China Power Crunch: Electricity shortage explained
China is struggling with a nationwide power shortage that's affected homes and businesses. CGTN's Gao Ang talks to an economist to find out why this is happening and what can be done about it.
GAO ANG Shanghai "Power cuts and closed businesses – it's not a new issue, but this year things seem to be a bit different. To know why, we have to understand how China generates electricity. About 70 percent of the country's power relies on fossil fuels, mostly coal. But China is the world's largest producer of coal. In 2020, it produced over 50 percent of the coal worldwide. So, why is this still happening? Well, this year, domestic coal production can't catch up with soaring demand for electricity, and China cut coal imports by almost 20 percent for the first six months."
WANG DAN Chief Economist, Hang Seng Bank China "But on top of that, to make things worse, there is the quota system in order to help China to achieve its green transition."
China has also been putting quotas on coal production to achieve its carbon neutrality goal.
WANG DAN Chief Economist, Hang Seng Bank China "The coal power stations cannot produce as much as they want, but the new energy sector, they cannot provide cheap enough energy either."
GAO ANG Shanghai "All those have led to a shortage in electricity in most parts of China. But that's not the only reason. The global economy is recovering from the pandemic and demand for Chinese goods is surging. That means factories need a lot more power to increase production."
WANG DAN Chief Economist, Hang Seng Bank China "The industrial activity and industrial profit had been surging since COVID, and right now it's had a historical high."
GAO ANG Shanghai "But China is not the only country suffering from energy shortage. It's also happening in some European countries, like Germany. China and Germany are similar in the sense that they are both big exporters and trying to shift towards new forms of energy. But they have different energy policies."
WANG DAN Chief Economist, Hang Seng Bank China "The difference is that the electricity price is mostly market based, and company would produce as long as the market price is higher than the cost."
GAO ANG Shanghai "Wang says a flexible mechanism for electricity prices may help resolve the problem. In Guangdong Province, for example, the local government allows a larger fluctuation of power prices during peak hours."
WANG DAN Chief Economist, Hang Seng Bank China "But then when you look at how serious the Chinese government is in his commitment to reach its carbon reduction goal, it just looked like whatever is happening now, is a reinforcement of that commitment rather than a failure."
GAO ANG Shanghai "China has made great efforts towards achieving carbon neutrality, the energy crisis may be resolved if local governments adopt different mechanisms to cater to local needs. GA, CGTN, Shanghai."