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China’s Power Crisis Moves From the Factory Floor to Homes

·3 min read

(Bloomberg) -- China’s energy crisis is beginning to hit people where they live, adding the risk of social instability to an economic slowdown and global supply chain disruptions.

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Residents in several northern provinces have already been dealing with blackouts, while traffic lights being turned off are causing chaos on the roads in at least one major city. Guangdong, a southern industrial hub with an economy bigger than Australia’s, is asking people to use natural light in homes and limit air-conditioner use after implementing big power cuts to factories.

The impact to people’s homes shows how quickly the power crisis is escalating, as China typically first asks large industrial users to curtail consumption when supply gets tight. Economists at Nomura Holdings Ltd. and China International Capital Corp. have downgraded their growth forecasts for the economy due to the electricity shortages, and cuts to factories are raising concerns of yet another wrench thrown into the works of global supply chains.

China is facing power issues on two fronts. Some provinces have ordered industrial cuts in order to meet emissions and energy intensity goals, while others are facing an actual lack of electricity as sky-high coal and natural gas costs cause generators to slow output amid high demand.

The shortages would force companies to raise prices of goods for Chinese consumers and quicken inflation, the People’s Daily, the official newspaper of the Chinese Communist Party, said in an editorial published on Sunday. This would bring unnecessary disorder to the economy and society, it said.

Wreaking Havoc

The northern provinces of Liaoning, Jilin and Heilongjiang all suffered blackouts over the weekend, Caixin reported, with cuts to traffic lights wreaking havoc during rush hour.

Jilin Vice Governor Wu Jingping on Monday called for ensuring residential electricity needs and avoiding power cuts by all means. Power restrictions are likely to continue until March next year, and residents should prepare for water cuts to become normal, according to a report in the province’s local media.

See also: Can China Steer Evergrande and an Energy Crisis: David Fickling

Guangdong’s provincial energy administration issued a notice on Sunday calling for all walks of society to pitch in to prevent widespread outages. Large-scale cuts to factories have already been implemented, it said, and now it’s asking office workers to use stairs for the first three floors, shopping malls to keep advertising signs on fewer hours, and for homes to use natural light as much as possible and to keep air conditioners above 26 degrees Celsius.

The power cuts will likely cut China’s growth rate by 0.1 to 0.15 percentage point in the third and fourth quarters, CICC economists said in a report. Nomura cut its full-year expansion estimate to 7.7% from 8.2% on Friday, and now sees a possibility of further cuts to the forecasts due to the power shortages.

(Updates with comment from People’s Daily in 5th paragraph and growth forecasts)

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