Opinion | Why China’s slow economic growth is a bigger headache than its energy crunch and Evergrande’s debt crisis

China is having an eventful month, marked by power-supply disruptions and the debt crisis of the country’s second-largest property developer, Evergrande. What does this mean for China’s post-pandemic economic recovery?

The energy crisis started when a rapid increase in exports fuelled a sharp rise in demand for electricity. China remains dependent on coal for 56.8 per cent of its total electricity supply. And yet, in an effort to meet mandatory targets for reducing energy consumption, local governments have shut down many coal mines in recent years.

At the same time, the government’s climate goals discourage investment in the coal industry, and renewables are nowhere near where they need to be to cover the current shortfall.

As a result, when energy demand surged, so did coal prices. But, because China’s government regulates electricity prices, energy providers could not pass the costs onto customers. To limit the losses, they cut electricity supplies, thereby forcing some manufacturers to curtail production.

Not surprisingly, the government ordered a rapid expansion of some coal mines, and the reopening of others. It gave utility companies more leeway in setting electricity prices. And it pushed manufacturers to boost energy efficiency and accelerate investment in renewable energy.