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A new crisis is looming in China and it will affect the global economy

While markets are closely watching the situation surrounding the possible bankruptcy of real estate giant Evergrande, a crisis in another sector of the energy sector looms in China.

Experts warn of the electricity shortage crisis in China, as well as the repercussions of the exposure of China, the second economy in the year, to a shock and its impact on the global economy.

According to a report published by Bloomberg Agency, citing data from Nomura Holdings, nearly half of the Chinese provinces have not been able to meet the government’s electricity consumption targets and are under pressure due to the need to reduce electricity consumption.

Restrictions on electricity consumption in the second economy in the world

As an example of the restrictions imposed in China, the media pointed out that 20 Chinese provinces have already imposed restrictions on the electricity consumption of industrial enterprises and residential buildings.

The restrictions affected 3 economically important provinces, namely Jiangsu, Zhejian and Guangdong, which account for up to a third of China’s GDP.

On the seriousness of the situation, media reports indicate that 143 companies have been completely shut down in Jiangsu Province, a province near Shanghai, while more than a thousand factories have been forced to operate in a “two – two” system.

In Guangdong Province, the Chinese authorities ordered to keep the electricity consumption of companies below the full load level by 15%, while about 160 companies and factories were closed.

Among the factories that stopped, factories producing parts for the American companies “Apple” and “Tesla”. Experts fear that the blackout will affect the global semiconductor supply, if the blackout extends into the winter season.

As an indication of the sensitivity of the issue, the lack of electricity not only affected the business sector, but also the population, as calls appeared in the media from the authorities to ration electricity consumption.

The lack of energy in China has pushed down estimates of the growth of the Chinese economy this year, and “Nomura” reduced its forecast for the growth of the Chinese economy in the last three months of this year to 3% instead of 4.4%.

Why is China suffering from a shortage of electric power?

Experts identify two main causes of the crisis in China in the field of energy consumption. The first is the high, even record prices of gas and coal. For example, gas prices are rising dramatically in Europe, and they are recording historic levels every day. Today, Tuesday, they reached the level of 1427 dollars per thousand cubic meters.

With gas, coal prices rose in Europe, and recently also recorded record levels, reaching the highest level since 2008, as well as the Zhengzhou Stock Exchange witnessed a rise in coal prices, which rose by 40% in just one month.

The second reason is due to the environmental goals set by the Chinese government, and analyst Alexander Kovalev says that China’s main problem now is its unwillingness to increase coal production.

The analyst adds that the electricity rationing measure, which was launched this year, was intended to be a tool to reduce carbon dioxide emissions in the short term, in light of which China is facing a huge rise in the prices of most energy carriers.

How will China’s electricity shortage affect the global economy?

Production problems in China caused by electricity shortages as well as energy difficulties in other countries may lead to higher inflation worldwide.

Investment banker Yevgeny Kogan believes that rising prices could affect all commodities, and he does not rule out that energy problems, which are present in various parts of the world and not only in China, will lead to a new round of growth in the prices of finished products.

Therefore, the analyst wonders about the reaction of the US Federal Reserve (the central bank) to that, will it raise interest rates before the planned date?

The experts did not specify the period of time during which the energy crisis will continue, and indicated that China could direct electricity away from heavy industries such as steel, cement and aluminum, indicating that this might solve the crisis.