Asharq Al-awsat English https://aawsat.com/english Middle-east and International News and Opinion from Asharq Al-awsat Newspaper http://feedly.com/icon.svg

China Only Has the Energy For One Crisis at a Time

China Only Has the Energy For One Crisis at a Time

Friday, 15 October, 2021 - 04:45

As a worsening power shortage ripples through China Inc., with provinces asking high-energy industries to curtail usage, semiconductor machinery makers and manufacturers along the electric-vehicle supply chain have had to shutter production. That the outages are now hitting such key sectors is worrying.


These areas are major priorities for Beijing and underpin its economic blueprint released earlier this year. If state planners can’t balance their industrial ambitions with their focus on lowering energy consumption and carbon emissions — also a part of the latest Five-Year Plan — it’s worth wondering how far the power crisis could go.


An inability to manage competing goals could end up with the globe’s top C02 emitter squandering the progress it has made so far, especially in areas like greener cars. As the international community attempts to get more serious about climate objectives, falling behind on carbon neutrality pledges would diminish the country’s heft and role as the world’s factory floor.


On one hand, there re the priority sectors like electric vehicles, batteries and chips. The impact has been hard and fast — and the upheaval is far from over. Raw material prices have risen further as power outages have hit companies across the board. That’s on top of the surge caused by interruptions to global supply chains.


Prices of lithium compounds and spodumene, battery ingredients, have shot up in recent weeks and made it even more expensive to produce power packs. Cathode and anode manufacturers — central parts in electric-vehicle battery production — have already been hit. In Hunan, home to several cathode makers and one of the most severely hit provinces, production is falling behind and is down 14%. In Inner Mongolia, graphitization processing capacity, an important step in battery manufacturing, has been slashed by 40%, analysts at JPMorgan Chase & Co. noted.


Similar troubles are brewing with semiconductor wafers, already in the spotlight because of their shortfall across the world. Earlier this month, local media reported that China’s output of metallic silicon — key to making chips, but highly energy intensive — had fallen sharply. The country accounts for around 60% of the market and other producers are unlikely to pick up the slack. While several suppliers currently have some margin of inventories, it’s only a matter of time before higher prices start trickling through the supply chain.


That such integral parts of the industrial sector are struggling so early in this crisis indicates Beijing didn’t have much of a choice but to move fast and hard on power-hungry enterprises without discriminating. Still, some companies like China’s largest battery makers, Contemporary Amperex Technology Ltd, appear to have been spared for now.


The other side of the equation is how power consumption is being managed. The current imbalance raises questions over whether state planners have a handle over how the cutbacks are rippling through different industries and the degree of impact, contrary to the aims of the “dual control” energy policy.


As part of that plan, Beijing has set a binding target to manage overall consumption while lowering energy intensity by 13.5% over the next five years. In theory, that’s a great green plan. In reality, engineering such a slowdown isn’t sustainable at the current rate. In the first half of the year, progress has been slow, despite the widening industrial impact. UBS analysts say that to stay on track, power consumption needs to go from rising 16.2% year-on-year to falling 2% in the last six months of 2021. That means a lot more energy outages and production stoppages are yet to happen — or at least, need to happen — to meet that goal.


Officials recognize the challenge. Premier Li Keqiang has called for an end to the “indiscriminate approach” taken by some Chinese regions to limiting electricity supplies. The government has said it will work to “ensure the stability” of industrial supply chains and maintain “steady economic development.”


Meanwhile, this week President Xi Jinping announced China had started building a massive renewable energy project, noting that the country “will continue to promote the adjustment of industrial structure and energy structure” as it does this.


That transition looks like it’s going to be far more painful than Beijing may have the appetite for.


Bloomberg


Other opinion articles

Editor Picks

Multimedia