A power crunch is wreaking havoc in China, hitting industries and homes alike as they deal with blackouts and irregular water supply. The shortage, sparked by limited coal supply, has crippled some large sections of the country -- from traffic lights to residential elevators to phone coverage.
Adrian Mowat, emerging markets (EM) equity strategist, on Wednesday, said that demand in China is strong and hence the shortage of power. Considering its history, it may sound like a case of another regulatory crackdown, but Mowat negates the possibility.
“The more recent issue in China is not the regulatory issue,” Adrian Mowat, emerging markets (EM) equity strategist said. “It's an issue of a shortage of electrical power, which comes out of two things.”
One, the demand in China for energy is very strong. Its power went up in double digits, hand-in-hand with a government policy that aimed to reduce carbon emissions from polluting industries. In July 2021, its demand went up to 16 percent, higher than the same period in July.
In late 2020, China's President Xi Jinping announced it would cut its carbon dioxide emissions per unit of gross domestic product, or carbon intensity, by over 65 percent. He aimed to achieve this level by 2030.
Ever since, his carbon intensity targets have been closely followed, more so at the provincial levels. At these levels, local authorities are responsible for making sure they reach the targets.
According to National Development and Reform Commission (NDRC) -- the country's main planning agency -- out of 30 mainland regions, only 10 could achieve their energy reduction targets up until the first half of CY 2021.
In response to these numbers, NDRC had then announced tougher punishments, somewhere in mid-September. So the regions that failed to reach targets would be published and local officials would be held accountable.
The other reason is the shortage of coal supplies, an important commodity in the country. It is heavily in demand from power generators and industrial users, Reuters reported. But the supply is not enough.
Coal mine production has risen only by 6 percent in 2020. This resulted in the depletion of coal inventories. The low stocks in power plants contributed to rising pressure on coal prices. Coal prices have doubled to $210 a tonne from $90 tonne against this time last year.
For the entire interview, watch the video
(With inputs from Reuters)