November 29, 2021
China Energy Crisis

China’s Energy Crisis

China’s current slow economic growth is currently contending with another crisis: a lack of energy. With the biggest population globally and a large manufacturing and production industry, the country requires a lot of power.

What has caused this shortage? Is China moving in the right direction to solve this issue? Keep reading to find out.

The Causes of the Energy Shortage

As citizens across the nation see daily life consequences caused by this crisis, the government is looking for a solution. But as there isn’t a straightforward reason, there also isn’t a straightforward solution.

Unfortunately for the country’s president and citizens, the reason for the energy crisis is a perfect storm of many factors. All the reasons for the situation form a complex web, and it’s up to the Chinese government to unravel it all. Below are the five primary contributors to the current crisis.

1. Higher Demand for Chinese Goods

The world has grown to rely more and more on the production of goods in China. Although there was less demand for exports in 2020, demand is now surging. The sudden demand is pushing producers to make more than ever before.
But producing these goods takes a lot of energy. All the necessary power is used for the production of exported goods, which leaves the country’s citizens short on in-home energy supply.

2. Dependence on Coal

China has attempted to diversify its power supplies in recent years, but they still largely depend on coal. While the reliance has decreased over the last 15 years, coal is still responsible for nearly 60% of China’s energy source. Other estimates claim this number is closer to 70%.

Coal is a fossil fuel that occasionally faces shortages due to its limited quantity. When a shortage occurs, China is not equipped with robust alternative energy sources to supply its people with power. Certain areas of the country use wind and solar power, but it is not prominent enough to power the nation through an energy crisis.

3. Plant Closings

In 2020, China committed to a carbon neutrality plan. The goal was that by 2060, the country would only produce as much carbon emissions as it could capture and remove through new technology. Enacting the new plan meant the nation would make efforts in technology development for carbon removal in addition to reducing its carbon usage.

Since announcing the carbon neutrality plan, President Xi Jinping has been closing coal plants one after another. However, this means that less coal is being produced during a time of high demand. And with the crisis now facing the country, it’s clear that other energy sources weren’t keeping up with the coal plant closures.

4. Government Centralization Inhibits Production

Over the years, the government in Beijing has slowly been consolidating power more and more in the nation’s capital. The president came to the decision to outlaw the price of electricity being paid by the citizens. Because of this ban, production costs have increased.

At the same time, citizens are consuming more energy to combat record-high cold weather. But even while more power is used, producers now face profit loss since citizens no longer pay for energy consumption and producers only have a set budget from the government. As a result, the producers are disincentivized to keep up with the demand.

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5. Cuts to Imported Coal

China produces a lot of coal. But with so many citizens and so much manufacturing, China has still needed to import the fossil feul. However, it has been cutting off ties with its long-term trade partners. Not because of environmental reasons, but political.

China took action against Australian politicians who had expressed anti-Chinese government remarks. The country ceased to trade with its former partner. But reducing the amount of imported coal has only exacerbated the shortage.

The Current State

Unfortunately, the crisis has not remained an issue discussed amongst politicians and economists. Every day, citizens are feeling the pressure of the shortage. And across the country, cities are going dark.

Although some authorities are unwilling to tie the blackouts and electricity restrictions to the rising price of coal and restricted imports, it’s difficult not to see a connection. And with government regulations prohibiting the rise of electric prices on citizens, local authorities have little power to react.

Are Things Getting Better?

The Chinese government continues to signal to factories that restricted power use and blackouts will only worsen. And as there are still no incentives to coal producers to keep up standard output despite marginal profits and only worse winter weather coming, the crisis may only become more severe in the short-term future.

There are possible solutions to the shortage that President Xi Jinping is likely considering. But most of the options left for the government’s leaders are not immediate fixes, and it will likely take time for the economy to recover from this latest problem.

The Global Impact of China’s Energy Crisis

As of now, politics and cold winter weather are exacerbating an energy shortage in the country, while the rest of the world waits to see the global effects.

Much of the world’s goods are now produced in China. And with factories contending with limited power, the cost of production is rising, and the output of goods is slowing. Although

China’s government will not allow electricity costs to be passed on to citizens’ energy bills, we will see the cost of goods passed onto all the world’s citizens.

A rising cost of goods will undoubtedly impact the world economy, which is still recovering from the 2020 economic shutdown. Financial experts predict a further slowing of the world economy, a rise in inflation, and an even more severe problem for the world’s supply-chain crisis. The global economy will likely be feeling the effects of the energy crisis for years to come. That is, if nothing changes quickly.

If some key solutions are enacted, such as import restrictions lifted and greater profits to coal producers, the crisis may ease. And at this point, one less crisis is critical to global economic recovery.

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