Power crunch threatens Chinese economic growth, warn banks

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Power shortages across at least 10 Chinese provinces risk weighing on the country’s gross domestic product as factories crucial to the global supply chain were forced to cut production, investment banks have warned.

Power supply problems in China’s manufacturing and industrial hubs have intensified this month as provinces struggled to meet the central government’s strict carbon emissions targets at the same time as coal prices have risen.

Bruce Pang, from China Renaissance, an investment bank, said the electricity squeeze could result in a cut to GDP growth of 0.1 to 0.15 of a percentage point in the third and fourth quarters.

“We think that the power crunch, together with . . . production halts as winter dawns, and a steep jump in energy prices, are presenting challenges to China’s manufacturing activities,” Pang said.

“We think the year-on-year growth of industrial output in September could be dragged to around 4 per cent to 4.5 per cent.”

Nomura, the Japanese investment bank, said it was “unrealistic” to expect China to maintain stable growth rates given the government’s tough emissions targets.

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“We further cut our GDP growth forecasts for quarter three and quarter four of 2021 and now expect . . . a reduction in year-on-year quarter three and quarter four growth to 4.7 per cent and 3.0 per cent from 5.1 per cent and 4.4 per cent,” the bank said in a research note.

Last year Xi Jinping, China’s president, vowed that the world’s biggest polluter would reach peak carbon emissions by 2030 and carbon neutrality by 2060.

Rising prices have also made power generation less profitable. The benchmark coal price was Rmb1,086 ($168) a tonne last week, a 56 per cent increase since the start of the year, according to the China Electricity Council.

Factories have been ordered to use less power and even close for a few days a week to mitigate the shortfall.

At least 15 listed companies in China, including Yunnan Aluminium, have said that power rationing and shortages have affected their production. Yunnan is responsible for 10 per cent of the country’s aluminium output.

Taiwanese manufacturers of electronic components said their plants in eastern China had been forced to stop operating because of the power cuts.

Eclat Forever, which makes touch panels and printed circuit boards, said in a filing to the Taiwan Stock Exchange on Monday that its subsidiary in Kunshan, a hub for Taiwanese electronics manufacturers between Suzhou and Shanghai, had suspended production. This was because power to industry had been cut from noon on Sunday until midnight on September 30.

More than 15 other Taiwanese companies with Kunshan-based factories filed similar announcements on Sunday and Monday. Taiwanese-owned manufacturers around Shanghai have been used to dealing with shorter periods of power cuts.

China’s National Development and Reform Commission, a central planning agency, criticised specific regions in August for not meeting energy consumption targets in the first half of the year.

Those targets, analysts said, made local governments reluctant to expand their reliance on coal-fired power, forcing officials to ration electricity instead.

Electricity demand from factories and industry surged after China recovered relatively quickly from the coronavirus pandemic, placing greater strain on power supplies.

Reporting by Primrose Riordan in Hong Kong, Kathrin Hille in Taipei and Xueqiao Wang in Shanghai

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