[Epoch Times October 02, 2021]Yesterday was the “Eleventh” of the Chinese Communist Party. However, because of the electricity rationing in various parts of the mainland, some people ridiculed that: In the “big day” of the Chinese Communist Party, the Chinese will be in the dark Spent in Ma Ma. At present, the “switching power limit” across the mainland has intensified, spreading to 20 provinces, cities and regions, candles have also become a hot commodity, enterprises are screaming, and the government is helpless.
After the power outage plan during the “Eleventh” period was announced in Shanghai, news of a power outage was also reported in Beijing. However, the Beijing Electric Power Company urgently appeased that it was just regular equipment maintenance. The latest news is that in order to alleviate the shortage of electricity in the north, the CCP has asked Russia for emergency power supply.
Some analysts say that the “electric tiger” has eaten up the Chinese economy and even allowed the global economy to “lay flat”. Then how serious is this wave of power outages? How long will it last? Let’s talk about these topics today.
China’s power rationing foreign companies are also injured
Let’s first take a look at the power outages in the past ten days.
Kunshan, Jiangsu is the home base of Taiwanese businessmen. On the evening of September 25, the local authority suddenly issued a notice requesting that the company suspend production from noon on the 26th to the 30th. Subsequently, more than a dozen Taiwanese semiconductor-related companies submitted an announcement to the Taiwan Stock Exchange, stating that their production facilities in Kunshan would be temporarily closed until the end of September.
Some Taiwanese businessmen mentioned that in fact, there have been power rationing actions before, but local governments will notify companies in advance so that they have time to adjust and respond. However, this power outage was a temporary “verbal” notice of power rationing before the Mid-Autumn Festival. 50% until the end of September. The official action is not only strong, but also very urgent.
Some electronics companies also revealed that in the past half month, Suzhou has been temporarily suspending electricity, sometimes for a few hours, sometimes for a day, affecting normal production, coupled with factors such as material price increases and transportation congestion caused by the epidemic. This time, the power outage in Suzhou lasted 5 working days. Although it did not cause a significant impact, it aggravated the shortage of semiconductor lead frames. The current situation is that there is no shortage of orders, but the goods cannot be delivered. If the situation continues, it may affect the operation of the third quarter.
There are also Taiwanese businessmen in the Yangtze River Delta who said that in the past, local governments would listen to the opinions of enterprises, but this time the orders were issued at a higher level. Although Taiwanese businessmen responded loudly, they had no effect. The worst thing is that companies cannot predict whether the power curtailment measures will be extended. It is still acceptable. However, if the power curtailment is extended for two more weeks, not only high-energy-consuming industries will be affected, but all walks of life will be affected.
Now, during the traditional peak season, with full capacity and limited power, the range of Taiwanese companies affected by power restrictions is quite wide. The industry estimates that although this wave of shutdowns only lasts for 5 days, it will affect the revenue of Taiwan-funded technology factories at least 360 million US dollars. Moreover, what worries Taiwanese businessmen is that once power cuts become the norm, raw materials and supply schedules need to be adjusted.
In addition to Taiwanese companies, German companies have also been affected. Jörg Wuttke, chairman of the European Chamber of Commerce in China, said that it is a good situation for companies to receive notice of power outage two or three days in advance; Power cut immediately. Volkswagen in Germany mentioned that some factories in China had to cancel individual shifts, mainly because of power outages and the inability of parts suppliers to supply them in time. A person in charge of Volkswagen China also mentioned in an interview with German TV that he was mainly worried about the Chinese side, saying that there would be a power outage. Everything was opaque and there was no legal certainty, which made the company unable to plan.
In addition, there are more than 20,000 Hong Kong companies in the Pearl River Delta. Some companies say that companies can only rely on their own generators to maintain production. If this situation is only one month, the manufacturers may be able to survive it, but if it continues to be like this in November and December , It will be very difficult.
Before this wave of power rationing, in August, the CCP’s Development and Reform Commission had issued a “dual energy consumption control” report, naming 9 provinces whose energy intensity did not decrease but increased, and was listed as a red first-level warning. Subsequently, the provincial governments of Jiangsu, Zhejiang, Guangdong and other regions began to implement the “open three stop four” and “open two stop five” for high energy-consuming and high-emission enterprises in the steel, chemical, cement, metallurgical, textile and other fields. “, even a 10-day regulation plan.
When will the power rationing end?
So when will this round of electricity and production restrictions come? Let’s first understand why the CCP suddenly cuts electricity?
In summary, there are three main reasons for power curtailment:
As we said a few days ago, one of the main reasons is the decrease in power generation. Because the price of coal is soaring and the price of electricity fluctuates very little, power plants that have been losing money for many years have no desire to generate more power.
As you all know, 70% of China’s electricity depends on thermal power generation, and the main fuel for thermal power generation is coal. According to data from the General Administration of Customs of the Communist Party of China, China’s coal imports from January to May this year are compared with the same period last year. In addition, according to the data of GF Securities, in the first eight months of this year, China’s raw coal production increased by only 4.4% year-on-year, and imports decreased by 19.5% year-on-year.
The second reason is the increase in electricity consumption. Affected by the epidemic, the economies of various countries have recovered slowly. Chinese companies that have resumed production have received more and more orders, resulting in high demand for electricity.
The third is “dual control of energy consumption.”
The “dual control of energy consumption” was proposed by the CCP in 2015, and some commentators believe that the CCP does not really care about the environment. It only cares that it can play an important role in the global climate change issue. Moreover, China is a world of carbon emissions. First. Western countries, headed by the United States, must cooperate with the CCP in order to achieve the goal of carbon reduction. The CCP knows its importance and naturally has to show it to the world.
In addition, due to human rights issues, Beijing’s Winter Olympics has been boycotted. The CCP wants to use carbon reduction to offset the pressure to boycott the Winter Olympics. The climate issue may be the CCP’s best bargaining trump card with the West.
As for when the CCP will curtail the power supply, some analysts believe that the Glasgow Climate Summit will be held in November, and the CCP wants to make its climate response more outstanding. Therefore, the power curtailment measures may end at the end of this meeting. There is a more pessimistic view that the power cut will continue until the end of the Winter Olympics next year, or even longer.
Electricity shortage eats up China’s economy
However, if long-term electricity production is restricted, not only will China’s economy be hit, it will also drag down the global supply chain and further stimulate inflation.
It is said that China’s economy relies on exports, investment, and domestic demand, so let’s take a look at the recent situation of this “troika”:
Let’s look at consumption first:
The year-on-year growth rate of total retail sales of consumer goods slowed down sharply to 2.5% in August, a decrease of 6 percentage points compared with the previous month, which was the lowest level since August last year.
Look at the investment again:
Real estate investment continued to fall, and infrastructure investment was weak. In August, real estate investment increased by 0.3% year-on-year. Compared with July, it fell by 1.1 percentage points, which is the sixth consecutive month of decline. From January to August, investment in infrastructure construction increased by 2.6% year-on-year, which was 1.6 percentage points lower than that from January to July. In addition, a number of financial data in August reflect that demand for physical credit is continuing to weaken.
Let’s take a look at the manufacturing and export situation:
China’s official Purchasing Managers’ Index (PMI) just announced showed that the manufacturing PMI fell from 50.1 to 49.6 in September, the first time in 19 months that it fell below the prosperity-death line. Among them, the new order index has fallen for three consecutive months, and has been below the threshold for two consecutive months; the new export order index is 46.2, a record low during the year, and has fallen for six consecutive months.
Some analysts believe that the weak PMI data is a “wake-up call” for the Chinese Communist government. If the policy is not changed, economic growth in the fourth quarter may slow down further, and the pace of slowing may accelerate.
Moreover, we see that some of the most export-oriented and dynamic provinces in China are energy-consuming provinces, but these provinces, such as Jiangsu, Zhejiang, Guangdong, etc., are all included in the list of energy consumption control. , And the output value of these provinces accounted for about 70% of China’s GDP.
Concerns about China’s power shortage also caused many institutions to lower their forecasts on China’s economic performance. On September 28, Goldman Sachs lowered China’s economic growth forecast for 2021 from 8.2% to 7.8%, on the grounds that energy shortages brought “huge downward pressure.”
CICC believes that the power shortage caused by insufficient coal supply has actually affected production since July, and it may be difficult to eliminate it before the end of this year. Therefore, CICC International predicts that the “dual control of energy consumption” policy will slow down China’s economic growth in the third and fourth quarters, with an impact value between 0.1% and 0.15%.
Morgan Stanley predicts that if China continues to cut production at the current rate throughout 2021, economic growth in the fourth quarter will be reduced by about 1%.
Lu Ting, chief China economist at Nomura Securities, believes that the impact of this wave of supply-side shocks may be underestimated by the market. Lu Ting predicts that this shock wave may spread and affect the global market. The world will feel the tightening of the supply of textiles, toys, and mechanical parts.
You can see that in just a few days, the hot topic of global discussion has shifted from China’s “Hengda” to China’s “power shortage”.
Full-scale inflation is on the verge of
So, will the continued tightness of China’s power supply lead to an increase in electricity prices? The answer is yes.
At present, the Hunan Provincial Development and Reform Commission has announced a few days ago that it will introduce a floating electricity price mechanism from October to allow power plants to adjust electricity prices based on coal prices. The Guangdong Provincial Development and Reform Commission issued a more direct message. Starting from October 1st, for industrial users, the peak-to-valley power price gap will be increased, and the peak power price will be increased by 25% on the basis of the peak power price.
In the report, Bloomberg also quoted people familiar with the matter, saying that China is considering increasing the price of industrial electricity to alleviate the electricity shortage, and raising the price of residential electricity is also being considered. The authorities will adjust electricity prices uniformly or link them to coal prices. However, the plan still needs to be approved by high-level officials.
However, this also causes a chain problem, because rising electricity prices will also bring up the prices of other products. Some analysts believe that rising prices of industrial products will also drive up the prices of downstream consumer products, which may trigger inflation.
In fact, China’s full-scale inflation is on the cusp. The prices of raw materials in the construction industry, such as cement and chemical products, have recently seen a leaping rise. According to statistics from Tianfeng Securities, there are currently 11 provinces requiring cement companies to limit electricity and production, and the production capacity of these 11 provinces accounts for half of the country’s cement production capacity.
Free Asia mentioned in a report on the 30th that electricity curtailment measures in various places have increased the production costs of enterprises. In order to make up for economic losses, enterprises have to increase prices. As a consequence of the power restriction and production restriction, the prices of commodities in many places will rise, and in the end, it will be reflected in the livelihood of the people.
So, who will be the next round of price hikes? The current trend is that it is likely to happen in the food supply, because the raw materials for the production of chemical fertilizers are coal and natural gas. Since the beginning of this year, the price of Dutch natural gas futures has risen by more than 250%, and the supply is still very tight. With the continuing shortage of natural gas and coal, the price of chemical fertilizers will continue to rise, and there may even be shortages. However, China’s agriculture and animal husbandry rely heavily on chemical fertilizers. Once chemical fertilizers are in short supply, output cannot be guaranteed. The continued decline of grain stocks will inevitably increase grain prices.
Now, among the two major events in China, the power cut has already robbed Evergrande of the limelight. However, for Evergrande, it has to rush to repay its debts while cooperating with the power cut and shutdown. The price of cement and other construction materials Still climbing, the situation is even worse.
Institute of Finance and Economics
Planning: Yu Wenming
Written by: Chen Siyu
Editor: Wei Ran, Yu Wenming
Editing: Songs
Producer: Wen Jing
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