Why China Is Facing a Power Crunch and What It Means

A power crunch across China has rippled from factory floors to homes, crimping growth forecasts for the world’s second-largest economy. The shortages, mirrored in Europe and elsewhere, have roiled commodity markets as well. Part of the problem is that the economic rebound after Covid lockdowns lifted has boosted demand, while lower investment by miners and drillers has constrained fossil fuel production. In China, it’s also partially due to the government’s environmental agenda: President Xi Jinping’s vision of de-carbonizing the economy has discouraged the burning of coal, a cheap energy source that subsidized the country’s growth for decades.

Mainly because it’s short of coal. Coal-based producers account for more than 70% of the country’s electricity generation, but Xi’s push to reduce greenhouse gas emissions and go “carbon neutral” by 2060 has capped the growth of coal mining. Demand for power from Chinese factories soared as orders from overseas mounted, but utilities were unable to buy enough fuel after prices surged. (Factory activity contracted in September for the first time since the start of the Covid pandemic.) China’s coal production grew by 6% in the first eight months this year, but the power output from coal-fired generators surged 14% in the same period, leading to a decline in inventories. Certain northern areas also need to reserve enough coal for the upcoming winter heating season, which is worsening the current shortage.