China faces double whammy as power crisis adds to Evergrande woes

Highlights 

  1. China is facing debt crisis and power crisis at the same time.
  2. Huge power cuts seen in the north-eastern part of the country.
  3. Many argue that both crises are the fallouts of the Chinese government’s high-handedness.

In a double whammy, the world’s second largest economy – China – has been grappling with a massive power crisis in its north-eastern region, besides battling the fallouts of an inevitable default by the embattled property developer – China Evergrande Group.

The country’s energy crisis is delivering the latest shock to global supply chains as factories in China, which is the world’s biggest exporter, are forced to conserve energy by truncating their production.

The disruption in the power supply comes as producers and shippers race to meet demand for everything from clothing to toys for the year-end holiday shopping season, grappling with supply lines that have been upended by soaring raw material costs, long delays at ports and shortages of shipping containers.

Chinese manufacturers warn that strict measures to cut electricity use will severely impact the productivity in the economic hubs up north like Jiangsu, Zhejiang and Guangdong provinces – which together account for almost one-third of the country’s gross domestic product (GDP). This may end up driving up the prices across the globe.

Local governments have been ordering power cuts as they try to avoid missing targets for reducing energy and emissions intensity – a coercive way of going about the climate-friendly measures. In some other cases, local governments are facing an actual lack of electricity.

Many experts have been arguing that the Evergrande crisis and the power crisis are two sides of same coin – with China’s ruling Communist Party taking high-handed and unilateral decisions about things that have been plaguing the country’s socio-economic system for long.

China’s growth story seems to have been scripted on the back of the piling debt, rather than on capital. This has made Chinese companies the most leveraged ones across the world.

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