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Factories lying idle in China as the country faces a severe power crisis; Foreshadowing of global commodity shortages

Image Source: AP

Eastern C. Steam is released from cooling towers at a coal-fired power station in Nanjing inHina’s jiangsu province.

Global buyers face a potential shortage of smartphones and other goods ahead of Christmas after power cuts to meet official energy use targets have forced Chinese factories to close and some homes in the dark .

In the northeastern city of Liaoyang, 23 people were hospitalized with gas poisoning after ventilation at a metal casting factory was shut down following a power outage, according to state broadcaster CCTV. No death was reported.

The factories were idled to avoid exceeding limits on energy use imposed by Beijing to boost efficiency. Economists and an environmental group say manufacturers used this year’s quota faster than planned as export demand bounced back from the coronavirus pandemic.

A component supplier for Apple Inc.’s iPhones said it suspended production at a factory west of Shanghai under orders from local authorities.

The disruption in China’s vast manufacturing industries during one of their busiest seasons reflects the ruling Communist Party’s struggle to balance economic growth with efforts to rein in pollution and emissions of climate-changing gases.

“Beijing’s unprecedented resolve to impose energy consumption limits may result in long-term benefits, but the short-term economic costs are substantial,” Nomura economists Ting Lu, Lisheng Wang and Jing Wang said in a report on Monday.

He said the impact could be so severe that he lowered his economic growth forecast for China to 4.7% in the current quarter from 5.1% a year ago. He lowered his outlook for annual growth from 8.2% to 7.7%.

Global financial markets were already reeling about a possible collapse of Evergrande Group, one of China’s biggest real estate developers, which is struggling to avoid defaulting on billions of dollars in debt.

Manufacturers are already facing shortages of processor chips, shipping disruptions and other effects of a global shutdown of travel and trade to fight the coronavirus pandemic.

Residents of China’s northeast, where autumn temperatures are dropping, report power cuts and appeal on social media for the government to restore supplies. The crisis comes as global leaders prepare to attend a UN Environment Conference by video link on October 12-13 in the southwestern city of Kunming. This increases pressure on President Xi Jinping’s government, as the host of the meeting, to show that it is sticking to emissions and energy efficiency targets.

China is the world’s largest emitter of climate-changing industrial gases and consumes more energy per unit of economic output than developed countries. The ruling party is preparing for the Winter Olympics in February in the Chinese capital Beijing and the nearby city of Shijiazhuang, a period when it would like clear blue skies.

Scores of companies have declared that power rationing can force them to delay filling orders and hurt them financially.

Apple’s components supplier Eson Precision Engineering Co Ltd said on Sunday it would halt production at its factory in Kunshan, west of Shanghai, by Thursday “in line with the local government’s electricity restriction policy”. Eason said the suspension should not have a “significant effect” on operations. Apple did not immediately respond to a question about the potential impact on iPhone supplies.

China’s energy consumption and industrial emissions have increased as manufacturers rush to fill foreign demand at a time when competitors elsewhere are still hampered by anti-coronavirus controls.

Macquarie Group economists Larry Hu and Xinyu Ji said in a report that China’s economy is “more export-driven than at any time in the past decade”, but official energy use targets have failed to take this into account.

According to Li Shuo, a climate policy expert at Greenpeace in Beijing, some provinces used up most of their quotas for energy consumption in the first half of the year and are making cuts to stay under their limits.

Meanwhile, utility companies are being squeezed by soaring coal and gas prices. Lee said this discourages them from increasing production because the government limits their ability to pass the cost on to customers.

“China’s electricity industry has raised prices more than it can tolerate,” Li said.

China has repeatedly campaigned to make its energy-hungry economy more efficient and clean up smog-hit cities.

The city’s skies are clear, but a sudden operation disrupts electricity, coal and gas supplies, leaving families shivering in homes without heating and forcing factories to close .

Shopping malls in the northeastern city of Harbin have announced they will close stores earlier than usual to save electricity.

In Guangdong province to the south, the government asked the public to set the thermostats on air conditioners higher even if the temperature is above 34 °C (93 °F).

State Grid Corp, the world’s largest electricity distributor, issued a pledge to ensure adequate supply.

Meanwhile, state media say local governments have signed long-term coal contracts to ensure enough suppliers.

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