10/19/21, 4:18 PM A triple shock slows China’s growth | The Economist

Subscribe Menu

Finance & economics

From the sublime to the subpar

A triple shock slows China’s growth

Power cuts, the pandemic and a property slowdown: all have taken a toll

Oct 18th 2021

HONG KONG

THERE IS A scene in “Manufactured Landscapes”, a documentary released in 2006,

in which Edward Burtynsky, a landscape photographer, seeks permission to take
pictures of the black mountains of Chinese coal awaiting shipment in Tianjin, an
industrial city near Beijing. “Through his camera lens, through his eyes, it will
appear beautiful,” Mr Burtynsky’s assistant assures his sceptical host That turns
https://www.economist.com/finance-and-economics/a-triple-shock-slows-chinas-growth/21805725 1/9
10/19/21, 4:18 PM A triple shock slows China’s growth | The Economist
appear beautiful, Mr Burtynsky s assistant assures his sceptical host. That turns
out to be not quite true. Through the photographer’s lens, the piles of coal have a

dark, satanic geometry—not beautiful exactly, but awe-inspiring in their

immensity (pictured above).

Looking at those photographs, it is hard to imagine China could ever run short of
this familiar fuel. But in recent months, the black pyramids have been not quite
immense enough. A scarcity of coal, which accounts for almost two-thirds of
China’s electricity generation, has contributed to the worst power cuts in a decade.
And the electricity outages have, in turn, hurt China’s growth. “Our economy is
developing very fast,” Mr Burtynsky’s host tells him, so as to excuse the gloom and
dirt in the air. But that is not quite true anymore either.

ADVERTISEMENT

https://www.economist.com/finance-and-economics/a-triple-shock-slows-chinas-growth/21805725 2/9
10/19/21, 4:18 PM A triple shock slows China’s growth | The Economist

The Chinese economy has been hit by a triple shock, stemming not only from the
power cuts but also the pandemic and a property slowdown exacerbated by the
financial woes of Evergrande, a developer. Figures published on October 18th
showed that the economy’s pace of growth slowed to 4.9% in the third quarter,
compared with a year earlier (see chart). Industrial production expanded by only
3.1% year-on-year in September, slower than in any month during the global
financial crisis. More than a year and a half after covid-19 first struck, China is
reporting growth rates that were unheard of before the pandemic.

Consider the energy crunch first. The causes of the coal shortage fall into two
categories: structural and incidental The unlucky contingencies include floods in
https://www.economist.com/finance-and-economics/a-triple-shock-slows-chinas-growth/21805725 3/9
10/19/21, 4:18 PM A triple shock slows China’s growth | The Economist
categories: structural and incidental. The unlucky contingencies include floods in
Henan province in July and in Shanxi this month, which forced some mines to
close. In addition, in Inner Mongolia, which accounts for about a quarter of China’s
coal output, an investigation into corruption has implicated and hamstrung some
of the officials who might previously have approved expansions in coal mining.
Shaanxi province, China’s third-largest producer of coal, slowed production to
keep the skies clear for a national athletics event in September, which President Xi
Jinping attended. And coal expansion has also been inhibited by safety inspectors,
who have scrutinised 976 mines, after more than 100 industrial accidents
nationwide last year.

ADVERTISEMENT

The deeper reason for the coal crunch is China’s efforts to reduce its dependence

on the fuel, which is responsible for countless premature deaths from air pollution
and a big share of the country’s carbon emissions. The authorities have been
reluctant to approve new mines or the expansion of existing ones in recent years,
because “it’s clearly driving the bus in the wrong direction,” says David Fishman of
The Lantau Group, an energy consultancy.

When supply is tight, prices are supposed to rise, obliging customers to economise
on their consumption. But as the price of coal shot up, power stations were unable
to pass their higher costs on. The price they could charge the grid company that
buys the bulk of their power could only fluctuate up to 10% above a regulated
price, which was changed infrequently. And the tariff paid by end-users was based
on a provincial catalogue of prices that was similarly inflexible. Some power
stations simply stopped operating, refusing to generate power at a loss.

Another shock to the economy came from the pandemic. Outbreaks of covid-19,
such as a cluster that began in Nanjing in July, prompted strict, localised
lockdowns, depressing retail spending, especially catering, and travel. According
https://www.economist.com/finance-and-economics/a-triple-shock-slows-chinas-growth/21805725 4/9
10/19/21, 4:18 PM A triple shock slows China’s growth | The Economist

to Flight Master, a travel site, airlines were operating at less than half their full
capacity in August and at only two-thirds of it in September.

The final shock was to the country’s property sector, a perennial engine of growth,
employment, leverage and anxiety. Regulators are trying to curb speculative
demand for flats and limit the excessive borrowing of homebuilders. That effort to
limit financial risk has brought some pre-existing dangers to a head. Evergrande, a
huge developer with $300bn in liabilities, missed a payment on a dollar bond on
September 24th, followed shortly after by Fantasia, a smaller outfit. Some
homebuyers are now understandably nervous about handing over their cash to any
developer who may not be in business long enough to finish the projects they are
selling.

Against this backdrop, China’s developers started 13.5% fewer homes this
September than they had a year earlier and their sales, measured by floorspace, fell
by a similar percentage. As if to illustrate the importance of the property market to
various “upstream” industries, China also reported sharp falls in the production of

cement (down by 13% in September compared with last year) and steel (which fell
by 14.8%).

In a press conference on October 15th, China’s central bank described Evergrande

as an idiosyncratic case in a generally healthy industry. That should have been
reassuring, except that policymakers will not come to the property sector’s rescue
until they are sufficiently worried about its plight. Anxiety among regulators may
be a necessary condition for alleviating the anxiety of homebuilders and their
creditors.

Most economists think China’s year-on-year growth will slow even further in the
last three months of the year, to 4% or below. China will maintain its vigilance
against covid-19, and the property downturn has further to run. But one of the
three whammies should at least pack less of a punch in the remainder of the year.
China’s power stations, unlike its property developers, have won belated relief
from higher authorities. Mines in Inner Mongolia have been ordered to expand
production. And China’s principal planning body has announced a long-awaited
liberalisation of pricing. It would give power stations greater freedom to pass on
higher costs to the grid company and force industrial and commercial customers
(although not residential customers or farmers) to pay power prices negotiated in
https://www.economist.com/finance-and-economics/a-triple-shock-slows-chinas-growth/21805725 5/9
10/19/21, 4:18 PM A triple shock slows China’s growth | The Economist
(although not residential customers or farmers) to pay power prices negotiated in
the market, not those set down in a catalogue.

These reforms have been in the works for a long time. But it took an acute power
crisis to force the issue. Policymakers might once have preferred a “slow, measured
roll-out of market reforms”, notes Mr Fishman. But things changed “when the
lights started to go out in factories across the country”. China likes to cross rivers
by feeling for the stones. But when a stone gives way, it is time to take a leap.

Reuse this content The Trust Project

MONEY TALKS

Expert analysis of the biggest stories in economics,

business and markets
Delivered to your inbox every week

example@email.com Sign up

More from Finance & economics

https://www.economist.com/finance-and-economics/a-triple-shock-slows-chinas-growth/21805725 6/9
10/19/21, 4:18 PM A triple shock slows China’s growth | The Economist

Hard bargains

Germany’s workers are in the strongest position in 30 years

The International Monetary Bank

The IMF decides to keep its boss

Rental resurgence

Another upward force on American

inflation: the housing boom

https://www.economist.com/finance-and-economics/a-triple-shock-slows-chinas-growth/21805725 7/9
10/19/21, 4:18 PM A triple shock slows China’s growth | The Economist

Subscribe Reuse our content

Group subscriptions Help and contact us

Keep updated

Published since September 1843 to take part in “a severe contest

between intelligence, which presses forward, and an unworthy, timid
ignorance obstructing our progress.”

The Economist The Economist Group

About The Economist Group

Advertise Economist Intelligence

Press centre Economist Impact
Store Economist Events

Working Here
Which MBA?

GMAT Tutor
GRE Tutor
Executive Jobs

Executive Education Navigator

Executive Education: The New Global Order
https://www.economist.com/finance-and-economics/a-triple-shock-slows-chinas-growth/21805725 8/9
10/19/21, 4:18 PM A triple shock slows China’s growth | The Economist
Executive Education: The New Global Order

Executive Education: Business Writing

Terms of Use Privacy Cookie Policy Manage Cookies Accessibility Modern Slavery Statement

Do Not Sell My Personal Information

Copyright © The Economist Newspaper Limited 2021. All rights reserved.

https://www.economist.com/finance-and-economics/a-triple-shock-slows-chinas-growth/21805725 9/9