The electricity supply crisis in China has hit industries which are feared will also result in production shortages and disrupt supply chains. This comes just as the dreaded Evergrande crisis is looming over China's financial system and economy.
Beijing's crackdown on electricity consumption rules has been driven by rising electricity demand, soaring coal and gas prices, and Beijing's emission cut targets.
A number of industries directly affected include aluminum smelters to textile manufacturers and soybean processing factories.
The Chinese government noted that nearly half of the country's territory failed to meet the energy consumption targets set by Beijing. The restrictions on electricity use have also affected areas such as Jiangsu, Zhejiang and Guangdong, known as the trio of industrial powerhouses that account for nearly a third of China's economy.
"With market attention now focused on Evergrande and Beijing's curbs on the property sector, the supply-side surprise may have been underestimated or even missed," said analysts at Nomura Holding Inc. including Ting Lu warned in a note. He predicts China's economy will shrink in the fourth quarter of 2021.
China's economy rebounding after the pandemic lockdown has increased electricity demand from households and businesses. This is in line with declining investment from the mining and drilling sector which limits production.
But actually, the energy crisis in China is also caused by President Xi Jinping's ambition to clear the skies at the Beijing Winter Olympics in February next year. He seeks to demonstrate his commitment to realizing a low-carbon economy in front of the international community.
China's thermal coal futures index has surged in the past month as concerns over mine safety and pollution have been followed by domestic production curbs. China is also still closing imports from Australia.
Meanwhile, the price of natural gas from Europe to Asia has soared to seasonally highs as countries scramble over rapidly depleting supplies.
Chief Consultant of Shanxi Jinzheng Energy Zeng Hao said last winter, many industries had switched to using diesel generators due to electricity shortages. This year, what is dangerous is that government policies are increasingly limiting the potential of the energy industry to increase production to meet increasing demand.
Manufacturers of metals for materials ranging from soda cans to vehicles, Yunnan Aluminum Co., have limited production due to pressure from Beijing.
The shock was also felt in China's giant food sector. Soybean crushers, which process crops into vegetable oil and animal feed, were ordered to shut down this week in the city of Tianjin.
Supplier to Apple Inc. and Tesla Inc. had halted production at some of its factories on Sunday. However, electronics manufacturer Foxconn's facilities in Longhua, Guanlan, Taiyuan and Zhengzhou, the world's largest iPhone manufacturing complex, remained unaffected by the power supply restrictions.
Meanwhile, small companies have also begun to inform the stock exchange that they have been ordered to limit or even stop production.
Although it does not have an impact on investors, the policy of limiting electricity will have an impact on the shortage of textile production to electronic components that can disrupt supply chains and harm multinational companies.
Jiangsu Province, which is adjacent to Shanghai and has an economy as big as Canada's, has closed its steel mills and street lights have also been turned off in several cities.
Near Zhejiang, about 160 energy-intensive companies such as textiles have also been shut down. Meanwhile, 14 cities in Liaoning in the far north have ordered power cuts due to soaring coal prices.
"Electricity restrictions will shake and impact the global market. The global market will soon feel a shortage of supplies from textiles, toys to machine parts," said Lu from Nomura.
The shortage of electricity has even been felt in the housing sector where Guangdong Province has urged its citizens to use natural lights and reduce the use of air conditioners. This was done after the government cut electricity in factories.