Goldman cuts China growth forecasts as power cuts start to bite

Goldman Sachs has lowered its annual economic growth forecast for China as nationwide power cuts hit millions of homes and halted production at factories, including some supplying Apple and Tesla, Arab News reported.

Goldman Sachs said on Tuesday it expects growth to come in at 7.8 per cent, down from 8.2 per cent, citing power cuts that led heavy industries to cut output, leading to “significant downside pressures”.

It is the second bank to downgrade forecasts in as many days.

At least 17 provinces and regions, accounting for 66 per cent of the country’s gross domestic product, have announced some form of power cuts in recent months, mainly targeting heavy industrial users, according to Bloomberg Intelligence.

Nearly 60 per cent of the Chinese economy is powered by coal, but supply has been disrupted by the pandemic, put under pressure by tough emissions targets and squeezed by a drop in coal imports amid a trade tiff with Australia.

Earlier this month, coal prices hit a record high, with restrictions imposed on businesses and homes amid the supply crunch.

Still, China’s power demand in the first half of the year exceeded pre-pandemic levels, according to the National Energy Administration.

Analysts at Nomura said on Monday a surging number of factories had been forced to cease operations due to either government mandates to meet carbon targets or surging prices and coal shortages. It cut its annual GDP growth forecast to 7.7 per cent.

Footage in local media Beijing News showed cars travelling on a busy highway in the city of Shenyang in complete darkness without traffic lights or street lamps.

“Power cuts eight times a day, four days in a row… I’m speechless,” wrote one frustrated user from Liaoning.

Another complained that malls were shutting early and a convenience store was using candlelight.

“It’s like living in North Korea,” they wrote.

Apple supplier Unimicron Technology said factories in two regions were told to stop production from midday Sunday through Thursday, in filings with the Taiwan stock exchange on Monday.

Dozens of other companies, including a parts supplier to carmaker Tesla, were told to halt production this week, according to stock exchange filings.

The northeastern rust belt, with thousands of power-hungry cement kilns and steel smelters, has been among the worst affected.

A factory in northeast Liaoning had to rush 23 workers to hospital due to carbon monoxide poisoning after ventilators suddenly stopped working during a blackout, state broadcaster CCTV reported.