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China’s power issues reveal strategic weakness

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BEIJING – A bread company cannot get all the electricity it needs for its bakeries. A supplier of chemicals to some of the world’s largest paint producers has announced production cuts. A port city changed electricity rationing rules for manufacturers four times in a single day.

China’s power shortage is rippling through factories and industries, testing the nation’s status as a reliable manufacturing capital of the world. The shortage prompted authorities to announce a nationwide rush to extract and burn more coal on Wednesday, despite their previous pledges to cut emissions that cause climate change.

Mines closed without authorization have been ordered to reopen. Coal mines and coal-fired power stations that were closed for repair are also to be reopened. Tax incentives are being developed for coal-fired power plants. Regulators have ordered Chinese banks to grant numerous loans to the coal sector. Local governments have been warned to be more cautious about limits on energy use that had been imposed in part in response to concerns about climate change.

“We will do everything possible to increase the production and supply of coal,” Zhao Chenxin, secretary general of the National Development and Reform Commission, China’s main economic planning agency, said at a press briefing Wednesday in Beijing.

Depending on how much coal can be mined and burned in the near future, China’s power shortage could call into question Beijing’s ability to generate the strong economic growth the Chinese people have come to expect in the coming months.

The electricity crisis has also exposed one of China’s strategic weaknesses: it is a voracious and increasingly hungry for energy. China has also become by far the largest emitter of greenhouse gases in the world, mainly thanks to its already heavy dependence on coal.

The world’s second-largest economy relies on energy-intensive industries like steel, cement and chemicals to fuel its growth. While many of its newer plants are more efficient than their counterparts in the United States, years of government electricity price controls have prompted other industries and most homeowners to postpone improvements.

As the winter heating season approaches, which will force China to extract and burn even more coal, Beijing must consider whether to allow factories to continue to produce industrial materials for oil chains at full capacity. global supply.

“They have to sacrifice something to make sure that households will have heat and electricity,” said Chen Long, co-founder and partner of Plenum, a Beijing-based economic and political research firm. “They need to cut back on energy-intensive industries.”

Power rationing appears to have eased somewhat since late last month, when widespread blackouts and blackouts took factories by surprise. But the winter heating season officially begins on Friday in the northeast of the country and continues in north-central China next month.

China faces tough choices. It burns more coal than the rest of the world combined and is the second largest consumer of oil after the United States.

China has rapidly expanded its use of natural gas as well as solar panels, wind turbines and hydroelectric dams. Yet China still does not have enough energy to meet demand. Even the switch to green energy could require a significant amount of energy – the country’s limited electricity supplies have increased its manufacturing costs for solar panels.

Tight and sustained supplies could force China to rebuild its economy, just as high oil prices of the 1970s forced North American and European nations to change. These countries have developed more efficient cars, adopted other fuels, found plentiful new supplies, and outsourced manufacturing overseas, largely to China. But the process was long, painful and expensive.

For now, China is increasing its coal consumption less than a month before world leaders meet in Glasgow, Scotland to discuss tackling climate change.

Members of the board of directors of the European Union Chamber of Commerce in China said on Wednesday that power shortages worsened this week in some cities and eased in others. They predicted that the electricity problems would last until March.

Until enough electricity comes online, Chinese factories risk unexpected and destabilizing shutdowns. Factories in China consume twice as much electricity as the rest of the country’s economy. Chinese factories tend to require 10 to 30 percent more energy than their Western counterparts, said Ma Jun, director of the Institute of Public and Environmental Affairs, a research and advocacy group in Beijing.

China has made more energy efficiency gains over the past two decades than any other country, said Brian Motherway, head of energy efficiency at the International Energy Agency in Paris. But because China started the century with an inefficient industrial sector, it still hasn’t caught up with the West, he said.

Mr. Zhao said that even with Wednesday’s push for more coal production, China will continue its efforts to become more energy efficient. He pointed out that the United States has also burned more coal this year as the United States economy has started to rebound from the pandemic.

The impact of power shortages has been mixed. Car assembly factories in northeast China had been allowed to continue operating, but tire factories almost ceased to operate. Wuxi Honghui New Materials Technology, which makes chemicals for the world’s paint manufacturers, revealed that the power cuts had hurt production.

Other problem whistleblowers include Toly Bread, with its national bakery chain, and Fujian Haiyuan Composites Technology, a manufacturer of battery cases for China’s rapidly growing electric car industry.

Fred Jacobs, a 57-year-old software marketer in Seattle, ordered two high-performance SSDs at the end of the summer from China, only to be offered a refund a week ago due to a lack of electricity would cause factory delays.

“I was flabbergasted because I heard about shipping issues with China, but no electricity issues or infrastructure issues with Chinese suppliers,” he said. “Now the risk is much higher and I will buy from US suppliers even if I have to pay more. “

The power outages have wreaked havoc on people, which could worsen if homes lost electricity during the winter. At least 23 workers were hospitalized in northeast China at the end of last month with carbon monoxide poisoning during a power outage at a large chemicals factory.

The government has taken steps to improve efficiency, such as allowing utilities to raise prices for industrial and commercial users by up to 20% so they can buy more coal.

China virtually halted further investment in coal in 2016 as concerns grew over the industry’s sustainability. Anti-corruption officials have launched investigations focused on some important coal deposits in the Inner Mongolia region, further discouraging investment.

At the end of the summer, many mines were closed for safety reviews. Floods this fall in Shanxi province, China’s largest coal mining center, forced at least a tenth of the province’s mines to close.

With the increase in demand after the pandemic, prices have jumped. Power plants found themselves wasting money with every ton of coal they burned, so they were running at around three-fifths of their capacity.

Chinese authorities hope to replace much of the coal-fired electricity with solar power. But China’s solar panel manufacturing processes require huge amounts of electricity, much of it from coal.

Polysilicon, the main raw material for solar panels, has more than tripled in price recently, with most of the increase in the past two weeks, said Ocean Yuan, president of Grape Solar, a distributor of solar panels at Eugene, Ore.

In China, the cost of building large solar panel farms has jumped about 25% since the start of this year.

“We haven’t seen such a level in years,” said Frank Haugwitz, a Chinese consultant in the solar panel industry.

China is also seeking to improve the efficiency of steelmaking. Its steel plants consume more electricity each year than any home in the country and account for about one-sixth of China’s greenhouse gas emissions.

Chinese steel companies still depend on coal-fired blast furnaces that mainly smelt iron ore to make steel. The West has mainly turned to producing steel in efficient electric arc furnaces, which melt a mixture of scrap and iron ore. China is trying to improve waste collection from demolished buildings, but the switch to electric arc furnaces will be gradual, said Sebastian Lewis, a Chinese energy and raw materials consultant.

For now, China’s concerns are focused on winter. During a severe cold snap last December, some cities ran out of coal and cut factory operations, turned off streetlights and elevators, and limited office heating. The problems arose even though the power stations started the winter with several weeks of coal in stock.

This year, China’s largest provinces only have nine to fourteen days of storage, according to CQCoal, a Chinese coal data company.

“Inventories are low, well below where they should be,” said Philip Andrews-Speed, a Chinese energy specialist at the National University of Singapore. “And they’re panicking for the winter.”

Li You and Claire Fu contributed to the research.

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