China’s hybrid economy is at a crossroads between its own ambition and lack of policy structure. China is facing an acute shortage of electricity which has left billions of people in around 21 provinces as well as businesses out of electricity. Even though blackouts are a regular thing in the country, however, this time multiple actors have contributed to this prolonged blackout and it can have long-term implications not for China itself but for the rest of the world. The blackout problem is particularly serious in the northeastern industrial hub.
China meets 60% of its power demands from coal which not only makes it the highest consumer of coal around the world but also the highest emitter of carbon dioxide in the world. To reduce this dependency and cut its emission, China has decided to go carbon neutral by 2060. This new goal reduced the coal production in the country without creating a substantive alternative energy resource to meet the increasing demand.
Moreover, countries are recovering themselves from the subsequent waves of COVID-19, and the economies are rebuilding themselves. Since China is the biggest exporter of goods, this implied an increase in the demand for goods produced in China. An increase in demand strains the factories to produce more goods in a short span which implies more consumption of power or coal. Globally, the outages could affect supply chains, especially towards the end-of-the-year festive season when the demand tends to rise.
This situation started in August 2021 with a handful of countries running out of power, now it has become a national emergency. Coal stock left with the big producers could last 15 more days. Manufacturing sector companies have been directed to reduce energy consumption during peak demand periods or limit the number of working days.
Energy-intensive industries such as steel-making, aluminum smelting, cement manufacturing, and fertilizer production are among the businesses hardest hit by the outages. China’s economy is already facing a slowdown due to multiple factors such as strict covid protocols, real estate crisis (Evergrande crunch). This electricity crunch will also impact the supply chains since China is also a production house and exporter of numerous products. This, as a result, has not only increased the prices of the fuel and other energy resources but also the end product since it is consuming valuable energy to get produced.
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