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Widespread panic is sweeping across China due to a sudden power crisis that is leaving millions of homes in the dark and forcing several industries to completely halt production as strict rationing mandates have started to be put in place. China’s energy crisis is threatening to trigger an economic and financial meltdown like no other. The risk of generalized supply chain disruptions is making economists extremely alarmed with the prospects of yet another global economic slowdown. Even worse, the crisis is likely to incite social instability all across the nation as residents grow increasingly more frustrated with the rigid mandates and prolonged blackouts.
Over the past month, at least 16 out of 31 provincial jurisdictions have enacted out electricity-rationing measures, alarming the population and plunging the nation’s industrial sector into chaos. “The situation worsened over the past weekend,” Lu Ting, chief economist at Nomura, wrote in a recent note, highlighting that large-scale outages are not limited to factories.
Residents in both northern and southern provinces have been facing extensive blackouts for weeks, but since the beginning of this week, the situation has escalated to a whole new level. Traffic lights are being turned off and causing unprecedented chaos on roads and cities. Local authorities are urging residents to only use natural light in their homes and limit the usage of all electronics. And many angry and confused residents are reporting their complaints on social media, exposing that major electricity cuts have come during peak hours without any warning.
The country is currently facing power issues on two fronts. The main reasons for electricity shortages in the south of China are different from what’s causing them in the north. While the south is running low on hydropower, the north is struggling with a massive spike in coal and gas prices.
According to the People’s Daily, the official newspaper of the Chinese government, the power cuts are forcing companies to raise prices of goods for Chinese consumers and resulting in rampant inflation. “This will likely bring unnecessary disorder to the economy and society,” it said.In Guangdong, the provincial energy administration warned that “all walks of society” must conserve energy to prevent further widespread outages. Broad cuts to factories have already been implemented, but now office workers are required to use the stairs, and shopping malls are closing hours earlier than usual.
Chinese consumers, for their part, aren’t happy with the steep rise in energy prices and dwindling energy supplies. Local reports describe that the population is getting angrier and angrier as local authorities force them to ration electricity usage. Even though official data released by the government does not mention explicit numbers, it is estimated that thousands of blackouts caused a lot of trouble across several provinces last week. In the northeastern city of Liaoyang, “twenty-three people were hospitalized with carbon monoxide poisoning after ventilation in a metal-casting factory was cut after a power outage,” according to the state media. Millions of homes have been left in the dark for 5 to 10 hours in northern China over the past weekend, and millions more are likely to face a similar fate in the coming days.
The government is stressing that people should ration power at all costs to “avoid the collapse of the entire grid”. One water company said in a statement released on social media on Sunday that “irregular, unplanned and unannounced power cuts or limits will last until March 2022, and power and water outages will become the norm to meet the requirements of the national grid and the mandates set by local authorities”. The energy crisis will likely cut China’s growth rate by 0.1 to 0.15 percentage points in the third and fourth quarters, CICC economists revealed in a report. “The power-supply shock in the world’s second-biggest economy and the biggest manufacturer will ripple through and impact global markets,” Nomura’s Li Ting added.
Given that companies all across the board are being forced to shut down or reduce activity, this could result in a catastrophic supply chain crisis in the coming weeks and months. While the world is watching the unfolding of the Evergrande crisis, the effects of China’s energy crisis on the manufacturing sector may be overlooked, but the end result could be the worsening of the shortage of everything – from textiles to electronics components. And that could cause a financial and economic meltdown that would push the world’s economy to the edge of a cliff very rapidly.
Global events are accelerating at record speed. And we all should pay very close attention to what happens next. In the meantime, try to get ready while you can, because when the flow of goods between Asia and the U.S. is finally cut, we will see the rapid collapse of our nation.