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Power rationing in China sends chills through economy

Freezing weather and factory output behind outages; impact of Aussie coal ban limited

Smoke billows from chimneys at a power station in Hefei in China's Anhui Province.   © Reuters

BEIJING -- Unseasonably cold weather and surging factory usage have forced Chinese officials to limit electricity use in multiple provinces, threatening to throw a wrench into Beijing's plans to rapidly revive the world's second-largest economy from a coronavirus-induced slumber.

Outages in southern provinces have been widespread and have followed Beijing's informal clampdown on Australian coal imports. Tensions between the two countries rose after Canberra banned Chinese telecom company Huawei Technologies from its 5G infrastructure and criticized how Beijing handled the coronavirus outbreak.

In China's Hunan Province, a resident in Changsha, the provincial capital, described a recently received notice warning of the potential for sudden power outages during supply crunches.

"Business owners please make preparations," said the message.

Posts on Weibo, China's social messaging platform similar to Twitter, relayed scenes of havoc from the inland province, including elevators that stopped in blacked-out office buildings.

In Zhejiang Province, just south of Shanghai, provincial government agencies were ordered to turn on the heat only if the temperature falls below 3 C. Even then, the thermostat can only be turned up to 16 C.

Zhejiang is saturated with textile and machinery factories. In the city of Yiwu, a limit on facility operations is imposed on each company.

The National Development and Reform Commission, China's top economic planning body, urged citizens Monday to remain calm amid news of the rationing.

"At this stage, China's electricity supply is largely stable, and household electricity consumption has not been affected," said Zhao Chenxin, the commission's secretary-general.

The power rationing stems from two main causes on the demand side, the first being the unusually cold weather this winter. The Zhejiang city of Hangzhou has recorded an average high temperature of 9 C throughout this month, an eight-year low for December.

Changsha logged an average high temperature of 8 C, a reading last seen in 2018 and 2012.

The recovery in factory activity from the coronavirus impact has also contributed to the power shortage. China's supply chain rapidly gained steam since spring, fueled by infrastructure demand at home and orders from abroad.

As the U.S. and Europe grapple with the resurgence of COVID-19 cases, apparel makers and other manufacturers have moved to locate production processes in China.

China's factory utilization rate stood at 76.7% in the third quarter, up 2.3 points from the second quarter. The activity is expected to climb even further in the fourth quarter, with some estimates projecting utilization topping the 77.5% mark seen a year earlier.

On the energy supply front, China produced a total of 3.48 billion tons of coal in the first 11 months of the year, up 2% from the year-earlier period. But the country imported only 260 million tons during the same span, down 11%.

China imposed restrictions on Australian coal imports this year. But a large percentage of coal that China brings in is used in the steel industry. Many experts believe that lower coal imports only had a limited effect on the electricity rationing.

Zhang Jianhua, director of China's National Energy Administration, said Monday that enhancing energy security will be a priority in the country's five-year energy plan. It will feature renewable resources such as wind and solar energy, as well as increasing the ratio of self-produced coal.

China is signaling that it is sticking by its stance against being overdependent on foreign energy sources. But if energy demand mounts due to cold winters, China could be more inclined to employ corporate and household rationing rather than expand imports of natural resources.

The relatively quick containment of the coronavirus outbreak has allowed China to make progress on normalizing its economy this year. Gross domestic product is projected to grow by only 2% this year, but China would be one of the only major economies not to suffer a contraction.

The Chinese leadership plans to set an economic growth target for next year at around 8%. If limits to power usage persist this winter, a V-shape recovery may run a risk of hitting an early setback.

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