China-world: energy shock or paradigm shift?

by Fabio Massimo Parenti – In recent weeks we have been experiencing the first manifestations of a generalized energy crisis, with skyrocketing prices and a slowdown in some production sites. Not just in China. For example, we have had production slowdowns in Germany and the UK. This is linked to a series of international contributing causes that are putting a strain on various production and distribution chains, already stressed by the blocks that occurred due to the pandemic. We recall in this regard the temporary interruptions of the activities of the port of Shenzhen between May and June: we are talking about one of the largest ports in the world which, due to local outbreaks, has experienced slowdowns and real blocks of trade flows.

Moreover, it is good to remember that the rationing and blackouts that occurred in China were concentrated in some provinces and not in others. As can be seen from this geographical representation created by Lantau Group (consulting company specialized in the energy sector), the large autonomous municipalities and many other provinces (in gray) have remained free from the problems of the last few weeks, while the energy rationing has been carried out. especially in the northeastern and central provinces (in orange). Finally, the provinces and autonomous regions that have breached the production ceilings as part of the plan to reduce polluting emissions and that have made more drastic cuts for this reason are marked in red.

Chinese Provinces and their Power Rationing Status, 27 September 2021 – Source: The Lantau Group

The Chinese authorities are trying to buffer the situation not only by granting a temporary relaxation of the production limits imposed on a number of plants, but also by increasing imports of coal and natural gas from Russia, Kazakhstan, Indonesia and other countries, even imagining to relax. tensions with Australia, which had been blocked on exports due to the geopolitical tensions that have accumulated in recent years.

Before framing the set of causes in their macro dimension, it is necessary to remember that China has been the locomotive of the world economy for about two decades – as documented several times here. Therefore, the slowdown in production in China, or related to it, cannot fail to have repercussions on international markets. That said, the fact remains that the interventions of the authorities, through the NDRC, are bringing the situation back to normal.

Concause

Behind these manifestations of the energy crisis, driven in general by a cyclical misalignment between supply and demand, with dizzying growth in the prices of fossil fuels, there are two series of contributing causes.

1) Market and geopolitics: demand is growing in a phase of relative exit from the pandemic (economic recovery), while supply is struggling to keep up with the demands of the most energy-hungry countries. Because? Producers control the quotas and should expand them, however, they are playing their bargaining power, as Russia is doing, which has more and more demands from east and west. Added to this is the usual financial speculation also in the energy market.

While the Sino-Russian cooperation and partnership strengthens, the Euro-Russian one has been weakening: we know how much criticism and pressure Russia has suffered since the coup d’etat in Ukraine in 2014. If Nord Stream 2 with Germany is not still operational is certainly not the responsibility of Russia, but of US pressure on Europe, confirming once again the latter’s inability to plan its vital interests autonomously. In this regard, President Putin summarized the European mistakes a few days ago: “As we know, the global energy market has no patience for messes and vagueness: here the investment plans are of a long-term nature, shares sudden leads to severe imbalances. A number of unfavorable factors have accumulated on the European energy market this year. The practice of our European partners confirmed once again that they made mistakes, all the activities of the previous European Commission were aimed at limiting the so-called long-term contracts and aimed at switching to trading on the gas exchange. It became obvious that this policy was wrong ”.

China, on the other hand, has its tensions both with the US, from which it imports a small part of its energy needs, and with Australia (which until a few months ago was one of the main foreign suppliers of coal). Therefore, Russia, Mongolia, Indonesia, Kazakhstan and South Africa, among others, will increase their supplies to China. In particular Russia, which will cover the needs in the short – according to recent agreements with the Chinese authorities – and in the long term, also thanks to the new Russian-Chinese “Power of Siberia 2” gas pipeline which will come into operation in 2022.

(2) The relative economic volatility in times of pandemic is therefore combined with pre-existing geopolitical tensions, but also with the eco-digital transition and the new emission reduction agreements. The latter will be discussed next month in Glasgow (COP26) to continue on the path of the 2015 Paris Treaty. As is known, the main powers of the world, including China, have plans to restructure their economic-productive systems to achieve the neutrality of the carbon within a period that varies between 2050 and 2060. The implementation of these plans will therefore require a further decades-long transition phase, from fossil to alternative sources, which will be played on gas and nuclear power.

In this context, China has made cuts in the most polluting productions, both as a host country for the upcoming winter Olympics, and by virtue of its emission recovery plans.

In summary, if we add up the market asymmetries also induced by the geopolitical tensions, which anticipated and then crossed the pandemic (intensifying), with the new plans to combat climate change (see transition), we have a series of macro-contributing causes behind these the first manifestations of an energy crisis that are affecting both the international logistic networks and the energy ones at the same time.

Similarities with the Seventies in a changed world

Something similar (not identical), in the underlying dynamics, occurred with the third industrial revolution during the seventies of the last century: monetary crisis (collapse of the Bretton Woods system), energy crisis (shock of 1973 and 1979) and overcoming Fordism with IT applications. If the second and third factors begin to unravel, the first is less evident to most, albeit in the making (we do not have the space here to address it). Furthermore, there is another analogy with the seventies: studies and speeches on the need to initiate a “green turn”, through a change in the economic-productive and social paradigm. Remember the hugely successful publication on “The Limits to Growth”? The alarmism of yesterday and today, under the banner of “we no longer have time and” we must act now “, seems to overlap in public speeches.

To conclude it must be said, however, that the contemporary geo-economic-political context (as well as technological) has changed radically, the power relations have changed in a multipolar sense and the processes of economic-productive and social reconfiguration at the world level have not they are more driven by the West, but above all by Asia, with China in the lead. In this recomposition of the world order, two different conceptions of global governance collide: one of an imperialist nature, centered on the imposition of rules and interests of the ruling hegemon, the other of an anti-imperialist one centered on mutual respect, not aggression, non-interference and mutual benefit. One feeds destabilization and pursues predation, reproducing networks of dependence and subordination, the other wants to fill, with the BRI, the three deficits of the world order: peace, development and governance.

To deepen these processes and their meaning, I refer to mine The Chinese way, a challenge for a shared future (Meltemi 2021).

THE AUTHOR

Fabio Massimo Parenti he is currently Foreign Associate Professor of International Economic Policy at China Foreign Affairs University, Beijing. In Italy he teaches at the Lorenzo de ‘Medici International Institute in Florence, is a member of the CCERRI think tank, Zhengzhou, and a member of EURISPES, Laboratorio BRICS, Rome. His latest book is “The Chinese way, a challenge for a shared future” (Meltemi 2021). Su twitter: @fabiomassimos


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