Energy Shortage In China May Slow GDP

What complaints by trade partners, the global recession, and inflation within its borders could not do to China’s expansion, a power shortage may. The Wall Street Journal reports that “Chinese authorities are hitting manufacturers with restrictions on electricity usage that they say will continue in coming months, as low river levels and high coal prices threaten the country’s worst seasonal power shortages in several years.”

Ironically, the news could be bad for the US which has tried to level the field with Chinese manufactures and to pressure China to change its currency policies. No matter how difficult China’s export strength may be on some American businesses, it is still the source of most of the inexpensive goods for consumers. China’s modest inflation may have added slightly to the price of some of its exports to the US . A contraction in production in the People’s Republic could cause a further spike in those prices. That, in turn, may cause consumer activity to slow and cause consumer spending to falter in the US.

The effects of an energy crisis in China may do more than anything in recent memory to highlight the ambivalence that US business and the federal government have toward the rapid economic expansion which has made the People’s Republic the world’s second largest economy. Americans get a regular dose of news that China’s GDP will pass that of the US before mid-century. That is a blow to US pride. It points out the weaknesses in both the U.S. education system and its energy and manufacturing policy. The US still has its service sector and technology businesses to maintain expansion. China will eventually develop intellectual property of its own, and America may lose its advantage in that sector as well.

The list of things that might block China’s economic growth is long. Higher wages could take away China’s manufacturing advantages. A bubble in real estate prices could eventually damage growth as it did in Japan three decades ago. Energy costs and those of agricultural commodities could damage the efficient output of China’s factories. But, none of these has happened yet, at least in way that has undermined China’s expansion.

China has been seen as a nation which needs crude to fire its GDP engine. The People’s Republic is considered the world’s leader and developer of alternative energies, but the volume of output from those will not be large enough to offset the need for fossil fuels for decades, if it happens at all.

It turns out that China’s energy problems are much more immediate. Climate changes have dried its rivers, and high demand has pressured its electrical output to keep up with needs. China’s growth may sputter because of problems which are mundane.

Douglas A. McIntyre