Stock Groups

China power crunch spreads, shutting factories and dimming growth outlook By Reuters


© Reuters. FILEPHOTO : FILEPHOTO – Power lines and turbines were pictured in Zhangjiakou of Hebei Province, China, on March 18, 2016. REUTERS/Jason Lee/File Photo

By Shivani Singh and Min Zhang

BEIJING (Reuters) – Widening power shortages in China have halted production at numerous factories including many supplying Apple (NASDAQ:) and Tesla (NASDAQ:), while some shops in the northeast operated by candlelight and malls shut earlier as the economic toll of the squeeze mounted.

According to state media, rationing was implemented in northeastern China during peak hour since last week. Changchun residents reported that cuts are occurring earlier and more frequently than expected.

State Grid Corp made Monday a commitment to maintain basic electricity supply and prevent power cuts.

Analysts said that China’s current power crisis, which is caused by tight coal supply and stricter emissions standards, has hampered production across many industries and is hampering the country’s future economic growth.

Banner 3

As night temperatures drop to almost freezing in China’s northernmost towns, this has a significant impact on both homes and other non-industrial users. The National Energy Administration (NEA) has told coal and firms to ensure sufficient energy supplies to keep homes warm during winter.

Liaoning province stated that power generation has declined substantially since July and that the supply gap had widened to an “extreme level” over the past week. The power shortages were not limited to the industrial sector but also extended to residential areas.

Huludao warned residents against using high-energy electronics such as water heaters or microwave ovens at peak hours. In Harbin city, Heilongjiang provincial, a resident told Reuters that shops were closing earlier than usual at 4:00 p.m. (0800 GMT).

China’s power shortage is causing concern in the stock market at a time when its second largest economy shows signs of slowing.

China’s economy faces restrictions on tech and property sectors, as well as concerns about the fate of China Evergrande, a cash-strapped investment company.


Tight coal supplies and toughening emission standards have driven the power shortages across China.

China pledged to reduce energy intensity by approximately 3% in order to reach its climate goals. In recent months, provincial authorities increased enforcement of emission curbs after just 10 out of 30 regions on the mainland were able to meet their goals for energy in the second half of 2018.

Since weeks, major industrial centres along the southern and eastern coasts have been suffering from a power crisis that has impacted their manufacturing operations. Many key suppliers to Apple and Tesla stopped production at certain plants.

In exchange filings, at least 15 Chinese firms claimed that power restrictions had caused production to stop. More than 30 Taiwanese-listed companies with China operations have also stated they stopped working because of the power limitations.

The steel, aluminium and cement industries have also been hard hit by the output curbs, with about 7% of aluminium production capacity suspended and 29% of national cement production affected, Morgan Stanley (NYSE:) analysts wrote in a Monday note. According to them, paper and glass may be next in line for supply disruptions.

Chemical, furniture, soymeal, and dye producers have all been affected.

China’s seasonal output of key industrial products


The fallout of the power shortage has prompted some analysts to downgrade their 2021 growth outlook.

Nomura lowered its forecasts for third-quarter and fourth-quarter GDP growth to 4.7% and 3.0% from previous estimates of 5.1%, 4.4% and 8.2%, respectively. It also reduced its full year forecast to 7.7%.

Nomura’s analysts stated that “the power-supply shock of the world’s second-biggest economic and largest manufacturer will ripple through global markets” in a September 24 note. This warning warned that supplies of machines, textiles and other machine parts may be affected.

Morgan Stanley analysts stated that cuts in production could affect GDP growth by one percentage point, if it continues.

China thermal coal prices

Last week, major coal producers in China met to try and resolve shortages and curb price increases.

China is the largest energy consumer in the world and a major source of climate-warming greenhouse gases. It has stated that it wants to reduce carbon emissions by reducing their consumption by 30% by 2030, and by bringing them to zero net by 2060.