Several Chinese provinces, such as Jiangsu and Zhejiang, recently announced power cuts, as record heatwaves pushed peak load demand above maximum power supply capacity, while reduced water flow in the Yangtze River aggravated power shortages in provinces where the fuel mix is dominated by hydropower, Sichuan Province in particular.
The fallout from power rationing in China is likely to undermine its economy and businesses operating there, just as the COVID-19 situation appears to be stabilizing. The forced cuts to factory production in China are also sure to dent the global economy’s already weak growth, as many nations’ fortunes rely on supply chains in the world’s second-largest economy.
There is hope that the power rationing might be lifted, as the China Meteorological Administration has predicted cooler weather and more rainfall in southwestern China in the coming weeks. However, the effects of closing plants in industrial hub Chongqing and Sichuan Province, as well as rising inflationary pressures worldwide, mean that businesses are likely to deplete their inventories slowly, while consumer demand remains weak, financial markets remain volatile and global supply chains continue to encounter disruptions in the short term.
To the global economy and investors, China’s power rationing is like a “black swan” event — something that cannot be predicted, but has profound consequences on markets. Yet it is also like a “gray rhino” event — a threat that is clearly visible to everyone, but ignored until it is too late — as China experienced large-scale power rationing in September last year amid electricity supply issues and a policy push to enforce environmental regulations.
China’s black swan events have been more frequent than usual in recent years. In addition to emergency power cuts, Beijing’s uncompromising “zero COVID” policy, with its strict lockdown measures, and a property crisis engulfing dozens of provinces, have had major impacts on China’s economy.
The Chinese economy grew only 0.4 percent year-on-year in the second quarter and expanded just 2.5 percent in the first half of this year. Unless it achieves 8.5 percent economic growth in the second half, Beijing will miss its target of 5.5 percent growth for the whole of this year, given its poor economic data last month, even though its central bank has over the past few weeks continued to cut key lending rates and urged state-owned lenders to extend more credit to struggling property developers.
Some black swan events in China are natural disasters, such as the heatwave, but more are a result of human intervention, such as Chinese President Xi Jinping’s (習近平) “zero COVID” approach, his “common prosperity” drive and plans to impose greater oversight of the nation’s biggest tech firms. The threat of these manufactured black swan events has hastened the exit of many foreign companies and forced some Taiwanese manufacturers to shift production bases from China. It might be difficult for other Taiwanese businesses to leave in a hurry, but they should still reconsider their global deployment strategy for long-term development.
China’s power cuts do have an impact on certain industries, as Sichuan is home to many producers of lithium, fertilizers and other metals, while Chongqing and Chengdu are manufacturing hubs for flat panels, notebook computers, consumer electronics and semiconductors.
Attention must be paid to whether Beijing can maintain a sufficient power supply to households in affected provinces and to quickly solve the serious power shortage facing industrial users, as China’s economy is expected to slow further.
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