Can China deal with the ongoing energy crisis?
Since last September, China has been witnessing frequent power cuts and an unprecedented energy crisis. Tensions have reached all sectors and different regions, at a time when some have seized this opportunity to question the policy of reducing carbon emissions pledged by President Xi Jinping.
And writer Martin Orange says – in a report published by the newspaper “Mediapart” (mediapart) French – Such news usually does not reach the international media, but on October 18, it topped the headlines of the US news agency “Bloomberg”, as an early and unexpected cold wave was heading towards the regions of northern China, with Snow in Mongolia.
These weather forecasts were enough to raise questions about China’s ability to deal with the energy crisis and its possible effects on its economy and the world economy. Since last September, China has witnessed a severe shortage of electricity, as whole cities are plunged into darkness from time to time.
In order to solve the problem, the government and local authorities decided to issue orders to institutions to reduce their activity or completely shut down in more than 20 governorates, especially in the north-east, which represents the country’s economic artery, but despite these restrictions, the electricity network always seems to be on the verge of interruption.
At a time when the government is looking forward to the return of the wheel of the economy with the outbreak of the Corona epidemic, this crisis surprised everyone, including the central government, which discovered weaknesses that it had not thought of.
It is worth noting that the Chinese economy achieved a growth of 4.9% compared to 2020, and although this slowdown was expected, it reflects the difficulties associated with the crisis of transporting goods and the stagnation of the real estate market, among other things.
According to a report published by the newspaper “Le Monde” (lemonde) The French said that frequent power outages caused business interruptions across the country, and the bankruptcy of one of the main real estate developers in China due to its inability to repay debts worth 260 billion euros.
And the growth achieved by the Chinese economy in the third quarter of this year 2021 is not good, although it is almost in line with analysts’ expectations, and in the first quarter of the year, the Chinese economy recorded a record growth of 18.3% compared to the first quarter of 2020 and the Covid-19 crisis, and growth was In the second quarter it was very good at 7.9%, as Chinese exports returned to work at full speed again, but in the third quarter of the year this growth slowed down.
Factors exacerbating the crisis
The writer points out that there are many other factors that contributed to the exacerbation of this crisis, including the rapid return of economic activity beyond all expectations, which led to a significant increase in demand for electric power.
There is also the problem of coal mines that have reduced their production rate, and the cost of energy generated by oil, gas and coal is constantly rising, which has prompted electricity marketing companies to stop producing and storing it, in addition to the catastrophic climatic conditions since the summer.
For Chinese commentators, the finger is pointing at one thing, which is the government’s desire to cut carbon emissions, which has been subjected to vitriol and outright rejection, and has become the appropriate scapegoat to explain the current outages.
In 2017, Xi Jinping declared a war against global warming, pledging to reduce emissions that pollute the environment, and made this goal a pillar of his policy in China, with the aim of achieving carbon neutrality by 2060.
Radical measures have been taken within the framework of this policy, including imposing restrictions on coal consumption, and more monitoring and regulation of this sector in various Chinese provinces.
The writer believes that China has made great efforts during the past few years to diversify its energy sources, and it has also developed the hydropower sector, in several regions and even in neighboring countries, which threatens to deplete water resources.
China is the largest solar energy base in the world, and it aims for renewable energy to represent 20% of electricity production by 2025. Nuclear energy also represents 15% of its production, but according to the writer, the problem of dependence on coal remains, although dependence on it has decreased from 80% to 50%.
China has closed many coal-fired power plants and effectively boycotted Australian coal, causing fuel shortages, despite increased energy imports, mostly from Indonesia and Russia.
To avoid this disaster, at the beginning of October, Beijing had to change its position and encourage Chinese mining companies to return to production again by liberalizing the prices of partially produced electricity in a way that allows producers to sell it at a price 20% higher than the price imposed by regulators, and as a result Therefore, the value of electricity bills increased, which led to an increase in inflation.
During the current summer, some companies that depend on coal decided to stop producing electricity, considering that this would cause them a financial loss, as the price of coal continues to rise with the increase in demand and the return of economic activity. On the other hand, these institutions cannot increase the electricity prices that the government has set, Which has remained at low levels for many years, according to international economic reports.
From the first moment this problem erupted, the government hastened to put its environmental goals aside, and instruct public electricity companies to buy coal at any price, in order to ensure a regular supply of energy during the winter.
At the same time, the government allowed electricity companies to raise the selling price, and since last week this price has seen an increase of more than 20% in some governorates, which was a shock to some industrial sectors accustomed to working at low energy costs.
Energy consuming economy
Chinese officials maintain that the current energy crisis is temporary and limited in scope, and that their country is capable of dealing with it.
However, the Chinese economy suffers from successive shocks, after the slowdown in the pace of economic growth, and then the collapse of the “Evergrande” real estate company, so that the price of a ton of coal has tripled since the beginning of the year and is about 300 dollars, and the price of liquefied natural gas. It exceeded the threshold of 50 dollars per million British thermal units (a unit of measurement), while the price of oil rose to more than 85 dollars per barrel.
While some companies resorted to buying power generators, others in the steel, cement and mineral processing sectors were forced to stop their activities. Thus, it seems that the bottlenecks that hung earlier in the production of microprocessors, electronic components, plastics and paper pulp are likely to expand further.
Most economic experts express pessimism about the future of this energy crisis, which they fear will continue for months and lead to inflation in industrial products prices, which began to rise since last September.
Since China is the largest supplier of goods to the global economy, these disruptions will affect the whole world, including unexpected sectors, and even the production of raw materials.
The writer believes that after the Corona virus crisis, this energy crisis in China comes to reveal once again the weaknesses and fragility in its economy, and all the risks related to the unbalanced globalization of the economy, in several aspects, including environmental preservation.