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What China’s Dramatic Drop In Energy Demand Means For Its Economy


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    https://oilprice.com-By Haley Zaremba

    -- China’s zero-COVID policy is wreaking havoc on its economy. -- Last month, the country’s electricity output plummeted as strict restrictions kept residents inside. -- The fallout of China’s push to eradicate COVID is spreading, with social unrest intensifying across the nation. The fallout of China’s zero COVID policy is spreading as economic downturns and social unrest intensifies across the nation. The Chinese government’s head-scratcher of a decision to eradicate COVID completely – a feat which experts agree is impossible as the virus is already widespread, ultra-contagious, and continuing to mutate. In what is by all accounts a misguided attempt to crack down on COVID, China has imposed partial or full lockdowns on dozens of cities, including the major economic hub of Shanghai. The move has made the nation’s industrial production and consumption activity plummet to their lowest levels since the first wave of the pandemic in early 2020.

    Instead of easing up on ultra-strict zero COVID policies in the face of the sharp economic downturn, however, China is doubling down on its policy and throwing more resources toward its goal to eliminate the virus. China’s new zero COVID plan includes the construction of permanent quarantine facilities, and the development, and dispatching of dedicated teams to carry out widespread testing. Beijing’s decision to redouble its efforts stands in stark contrast to increasing global criticism of what is seen as a costly fool’s errand. Last week, World Health Organization chief Tedros Adhanom Ghebreyesus is a lost cause due to the incredibly high transmissibility of the Omicron variant, which now predominates across the globe. As a result, many of China’s economic and industrial sectors have taken a tumble, including the domestic energy industry. Last month the country’s electricity output “plummeted” as strict restrictions largely kept residents inside. “Electricity generation fell in April from the prior month to 608.6 billion kilowatt-hours, a decline of 4.3% on the same period last year,” Bloomberg reported on Sunday. “Thermal power output plunged to an even greater degree, down 12% for the biggest drop since 2008, as the share of renewables increased at the expense of coal and gas and China installed more solar capacity than expected in the first quarter.”

    The dramatic drop in energy demand, while indicative of an unhealthy economy, comes with a couple of silver linings. The timing of the drop in China’s generally enormous energy needs comes amid a global energy supply crunch that has sent electricity and fuel prices soaring through the roof. Economic sanctions on Russia, one of the world’s biggest exporters of fossil fuels, exacerbated an already severe energy crisisas energy supply chains have proven unable to bounce back from pandemic woes in time to meet with rapidly recovering global demand. China’s reduced energy needs will ease pressures on the global energy market, hopefully leading to a deescalation of the global energy crisis currently hurting consumers around the world. What’s more, the lessening energy demand translates to fewer greenhouse gas emissions. In recent months, the global economy has ramped up its consumption of dirty fossil fuels, most notably coal, in order to close the energy gap at the expense of national and international emissions and climate targets.

    While China’s zero COVID policy is giving the country a fighting chance to meet its emissions targets, it is pushing the country’s lofty economic targets far to the wayside. At this point, it’s looking more and more unlikely that the nation will be able to meet its targeted 5.5 percent economic growth in 2022, which was an ambitious goal even without this major setback.

    All of this economic turmoil paired with severe crackdowns on personal freedoms and mobility has led to considerable social unrest in China. Student protests have erupted around the country while other activists and dissidents have suggested that the severity of the government’s lockdown policies will lead to an intensifying population crisis. Not everyone is unhappy with zero COVID measures, however. For as many industries that are languishing under the draconian policies, others are getting rich off the measures in what the Economist has called “China’s zero-covid industrial complex.”

    By Haley Zaremba for Oilprice.com

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