An imminent power-supply shock is reportedly expected to hit China just as the world’s second-biggest economy is gripped with uncertainty over the probable bankruptcy of one of the country’s real estate majors, Evergrande.
The crackdown on power consumption has reportedly been triggered by surging demand for electricity, along with soaring prices for coal and gas that are exacerbated by strict targets set up by China’s authorities to cut emissions.
The country’s manufacturing sector with energy-intensive aluminum smelters, textiles factories and soybean processing plants became the first to get hit hard, as they had to curb activities or shut down.
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“With market attention now laser-focused on Evergrande and Beijing’s unprecedented curbs on the property sector, another major supply-side shock may have been underestimated or even missed,” Nomura analysts said, as quoted by Bloomberg.
Nearly half of the country’s 23 provinces missed targets set by the government with Jiangsu, Zhejiang and Guangdong – China’s key industrial hubs that account for about a third of its economy – being among the worst, thus remaining under pressure to slash power use.
“The power curbs will ripple through and impact global markets,” Nomura’s Ting Lu said. “Very soon the global markets will feel the pinch of a shortage of supply from textiles, toys to machine parts.”
China’s energy crisis, which is partially attributed to Beijing’s decarbonization campaign, comes amid an extreme global shortage of energy supplies that has sent European markets into chaos. The power crunch may be overshadowed by current concerns over Evergrande, which could default on its massive debts.
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The Chinese economy is reportedly at risk of a dire shortage of coal and gas during the upcoming winter, as the country has never had to deal with global prices for those fuels at their current levels.
“Policymakers seem to be willing to accept slower growth in the rest of this year in order to meet the carbon emissions target,” Larry Hu, head of China economics at Macquarie Group, told the agency. “The GDP goal of more than 6% is easily achievable, but emissions targets are not easy to hit given robust growth in the first half.”
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