China’s Growing strength Crunch Threatens More Global Supply Chain Chaos

China’s State Grid Corporation said Monday that it would “go all out to fight the tough battle of strength supply,” making every effort to obtain residential consumption.

China was hit by a similar strength 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 potential 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 strength. At the same time, need for Chinese-made goods has surged as the global economy emerges from the pandemic. The consequence: not enough strength to go round.

Major international suppliers are bracing for impact on businesses already confronting delays caused by shortages and global shipping delays.

Pegatron — a Taiwanese firm that produces elements and assembles iPhones for Apple (AAPL) — said Tuesday that it is cooperating with “local [Chinese] government policies” to “activate energy-saving mechanisms and reduce production,” in response to a request from CNN Business for comment about the strength crisis. Pegatron has a big factory in eastern China’s Kunshan city, where Taiwanese media has reported that authorities are limiting electricity supply.
strength rationing could create new headaches for the tech supply chain, according to Dale Gai, a director at Counterpoint Research, although likely not as harsh as the worldwide shortage of computer chips that has hammered everything from cars and washing machines to other electronics.

Outages in areas where smartphone modules are typically assembled could rule to some short-term delays.

There is “probably some delay of the elements for a week or so,” Gai said. “Which nevertheless is manageable, but it’s a delay.”

Cutting growth forecasts

The shock is already 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 strength outages due to rising coal prices and shortages.

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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.”

They noted “important uncertainty” headed into the final quarter of the year, given that the Chinese economy already faces risks because of the debt crisis at Evergrande — the embattled conglomerate that has sparked fears among some analysts of a possible Lehman Brothers moment for China.
Energy supply problems aren’t new for China. This summer, several Chinese provinces warned of shortages in what was then country’s worst strength crunch since 2011.
But the latest reports are already more concerning. The acute shortages in parts of the northeast will “continue for some time,” reported state broadcaster CCTV.
China's construction boom is sending CO2 emissions through the roof

China pulled itself out of the pandemic slump largely thanks to a expansion in construction and manufacturing: But real estate projects and factories require a ton of strength to function, and consequently enormous amounts of coal.

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 pushed by the industrial sector than the consumption sector,” wrote Macquarie economist Larry Hu in a Monday research observe. “Unfortunately, the energy intensity in the industry sector is much higher than that in the consumption sector.”

The post-pandemic commodities expansion and ambitious climate targets, meanwhile, have pushed coal prices sky high, given the increase in need and decline in mining. Hu pointed out that the price of thermal coal — which is chiefly used to generate strength — has surged this year from 671 yuan ($104) per ton to approximately 1,100 yuan ($170). It doesn’t help that trade tensions

Ambitious climate goals

Perhaps the biggest contributing factor, according to several analysts, is the excursion to meet President Xi Jinping’s goal for a carbon neutral China by 2060.
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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 vicinity and told them to curb or monitor their energy consumption and intensity by the rest of the year.

Nine of China’s nearly three dozen provinces and regions increased energy intensity in the first half of the year, according to the agency. That included Guangdong province in southern China, a major factory center where one wood mill recently lowered capacity by more than half because of strength limits, according to the Global Times.

Another 10 provinces — including Heilongjiang and Liaoning — did not meet energy requirements, the NDRC said in its August announcement.

“Beijing’s unheard of resolve in enforcing energy consumption and intensity limits could consequence in highly useful long-term gains, but the short-term costs to both the real economy and financial markets are substantial,” wrote the Nomura analysts.

Keeping control

Some Chinese state media outlets have also called for a balance to be hit between meeting climate targets and allowing the strength crisis to spiral out of control.

Regions “cannot be too aggressive” or “slam the brakes too hard” on controlling energy consumption, read an opinion piece published in the People’s Daily, the ruling Communist Party’s mouthpiece, on Sunday.

“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 stop production on short notice.”

— Lauren Lau, Eric Cheung, Laura He and CNN’s Beijing bureau contributed to this report.

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