China Power Crisis will not be an Impediment in its Digital Journey

Datang International-Zhangjiakou power plant

Highways are dimly lit, many traffic lights are operating at a reduced capacity and residents are bracing power cuts for several hours in a day.

Local Chinese authorities have ordered power cuts at many factories, as directives from the government have mandated a reduction in carbon emissions. As many as 20 provinces are believed to be experiencing the crisis to some degree, with factories temporarily shuttered or working on short hours, according to a Guardian report.

A Global Times report pointed out that there were outages in four provinces – Guangdong in the south and Heilongjiang, Jilin and Liaoning in the north east. The National Development and Reform Commission (NDRC) – formally urged local economic planners, energy administrations and railway companies to beef up coal transportation to meet demand during the winter season.

China is the world’s biggest consumer of coal-powered energy.

“Each railway company should strengthen coal transportation to power houses (utilities) with inventory of less than seven days and launch the emergency supply mechanism in a timely manner,” said the NDRC.

China’s central government authorities announced five-year targets for the country to achieve its publicly declared goal of reaching peak carbon emissions by 2030. China aims in the next five years to boost the share of non-fossil fuels to about 20 per cent of energy consumption, up from about 15 per cent at present.

According to the South China Morning Post, quoting analysis by Sinolink Securities, stocks of coal used to generate electricity – held by the nation’s six biggest power-generation groups – stood at a record low of just 11.31 million tonnes as of 21 September – enough to produce power for 15 days.

The NDRC said later on Wednesday the government would not stop electricity prices from floating within a reasonable range and would let them reflect market fundamentals and changes in cost.

The curbs also continue to affect heavy industry, such as metal production, and manufacturers. An internal document from a large technology components maker in China reviewed by Reuters said more than half its daily production in Kunshan, in the eastern industrial province of Jiangsu, had been suspended since earlier this week.

On Sunday, state-backed Securities Times reported of major power cuts for factories in Guangdong’s manufacturing hub of Dongguang city for the same week. The report also noted sudden power outages in many parts of northeast China, including residential areas in Liaoning province. Guangdong province accounts for about 23 per cent of China’s exports by value, while Liaoning accounts for 1.6 per cent, according to official data for January to August.

Digital Ambitions

These developments will not affect the Data / digital economy as the government has clearly stated it as of “national importance” or a strategic priority in China. Its Digital economy almost grew 10 per cent in 2020. The Digital economy hit 39.2 trillion yuan (around USD6 trillion) in 2020, making up for 38.6 per cent of the GDP, which successfully backed epidemic prevention and control, along with economic growth, authorities said. The digital economy in Beijing and Shanghai both made up for over half of its regional GDP.

“Power shortages will impact the private manufacturing industry and even private homes before it can cause a significant impact on any sector that is considered to be of strategic importance,” opined Santosh Pai, Partner and Head-China Desk with Link Legal and Honorary Fellow, Institute of Chinese Studies.

Struggle with Renewable Energy

But as China tried to shift to renewable energy, a severe drought hit the hydropower centre of Yunnan province. Water-generated power declined year-on-year in July and August by more than 4 per cent each month, according to the National Development and Reform Commission.

Wind-generated power has also slowed its growth, rising 7 per cent in August from a year ago, down from 25.4 per cent growth in July, the commission said.

Impact on China’s economy?

Official figures have shown that in September 2021, Chinese factory activity shrunk to the lowest it had been since February 2020.

Concerns over the power cuts have contributed to global investment banks cutting their forecasts for the country’s economic growth.

Goldman Sachs has estimated that as much as 44 per cent of the country’s industrial activity has been affected by power shortages. It now expects the world’s second largest economy to expand by 7.8 per cent this year, down from its previous prediction of 8.2 per cent.

For last several months there have been warnings of the impending shortage of power. “So unless the situation dramatically worsens I don’t think there will be an impact on data or digital industry,” says Pai.

Venkatesh Ganesh

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