrawal of the industrial chain from China.
Economists also warned that China’s energy crisis also puts the recovery of the global economy at risk. And Nomura and Goldman Sachs Group have also lowered their estimates of China’s economic growth.
China’s energy crisis, whether it is a power outage or an increase in energy prices, means that manufacturing costs will rise. It will not only cause companies to reduce production or even close down, but ultimately, it will also drive up consumer product prices. It is foreseeable that the future Chinese economy will be further hit by unemployment and inflation.
Institute of Finance and Economics
Planning: Yu Wenming
Written by: Li Songyun
Editor: Wei Ran, Yu Wenming
Editing: Songs
Producer: Wen Jing
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