China is currently facing its worst energy crisis in the last decade. Power rationing and factory shutdowns have been grappling the country, extending over 20 provinces. The Guangdong province, a manufacturing hub that contributes over US$1.7 trillion of revenues to the world’s second biggest economy, was forced to ration electricity supply in June 2021. The situation has been aggravated as rising energy prices meet supply shortage as the Chinese government tries to make good on its commitment to cut fossil fuel. 

The energy crisis has been worsened by a handful of problems, from shipping delays and rising inventories that have further cut manufacturing activities to flooding that forced 60 coal mines to close in Shanxi Province. Fuel is also in short supply this time around. Trucks at Shijiazhuang City area can only fill up 100 liters of gas and things are reportedly worse in other parts with a cap of up to 25 liters. 

The prolonged crisis will have an overarching impact on the nation’s economy, which will extent to the whole world. Projections of China’s economic growth have been cut to the 7.7% level by analysts, driven by factory closures and production cuts. Meanwhile, capacity cut at China’s factories has led to longer lead time that affects global supply chain.

In response, the Chinese government has ordered its coal mines to boost output. It has also increased electricity imports from North Korea, Russia, and Myanmar, with the first recording an increase of a whopping 62% from the previous year. In September, China imported more than 21 million tons of coal from Indonesia, a sharp increase from 17 million tons in August. 

Even with a significant cut that has been made since 2017, China remains highly dependent on coal, which still makes up 51.8% of its national energy mix. The country is also the largest funder of coal-powered plants around the world, sending the world reeling when President Xi Jinping announced plans to cut coal funding in September. 

Following its pledge to greening the national energy, China is implementing the dual control policy, which cuts not only the total energy consumption, but also the energy intensity for each GDP unit. This has led to production cuts and stockpile exhaustion by coal producers resulting in shortage. To make matters worse, the economic giant has cut down imports, including putting an unofficial ban on Australia—which supplied 38% of China’s coal—following COVID-19 related tensions. 

Matters are predicted to worsen as coal demand further increases in the harsh winter brought about by the climate phenomenon La Nina. The sudden spike in coal demand has put enormous stress on a supply chain that is recovering from COVID-19 disruptions and an energy industry in transition. But this crisis is not only happening in China. If anything, it signals a larger crisis worldwide. We are currently seeing energy price hikes in the US, Europe, and Asia caused by a supply shock driven by pandemic disruption and the rebound that followed in early 2021 as well as lack of progress in the renewable energy sector.  

This crisis shows the true cost of relying on one volatile energy source. Beyond environmental protection, the transition to green energy is designed to avoid similar crisis moving forward. But the China case also proves how complicated such transition can be, which can’t be ignored moving forward. Experts predict that this is only the first in the long line of future energy crises as the world transitions into green energy. The sooner we are able to make that transition, the better.