China Hard Landing Hits Electricity Consumption

by: Wolf Richter

Chairman of large power company slips, apparently.

OK, we've heard the official story. China is transitioning from a manufacturing economy to a consumption-based one. Consumers are king. They're going to buy stuff. And that's going to heat up the economy.

Imports and exports have been plunging for months, but no big deal, Chinese consumers - and there are a lot of them - are going to pull the economy forward. That's the official story.

So now we stumble on a report on the Facebook page of the People's Daily, the official newspaper of the Chinese Communist Party. The report was helpfully in English. And it was a peculiar venue for a report on China: Facebook is still blocked in China.

So, the fact the Communist Party rag published it in English and on a venue that is blocked in China makes it seem like this piece of information is not for the Chinese. Maybe it was slipped in by some underling over the weekend while supervisors weren't paying attention.

That blurb reported that Qiao Baoping, chairman of state-controlled China Guodian Corp., one of the five largest power producers in China, spoke on Saturday at the China Development Forum about the overcapacity of electricity generation in China.

The China Development Forum is a huge deal. It's organized by the State Council. Dozens of corporate chieftains from around the globe are there, as is IMF's Christine Lagarde, and other power brokers. Among them is Facebook's Mark Zuckerberg and Alibaba's Jack Ma. They shared the stage on Saturday, as Digital Trends put it, "to lavish praise upon the business cultures of America and China." It was that sort of event.

And then, Qiao Baoping gave his speech on overcapacity of electricity generation in China. Among the things he said were these nuggets, according to the People's Daily:

Qiao said that with the 15.1-trillion kilowatt power generators installed in China, the country now has an overcapacity of more than 20%.

That's bad enough. It adds to the horrendous overcapacity problems that China has in other industries. Building overcapacity has inflated China's GDP for years. Now, it's sitting there useless and loaded up with debts that are decomposing on or off the balance sheets of Chinese banks or shadow banks, and that can never be paid back.

But no matter. China will grow into it, right? Somehow, the economy would certainly grow at a rate of 6.5-7% in 2016. We know that. That's what the government has mandated concerning GDP. The official growth rate last year was 6.9%, the slowest official rate in a quarter of a century.

But by most measures, a growth rate of 6.5% is still blistering. So, electricity consumption would also grow to keep up with it, and soon, the overcapacity problem would be gone. But no. The People's Daily says:

It is estimated that the power consumption nationwide will decrease this year, said Qiao Baoping.

And this surprising decrease in power consumption comes after a year when power consumption already fell. According to the National Bureau of Statistics, cited by the People's Daily in somewhat lumpy English, "the total power capacity generated in China last year was 5.6 thousands of billions kilowatts [so maybe 5.6 billion megawatt hours], down 0.2% compared to 2014. This was the first fall in decades."

So, if that prediction - or fear - offered by the chairman of one of the largest power generators in China comes to pass, well then, here goes our dream of the soaring Chinese economy.

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