China and India are facing a potential power crisis that has started to become an issue for the global financial system’s stability.
The two Asian giants are huge players on the world stage, and if their problem worsens, it could reach beyond their borders.
China deals with power shortage linked to several factors
Coal prices have reached a record high in China at $234 per metric ton for thermal coal. It is used to generate power. In the last year, the price has doubled.
Several factors are at play in this situation. In the past week, heavy rains in northern provinces like Shanxi and Shaanxi have added to other issues. The two areas produce close to half of the country’s coal. Deadly accidents have also slowed down production.
A boom in construction after the coronavirus pandemic lockdowns required more power. Tensions with Australia, a top coal supplier, have led to some restrictions that have contributed to the shortage.
The country’s leaders are trying to avoid a generalization of the power shortage that has hit 20 provinces in recent weeks.
The government plans to allow more flexibility in terms of pricing to power producers that use coal. Power prices could rise to 20 percent.
China’s government is trying to offer reassurance, but the markets are worried, especially with what is happening in India.
India’s potential power crisis is a problem for the economy
State leaders are ringing the alarm and are asking Prime Minister Narendra Modi to take measures to avoid power shortages. Some of the officials have even used social media to get their message across.
The stated goal of those officials is to protect activities in the capital territory of Delhi. It is reported that some power plants do not have more than two days in supply.
The central government says that it has everything under control. However, some experts claim that power outages are affecting states like Punjab and Jharkhand more than before.
India’s situation took a sharp turn for the worse in the past month. In August, the country had up to 13 days worth of coal stocks. Now, it has between two and four days at best.
Two-thirds of India’s electricity is powered by coal. If the issue is not dealt with appropriately, some believe India could end up in the same situation as China, which had to shut down a few industries.
The power shortage in China and India could have a global impact
One thing is clear, the looming power crisis in the two Asian countries is bad for their economy.
Economists have said that after the latest wave of COVID-19, the economy was on the rebound, and power shortage could have a significant impact on growth.
As China tries to deal with the caps on energy prices, this could lead to some inflation and a change in monetary policy. A situation like this could have a global impact on growth.
As Americans get ready for Thanksgiving and Christmas, they could feel the effects on the supply of machine parts, textiles, and toys.
A potential shortage of goods has made the markets nervous when things were supposed to be headed in the right direction.
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