Since the end of September, an abrupt power rationing situation has emerged in northeastern China, triggering widespread concern among the populace regarding the possibility of electricity shortages this winterAs autumn brings milder temperatures in September and October, it is usually the time when air conditioning is least utilized across the countryDespite this relatively low demand for energy, the northeast has been compelled to implement power cuts to ensure the integrity of its electrical gridThis raises the pressing question: when the winter arrives, heating appliances in the southern regions and coal-fired heating in the north commence operations, will China's power supply hold up?

The situation is indeed challenging, yet it is one that can be managed—and it is essential that we rise to the occasionThe key difficulty lies in the fact that over 70 percent of China's energy supply is generated from thermal power plants, with a staggering 85.3 percent of that being sourced from thermal coal

This statistic underscores that the crux of the issue resides significantly in coal production and consumption.

A closer look at the supply side reveals that from January to July 2021, China produced approximately 1.88 billion tons of thermal coal, marking a year-on-year increase of 5.5 percentHowever, while total production appears to be rising, monthly outputs have shown a declining trendWith shortfalls in coal supply, the market has subsequently witnessed a dramatic surge in thermal coal prices, with key contracts exceeding the 1500 yuan mark and reaching record highs of 1608.8 yuan, with no signs of stabilizationThis troubling trend takes place even amidst favorable policy releases aimed at boosting market conditions, demonstrating the severe impact of multiple factors including environmental initiatives and safety production regulations, which have led to the shuttering of many small to medium coal mines that failed to comply with standards.

On the other hand, another alarming situation has arisen due to China's effective handling of COVID-19, leading to an impressive rebound of industrial electricity consumption

• Alibaba Sells HighLuck Retail for HKD 13.138 Billion
• Offline Retail: A Once-in-Two-Decade Opportunity?
• The Biggest Risks in Financial Markets for 2025
• Dollar Rises Despite Fed Rate Cut: Here's Why
• Lincoln in China: Merger Fears Resurface

In the first nine months of this year, the national power consumption soared past 6 trillion kWh, representing a staggering increase of 12.9 percentIn stark contrast, the coal production growth lingered at a mere 5.5 percentThe gap between rising electricity demand and stagnating coal supply largely accounts for the ongoing power rationing issues.

Recognizing the root causes of these challenges sets the stage for understanding how China is strategizing to address themInitially, in light of tensions over coal imports from Australia, China has shifted its focus towards importing coal from Mongolia, Indonesia, and Russia to fill the gapHowever, despite vigorous importation efforts, logistical constraints have rendered these foreign coal supplies costly and still insufficient to meet demand.

Thus, a significant step taken has been the ramp-up of domestic coal productionRecent data indicates that 72 coal mines in Inner Mongolia are swiftly expanding their production capabilities by a collective increase of over 98 million tons per year

Additionally, the flood-affected province of Shanxi joined this initiative by designating 51 operational coal mines alongside an additional 98 newly established mines to ensure a reliable coal supplyTogether, these measures are anticipated to yield an output of 28 million tons of coal in the forthcoming three months.

However, these actions represent just the second phase of a multi-faceted responseThe third phase involves mobilizing institutional advantages, with state-owned enterprises leading the charge in coal procurement and electricity generationIn a market economy where expensive coal pricing can inhibit profitability for power plants, state-owned companies like the State Power Investment Corporation are proactively purchasing coal—even at a loss—to maintain power supply for residentsThis is happening alongside a substantial allocation of 3 billion yuan aimed at coal purchases to ensure any shortage can be effectively managed.

Moreover, a noteworthy initiative has emerged as a fourth step: the recent market reform of electricity pricing

This reform allows a wider range of fluctuating electricity prices, enhancing the motivation for power generation facilities to increase output whenever possibleConsequently, this not only promotes energy availability but also encourages energy-saving measures within enterprises, reducing overall waste.

It should be noted that measures are also in place to address the challenges posed by Bitcoin mining operations, which previously constituted 60 percent of the global crypto mining powerAs the nation has historically supported such activities—taking advantage of cheap hydroelectricity—current drought conditions in provinces like Yunnan and Sichuan have greatly diminished hydroelectric resources, making this mining deeply problematic for electricity supplyConsequently, during the middle of this year, China started clamping down on these mining operations, resulting in a dramatic reduction of its domestic crypto mining capacity from world-leading levels to nearly zero.

These actions all highlight a foundational commitment from the government towards securing electricity safety

It should be acknowledged that the power plants currently in operation are mostly operating at lossesState-owned enterprises, which are the backbone of China's energy supply, handle 90 percent of oil and gas provision, over 60 percent of electricity generation, and more than 25 percent of coal supplyIn contrast, private producers in less regulated markets might have ceased operations long agoA reminder of this can be found in last year’s winter power crisis in Texas, where 4 million people were left without electricity, and dire consequences ensued as some residents faced tragic outcomes due to the extreme conditions.

Unlike such examples, the Chinese power grid has exhibited robustness following the recent power rationing measuresSince the implementation of these policies, there haven’t been any unanticipated, large-scale blackoutsThis reliability stands as a testament to the underlying strength of China's electrical supply system.

However, it is essential to recognize that the electricity issues are not uniquely Chinese; energy crises have also been plaguing Europe due to natural gas shortages, while the U.S