China is officially panicking.
Now that the global energy crisis has hit the Chinese economy, causing the first PMI to contract since March 2020 following widespread plant and manufacturing shutdowns, not to mention hundreds of millions of Chinese residents suffering from periodic blackouts, Bloomberg reports that Chinese central government officials “ordered the country’s major public energy companies to secure supplies for this winter at all costs. “
Translation: Beijing is no longer willing to risk social anger and in the future, China will subsidize coal and natural gas, which will lead to even higher prices, which will lead to even higher prices for others “substitute” products such as oil, which is why oil has jumped on the news.
The news follows a report released Wednesday that said China will allow soaring coal prices to pass through factories in electricity prices. But be prepared for an increase in the PPI, which is unlikely to be passed on to the CPI due to “common prosperity”. Which logically means collapsing margins and closing – thus even more structural shortages. Unless we get state subsidies or differential prices for the foreign and domestic market. There was a name for this kind of economy. Wall Street pretended not to like it.
According to Bloomberg, the order came directly from Deputy Prime Minister Han Zheng, who oversees the country’s energy sector and industrial production, and was delivered in an emergency meeting earlier this week with officials from the regulator. public assets and the Beijing Economic Planning Agency. The bottom line, according to Bloomberg sources, is that “power cuts will not be tolerated. “
Which just means that supply chain bottlenecks are about to get worse, as China will mobilize even more aggressively for what little coal and LNG supply there is. It’s unclear whether that also means Beijing is on the verge of abandoning its laughable pursuit of decarbonization.
The emergency meeting highlights the critical situation in China. A severe energy shortage crisis hit the country, and several regions had to cut power to the industrial sector, and some residential areas even faced sudden blackouts.
Sign of the concern of Chinese officials, Premier Li Keqiang promised overnight that everything would be done to maintain economic growth. China will ensure that basic livelihood needs are met and maintain stability in industrial and supply chains, Li said as quoted by China’s National Radio in a meeting with foreign diplomats on Thursday.
The bottom line is that China has finally reached the limit of the slowdown it is willing to tolerate and that Beijing is on the verge of unleashing a tsunami of monetary and fiscal stimulus. It also means that commodity prices are about to go absolutely crazy this winter.
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