Recently, Zhejiang, Hunan, Inner Mongolia, Jiangxi, and other provinces issued notices concerning power restrictions and suspension of production.
According to mainland media reports, the power restrictions are due to limited power supply. The type of restriction enforced differs from place to place, but the affected areas have carried out some or most of the following:
- All small businesses are required to cease operations to conserve power.
- Medium to large enterprises are required to cut energy consumption or shut down production on several days each week.
- Partial or total shutdown of street lights in some areas.
- Offices are required to turn off air-conditioning, heating equipment, and elevators. Some people have complained about needing to climb the stairs in office buildings with 20 to 30 floors.
- Power is cut to some hospitals and medical equipment is rendered inoperable.
- Local governments send out enforcement teams to ensure that people are not violating power conservation restrictions.
Meanwhile, many export-oriented companies and factories have been complaining that they cannot meet overseas orders, which have increased per seasonal demand, due to power cuts. The power restrictions are also affecting logistics, resulting in a delivery backlog.
On Dec. 14, the PRC’s National Energy Administration released data showing that China consumed 646.7 billion kilowatt hours of electricity in November, up 9.4 percent from a year ago. The NEA also said that power shortages are the result of “electricity development and the scaling back of coal production as part of the 13th Five-Year Plan,” as well as the increase in winter heating demand, “among other reasons.”
1. China’s power shortages are almost certainly linked with the CCP’s recent effort to block Australian coal imports back in mid-October.
According to a Nov. 24 Bloomberg News report, there were 66 ships with Australian coal waiting to unload in Chinese waters. Of the 66 ships, 53 had been waiting four weeks or longer to discharge their cargo. Thirty-nine of the ships were carrying about 4.1 million tons of metallurgical coal and nine were carrying about 1.1 million tons of thermal coal.
China imports coal mainly from Australia, Indonesia, Mongolia and Russia, according to financial service provider Wind. In 2019, China imported the most coal from Australia (76.95 million tons), or 39 percent of total coal imports (not including lower grade coal imports). Fifty-nine percent of imported Australian coal is suitable for power needs and 40 percent is steel production-grade coal.
In recent years, many power plants along the coastal regions in China switched to coal-burning machines tailored for higher grade coal due to the low price and high quality of imported Australian coal. After the CCP blocked Australian coal imports, however, these coastal power plants have no choice but to use lower grade Indonesian and Russian coal, resulting in higher costs and inefficiencies. The higher costs are bad news for the Chinese people and businesses, who are used to lower electricity prices stemming from the CCP’s policy to curb prices by 5 percent over the past two years.
All in all, the CCP’s move to block Australian coal for propaganda and geopolitical purposes is backfiring. In the past decade, China had been able to generate power sufficiently, if not in excess. Now at a time when the Chinese economy is searching for a speedy recovery, businesses are being hit by power cuts and shutdowns.
2. The CCP likely presumed that its sanctions against Australian and other intimidation efforts would force the latter to cave before the winter, particularly in light of Australia’s dependency on exporting to China. Beijing is also likely betting that its efforts to make an example of Australia will dissuade other countries from joining the U.S.-led global anti-CCP bloc. However, the CCP’s bullying of Australia is clearly backfiring, as we previously noted.
This is not the first time that the CCP has misjudged the situation and is reaping the “rewards” of its effort to win the great power competition with the United States. Back in 2018, the CCP imported pork from Russia as part of a response to U.S. trade sanctions, but also ended up “importing” an African swine fever epidemic from tainted Russian pork. Meanwhile, Brazil and Argentina sold soybeans to China at high prices and imported cheap U.S. soybeans to make up domestic supply. By 2020, the PRC was importing large quantities of pork, soybeans, and corn from the U.S. as part of the Sino-U.S. “phase one” trade deal and to stabilize food prices back home. Ultimately, the CCP’s effort to counter U.S. trade sanctions backfired badly, and we might be seeing recent history repeat itself as the Party takes on Australia.
3. There are two main reasons why the CCP will likely stick with its intimidation of Australia despite recent setbacks.
First, the CCP adheres to Marxism-Leninism, an ideology that tolerates sacrificing the people’s interests if it means saving the Party’s “face”; as Lenin is alleged to have said, “the ends justify the means.” During the height of the Great Leap Forward, the CCP exported large quantities of food for propaganda and geopolitical reasons while the Chinese people died en masse as a result of a great famine.
Second, CCP officials are inclined to “prefer left rather than right” (寧左勿右) and meet their performance targets, even if it means that overall regime interests are sacrificed. Local officials and those in the ministries will strive to be “politically correct” first and leave the mess from their actions for Xi Jinping and Party Central to clean up.
Xi and the CCP are likely sticking with “wolf warrior” diplomacy in the face of setbacks because they are gambling on “competition without confrontation” with the U.S. under a Biden presidency. But if Donald Trump, and not Joe Biden, is President come Inauguration Day, Sino-U.S. tensions will escalate rapidly and the Chinese economy will see sharp shocks, endangering the CCP regime.