China power crunch spreads, shutting factories and dimming growth outlook
By Shivani Singh and Min Zhang
BEIJING (Reuters) - Growing electricity shortages in China have halted production at numerous factories, including many supplying Apple and Tesla, while some candlelit shops in the northeast and shopping malls close early as the economic toll of the pressure increased.
China is in a power crisis as a shortage of coal reserves, stricter emissions standards, and strong demand from manufacturers and industries have pushed coal prices to record highs and triggered widespread restrictions on consumption.
Rationing has been in place at peak times since last week in many parts of northeast China, and residents of cities like Changchun said cuts came earlier and longer, state media reported.
On Monday, State Grid Corp pledged to ensure basic power supplies and prevent blackouts.
The power shortage has adversely affected production in industries in several regions of China and affected the country's economic growth prospects, analysts said.
The effects on households and non-commercial users come when nighttime temperatures in China's northernmost cities drop to near freezing. The National Energy Administration (NEA) has directed coal and natural gas companies to ensure adequate power supplies to keep homes warm in winter.
Liaoning Province said electricity generation has declined significantly since July and the supply gap widened to "severe levels" last week. It extended industrial outages to residential areas last week.
Huludao City urged residents not to use energy-intensive electronics such as water heaters and microwave ovens during peak times, and a resident of Harbin City, Heilongjiang Province told Reuters that many shopping malls would close earlier than usual at 4 p.m. (0800 GMT).
In view of the current electricity situation, "the orderly use of electricity in Heilongjiang will continue for a while," CCTV quoted the province's economic planner as saying.
The scarcity of power is unsettling Chinese stock markets at a time when the world's second largest economy is already showing signs of slowing.
China's economy is grappling with real estate and technology restrictions and concerns about the future of insolvent real estate giant China Evergrande.
Scarce coal supplies, partly due to industrial activity as the economy recovered from the pandemic, and stricter emissions standards have caused electricity shortages across China.
China has promised to cut energy intensity - the amount of energy consumed per unit of economic growth - by around 3% in 2021 in order to meet its climate targets. The provincial authorities have also stepped up the enforcement of emission limits in recent months, after only 10 out of 30 mainland regions achieved their energy targets in the first half of the year.
China's focus on energy intensity and decarbonization is unlikely to wane ahead of the COP26 climate talks - as the 2021 United Nations Climate Change Conference is called - to be held in Glasgow in November, where leaders will set their climate agendas, analysts say.
The electricity shortage has been affecting manufacturers in important industrial centers on the east and south coast for weeks. Several major Apple and Tesla suppliers have ceased production at some plants.
At least 15 Chinese companies have stated on stock exchange records that production has been interrupted by electricity limits, while more than 30 Taiwanese companies with offices in China had ceased operations in order to comply with the electricity limits.
The steel, aluminum and cement industries have also been hit hard by the production constraints, with around 7% of aluminum production capacity suspended and 29% of national cement production affected, Morgan Stanley analysts wrote in a statement on Monday. Paper and glass could be the next industries to face supply disruptions, they said.
Manufacturers of chemicals, dyes, furniture and soy flour are also affected.
The aftermath of the power shortage has led some analysts to downgrade their growth prospects for 2021.
Nomura cut its GDP growth forecast for the third and fourth quarters to 4.7% and 3.0%, respectively, from 5.1% and 4.4% previously, and its forecast for the full year from 8.2% to 7.7 %.
"The power shock in the world's second largest economy and manufacturer will spread to global markets and affect global markets," Nomura analysts said in a September 24 statement, warning that global textile supplies, Toys and machine parts could be impaired.
Morgan Stanley analysts said production cuts, if prolonged, could hurt 1 percentage point of China's GDP growth in the fourth quarter.
Major coal producers in China met last week to fix bottlenecks and curb price hikes.
China, the world's largest energy consumer and source of climate-warming greenhouse gases, has announced that it will peak CO2 emissions by 2030 and net zero by 2060.
(Reporting by Shivani Singh, Min Zhang in Beijing, Additional reporting by Kanishka Singh in Bengaluru, Ben Blanchard in Taipei, Yiming Shen in Shanghai and Beijing Newsroom; Editing by Ana Nicolaci da Costa, Tony Munroe and Susan Fenton)
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