Thursday, 21 October, 2021

China’s power crunch begins to weigh on economic outlook

BEIJING: China’s power crunch, caused by tight coal supplies and toughening emissions standards, has triggered a contraction in heavy industry across several regions and is dragging on the country’s economic growth rate, analysts said.

China has vowed to cut energy intensity by around 3 per cent in 2021 to meet its climate goals and provincial authorities have stepped up the enforcement of emissions curbs in recent months after only 10 of 30 mainland regions managed to achieve their energy goals in the first half of the year, report agencies.

Higher coal prices and tight supplies in a country that depends overwhelmingly on coal-fired power for its energy supplies has also led to the power shortage ahead of the winter heating season.

“Power cuts have come as China’s carbon regulatory reset has collided with its industrial boom amid the pandemic,” said Morgan Stanley analysts in a note to clients on Monday.

“Production cuts, if prolonged, could knock one percentage point off GDP growth in Q4, led by materials production.” China’s economy saw a rapid recovery from the Covid-19 pandemic last year, but recent data have pointed to a slowdown in the world’s second-largest economy.

The steel, aluminium and cement industries have been hit by the output curbs with about 7 per cent of aluminium production capacity suspended and 29 per cent of national cement production affected, the Morgan Stanley analysts said, adding that paper and glass could be the next industries to face supply disruptions.

“The power-supply shock in the world’s second-biggest economy and biggest manufacturer will ripple through and impact global markets,” analysts at Nomura said in a research note to clients sent on Sept 24.

“The supply shocks have prompted us to further cut our year-on-year Q3 and Q4 GDP growth forecasts to 4.7 per cent and 3 per cent respectively, from 5.1 per cent and 4.4 per cent,” the note added.

Nomura cut its 2021 gross domestic product (GDP) forecast to 7.7 per cent, from 8.2 per cent. China has set its 2021 economic growth target at above 6 per cent.