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Oct 12, 2021
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China: Highways without lights, people without microwaves

China: Highways without lights, people without microwaves

2: Fan Jiashan / Sipa Asia / Global Look Press

The window of opportunity for Russia could be shattered with a bang by the debris of the Chinese economy that has flown into it. Therefore, it is too early to calculate the profits from the prospect of increasing supplies of coal, oil and gas to our neighbors, who are going through an energy crisis. After all, losses are already obvious in our country and throughout the world only from the current slowdown in the Chinese economy. And if our giant neighbor stumbled in the end also collapses, it will not seem to anyone.

“By the New Year, goods on the shelves of Russian stores may rise in price. The reason is the energy crisis faced by Chinese manufacturers, ”warns Kommersant.

There are serious reasons for such gloomy predictions. The PRC authorities have already begun to cut off electricity in at least 17 provinces responsible for 66% of the country’s GDP. Businesses are under threat of temporary closures, and the supply of goods from China may be seriously delayed. Factories in Europe and Latin America are now facing problems.

Very soon, the entire planet will feel the next crisis of the Celestial Empire, the Expert publication believes, noting that the energy crisis of the PRC in 2021 is to a large extent different from previous crises:

“Firstly, not only the Celestial Empire, but the entire planet is now affected by the energy crisis. Secondly, it will take place against the backdrop of covid lockdowns, which have led to a sharp increase in household electricity consumption, i.e. almost one and a half billion people of China, and Chinese industry. ”

A number of negative factors can be added to this, but how serious the outlook for the Chinese energy crisis will escalate into the world one will largely depend on how the authorities of China itself, as well as China’s partner countries, behave.

– For Russia, in a sense, such a situation is beneficial, since the demand for Russian coal, gas and oil will undoubtedly increase. In the event of a serious slowdown in the Chinese economy, Russia’s competitive advantages will increase – part of the production from China may move to our territory. But the collapse of the Chinese economy is unprofitable to anyone, then the debris will cover the whole world and us too, – he believes Alexei Maslov, director of the Institute for the Far East of the Russian Academy of Sciences.

– First, we need to understand why there is an energy slowdown there now. China made two miscalculations.

The first is a sharp transition to a carbon-free economy, when every province was issued plans to reduce carbon use by 3-5% and this immediately led to a collapse of production. In general, it was such a directive decision, and, as we now see, it was completely ill-considered. Another point is that China has tried to reduce purchases of imported energy resources, including gas and oil, and switch to its own. But all China’s oil reserves account for 2.4% of world reserves, that is, it is impossible to refuse imports. And in terms of natural gas, China today provides itself somewhere less than half. And at the same time, China is trying to accelerate its economy to keep it growing. This implies that energy consumption must continue to increase.

Therefore, China obviously miscalculated here. But this current inhibition is temporary. And although the consumer activity index in this country fell below 50 – this is a critical level, below which the indicators signal a slowdown – it is obvious that China will accelerate its economy by the end of the year, since it has a whole host of other factors for this.

But for Russia, in a sense, such a situation is beneficial, since the demand for Russian gas and oil will undoubtedly increase. Plus, Russia will be able to increase coal supplies to China. In general, the Chinese economy is still 60% powered by coal, and it has not been possible to abandon it.

On the one hand, Russia has large reserves of coal, on the other hand, it is difficult to supply it. It is far from Kuzbass to take him. Good coal can also be brought from Yakutia, but earlier the cost of coal was too low, so it was not profitable. Now the price of this type of fuel in China is increasing; accordingly, a larger volume of Russian coal can go there.

Even if the Chinese economy starts slowing down, seriously slowing down, for Russia it is not scary, because in this case, on the contrary, Russia’s competitive advantages will increase. And, for example, those things that we once bought in China may be produced in Russia. This is if we are not talking about the collapse of the Chinese economy. This collapse, of course, will seriously cover the whole world and Russia as well. But the slowdown in the Chinese economy – no, it will not affect us in a negative sense.

“SP”: – If the collapse of the Chinese economy is in principle possible, then the United States, waging an economic war with this country, will certainly not miss an opportunity to contribute to this?

– The United States will not be particularly zealous here, because the collapse of the Chinese economy will immediately bring down the American economy as well – they are highly interconnected. The main task of the Americans is not to produce Chinese high-tech products from China, so that they remain there, not compete with high-tech products made in the United States. But, roughly speaking, ruining the Chinese economy is not profitable at all.

“SP”: – But if it does happen, how will Russia suffer?

– In kind, this is a decrease in the supply of various electronics – from motherboards to telephones, a decrease in the supply of small-scale mechanization products. This is the collapse of the Chinese car industry on Russian territory, but here we are insured with products from other markets. And this would be largely the collapse of household products – textiles etc., although then we could switch to the Indian market and a number of other countries.

“SP”: – Now there is a growing demand to increase the supply of hydrocarbon energy resources not only to China, but also to Europe. And it is not so easy to dramatically increase the production of coal, oil and gas. How will Russia behave at this fork in opportunities?

– Firstly, it should be taken into account that all Russian gas has been contracted by the end of the year. I think Russia will increase the ratio two to one, that is, two shares go to China, and one share goes to Europe. For Russia, of course, such a situation is a good chance to readjust relations with Europe, and, roughly speaking, it is not profitable to drive everything to China from a political point of view.

– The main negative challenge for Russia will be a possible rise in prices for Chinese goods and equipment due to a temporary jump in energy prices. Yes, we will earn a little more from the export of raw materials, but finished industrial products, machine tools and components that we buy from China will rise even more in price, and this will become a challenge. In particular, for this reason, we at RASPP help to search for goods and equipment from China for free in order to help businesses adapt to a possible shock, ” said President of the Russian-Asian Union of Industrialists and Entrepreneurs Vitaly Mankevich.

– The Chinese energy crisis should not be overestimated. Yes, of course, we see various apocalyptic news and forecasts, we see how cities live without traffic lights due to the lack of electricity. Nevertheless, the current problems are worth being adequately assessed. They are temporary in nature and have fairly understandable reasons that can be eliminated with the help of managerial decisions and economic mechanisms.

We already see a reaction from the Chinese authorities: electricity tariffs were allowed to increase, and in a number of regions the growth has already reached 10%, decisions are being made to increase quotas on coal imports, as well as to increase its production. The problem will be solved: they will buy something from Russia, somewhere in the moment there will be a sharp rise in the cost of fuel and other raw materials. Will this be a window of opportunity for Russia? Probably not.

Yes, at the moment it will be possible to earn more due to the supply of electricity and coal at higher prices, but over time the market will balance and the price will go down again. In the medium term, Beijing will continue to reduce the share of coal in the energy balance, and this will also need to be taken into account. Yes, the economic war with Australia and such man-made crises will make coal more expensive for China in the next couple of years, but this will not turn the clock back and cancel the energy transition.

One should not expect a full-scale halt in the Chinese economy and a collapse. I repeat, the current crisis is man-made: here they twisted the screws in environmental policy, here they quarreled with Australia and stopped buying coal, here they twisted in the tariff policy etc. The reasons for the crisis are such that the system can be reconfigured relatively quickly, but at the moment there can be serious consequences with rising prices, disruption of delivery times and, possibly, with disruption of complex technological chains.

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