Southern and Central China are experiencing serious electricity shortages, says Caixin Magazine. And it looks like they’ll continue through this winter.
Droughts have hampered China’s hydroelectric output, which accounts for 16% of all of the country’s power. Hao Weiping, vice director of the Electricity Department, the National Energy Administration, has said that water levels are down 30% to 40%.
Now here’s the part that effects debt:
According to the National Energy Administration, energy consumption has soared almost 12% in the first of 8 months of this year alone. At the same time, to curb inflation, the Chinese government has decided to keep prices artificially low.
Hao said that because of these price controls, regions powered by coal-fired energy grids will experience shortages as well— coal makes up 70% of China’s energy consumption.
In fact, most of China’s thermal energy companies have been in the red for years. And according to Want China Times, China’s five major power grids together suffered a loss of about $1 billion in the first seven months of 2011.
Hao admits that China’s energy consumption is unsustainable. He also admits that most of it is being used for industrial consumption. And with coal and hydroelectric power hampered, that leaves a lot of ordinary Chinese people to experience the blackouts.
All of this could lead to unrest, and there’s nothing the government hates more than that.
Rather than deal with that, you better believe the Chinese government will bank-roll energy companies itself, or at least shuffle their debt around like they’ve done with local government debt. So you’re either going to get more government debt, or an even messier Chinese bond market.
Obviously this is not good news.