BEIJING — Local Chinese authorities have abruptly ordered power cuts at many factories in the last week, reflecting a system trying to react to a number of directives from Beijing, and macroeconomic developments.

Some economists have lowered their projections for China’s GDP growth. Others are still waiting to gauge the magnitude of the effects.

Here’s a broad overview on how the power crunch developed:

In the meantime, coal demand has risen due to historically cold winters. Some cities reportedly restricted electricity use in homes and factoriesIt is.

Thermal coal, the principal fuel for electric production, experienced a price rise of more than 40% during the past 12 months. It was trading at around 777 Yuan per metric tons ($119.53 in December 2020) according to Zhengzhou Commodity Exchange data.

But as China tried to shift to renewable energy, a severe drought hit the hydropower center of Yunnan province. The National Development and Reform Commission reports that water-generated power fell by more than 4 percent each month year over year in July and august.

The commission also stated that wind-generated power has seen a slowdown in its growth. It grew 7% in August compared to a year earlier, down from 25.4% in July.

The latest five-year China climate plan is also more moderately rated than analysts expected, according to the commission. Climate Action Tracker, an international non-profit that reviews countries’ efforts to meet Paris Agreement goals, rated China’s policies and actions as “insufficient” in a report released Sept. 15.

China’s majority of electricity is still produced from coal. Data accessed via Wind shows that the year-on–year increase in electricity usage has reached its highest point in 10 years.

In addition to extreme temperatures, factories are demanding more electricity as they rush to fill global orders for Chinese goods. Exports have surged to double their numbers amid the pandemic.

Eurasia Group analysts noted that power demand has increased with China’s economic recovery. These analysts pointed out that there were “several manufacturing hubs on China’s eastern coast,” including Guangdong and Zhejiang. They also warned of potential power supply disruptions during summer peak season.

In June, state-backed Securities Times reported of some power restrictions in parts of the export hub of Guangdong.

In the meantime, there was a decline in coal supply as many mines were shut down to cut carbon emissions. According to Wind data, the August coal stockpile at major power plants was at its lowest level in ten years.

But in mid-August, China’s economic planning agency announced that 20 regions — accounting for about 70% of China’s GDP per Nomura — failed to meet carbon-related targets, prompting local authorities to take action.

On Sunday, state-backed Securities Times reported of major power cuts for factories in Guangdong’s manufacturing hub of Dongguang city for the same week. Reports also indicated that there were power outages across northeast China. This included residential areas of Liaoning.

Wen Biao (general manager, Qianhe Technology Logistics Co.) in Shenzhen province, Guangdong said that power outages mean products can’t be delivered at their scheduled time. According to him, the situation was the same in Shanghai as it is in Ningbo.

According to him, the decrease in shipping has resulted in a lower demand overseas. Shipping to the U.S. West Coast is now $9,000 per container. This represents a drop of $15,000 from September 24, which he noted.

In all, Reuters reported that more than 10 provinces and regions have restricted power use.

According to data from January through August, Guangdong accounts for approximately 23% of China’s total exports, and Liaoning for 1.6%.

The abrupt power cuts have also given foreign businesses pause on whether to invest more in China-based supply chains. Johan Annell from Asia Perspective said that many businesses, which had been planning to make investments in China worth tens and millions of U.S. Dollars, are instead looking towards Southeast Asia.

This week, China’s State Grid and National Development and Reform Commission pledged to ensure power, especially for residents, and said they would take measures such as allowing greater production of coal and increasing coal imports.

According to the commission, power demand for winter may exceed that of summer and winter.

The price of thermal coal has nearly doubled and was trading at just more than 1% below 1,319.80 Yuan per metric tons as of Thursday midday.

The shock to many Chinese factories comes as investors worry about fallout in the massive real estate sector as indebted property giant Evergrande warns of default. Moody’s estimates that real estate together with construction account for around 25% of China’s total GDP.

Following the nearly 20-years of fast, debt-fueled growth, regulators have tightened restrictions on what developers can borrow.

Dan Wang (Chinese chief economist, Hang Seng China), said that she will “focus more attention on restrictive policies in property market.”

The power restrictions were primarily due to the inability of the authorities to adjust electricity prices, which are largely determined by the state. Wang stated that factories have created excess capacity due to their rush to meet global demand.

Wang said, “The effect of the power limitation is equivalent to an natural disaster.”

Others expect more serious consequences. Among major investment banks, Nomura cut its China GDP forecast on Friday, followed by Goldman Sachs on Tuesday.

“The power cuts by themselves may not be significant enough, but combined with the property sector slowdown and regional Covid outbreaks, they do make me worry more about GDP growth in Q4,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management. I have reduced my Q4 forecast to about 4% (from 5%), with downside risk.

Other financial institution economists have mostly held off with forecast cuts, and they are still waiting to determine how much the decline in production will be.

Also weighing on growth is a crackdown on major internet technology companies for alleged monopolistic practices. A sudden order in July that after-school tutoring companies restructure as non-profits has put hundreds of thousands of jobs — and incomes — in question.

Consumer spending, a major driver of Chinese economic growth, has also been sluggish Covid-related restrictions and the pandemic have prevented many from going out to eat or traveling since then.