The multi-month energy crisis that China faced in recent months led to coal and natural gas prices reaching record highs. To combat the energy crisis China introduced emergency power rationing policies that are still affecting Chinese households and factories. The energy crisis was worsened due to increasing supply chain shortages and inflation.
China also faced heavy flooding in its key coal-producing provinces, which worsened the problem further. Some provinces have gone as far as ordering factories to halt all production for a few days each week. This led factory owners to turn to expensive diesel generators to keep their businesses running. Some of China’s largest generator companies like Shandong Huali Electromechanical and Weifang Yuxing Power Company saw a dramatic increase in sales, with some companies selling all of their generator stock in the last few months.
The coal industry makes up 59 percent of total power grid demand in China. The heavy industry makes up the largest share of China’s domestic energy demand, and with many saying it is unlikely that the shortages will be resolved until their usage is curbed. With rising electricity costs for high-end users like heavy industry factories, the cost of goods will rise, and inflationary pressure will set in. The rising cost of energy will force factories to increase their prices. Additionally, if power shortages continue, factories will be forced to stop production, contributing to more supply chain shortages. Which will further increase the prices of imported goods.
Importers around the world are learning not to take China’s energy security for granted. The Covid pandemic did not help either, adding to the ‘perfect storm’. If the energy crisis is not addressed correctly it will lead to even more unemployment, inflation, blackouts, and severe supply chain disruptions within China.
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