China’s State Grid Corporation said Monday that it would “go all out to fight the tough battle of power supply,” making every effort to secure residential consumption.
China was hit by a similar power crunch in June, but the situation is getting worse because of a perfect storm. Its industries are facing huge pressure from soaring energy prices, and from Beijing to tackle carbon emissions.
The world’s biggest polluter is trying to meet a pledge that its carbon emissions will peak before 2030. That requires its provinces to use less fossil fuel for each unit of economic output, for example by burning less coal to generate power. At the same time, demand for Chinese-made goods has surged as the global economy emerges from the pandemic. The result: not enough power to go round.
Major international suppliers are bracing for impact on businesses already confronting delays caused by shortages and global shipping delays.
Outages in areas where smartphone modules are typically assembled could lead to some short-term delays.
There is “probably some delay of the components for a week or so,” Gai said. “Which still is manageable, but it’s a delay.”
Cutting growth forecasts
The shock is even prompting economists to cut growth expectations this year for the world’s second largest economy.
Analysts at Nomura trimmed their forecast for Chinese growth in 2021 by half a percentage point to 7.7% on Friday, citing the “rising number of factories” that have had to “cease operations,” either because of local energy consumption mandates or power outages due to rising coal prices and shortages.
Analysts at Goldman Sachs followed on Tuesday, cutting their 2021 GDP growth forecast to 7.8% from 8.2%, citing “recent sharp cuts to production in a range of high-energy intensity industries.”
The focus on infrastructure and construction pushed China’s carbon emissions to record highs in the first quarter of 2021, according to research released in May from the Centre for Research on Energy and Clean Air (CREA). The agency said that was the fastest rate of growth in more than a decade.
“The economy is much more driven by the industrial sector than the consumption sector,” wrote Macquarie economist Larry Hu in a Monday research note. “Unfortunately, the energy intensity in the industry sector is much higher than that in the consumption sector.”
Ambitious climate goals
Hu pointed out that the Chinese government is targeting a 3% drop in “energy intensity” per unit of GDP this year.
In August, China’s National Development and Reform Commission (NDRC) called out nearly every major Chinese region and told them to curb or monitor their energy consumption and intensity through the rest of the year.
Another 10 provinces — including Heilongjiang and Liaoning — did not meet energy requirements, the NDRC said in its August announcement.
“Beijing’s unprecedented resolve in enforcing energy consumption and intensity limits could result in invaluable long-term gains, but the short-term costs to both the real economy and financial markets are substantial,” wrote the Nomura analysts.
Some Chinese state media outlets have also called for a balance to be struck between meeting climate targets and allowing the power crisis to spiral out of control.
“As this concerns the development of the economy and society, they must pinpoint where they should work on and keep a balance,” the piece read. “Otherwise, it will catch people off guard, especially for certain industries, where they might be forced to halt production on short notice.”
— Lauren Lau, Eric Cheung, Laura He and CNN’s Beijing bureau contributed to this report.
Correction: An earlier version of this article incorrectly characterized the measures that Pegatron is taking in response to the power crunch.