China accepts higher electricity prices, spurring rising inflationary pressures

The Chinese government will allow the rise in electricity prices with the most drastic reforms to the energy sector in decades, hoping to mitigate the worsening electricity crisis. However, inflationary pressures in the country are rising, threatening its economic growth.

National Development and Reform Commission of China (NDRC) Said On October 12, the price of coal-fired power could rise by as much as 20% from the Commission’s benchmark price, compared to the previous 10% cap.

From October 15th, it was announced that all electricity generated at coal-fired power plants will be priced through market transactions. However, “price caps do not apply to power-intensive industries,” he said. This means that these clients can pay more along supply and demand without caps.

“In general, such measures help improve electricity supply and demand,” NDRC official Peng Shaozong said at a press conference on October 12.

Reforms could boost the Producer Price Index (PPI), but Peng said Power supply Stabilize the production of industrial companies.

He said reforms would not affect consumer prices. However, analysts and economists have warned that China, the world’s second-largest economy, is facing inflationary pressure and manufacturers will eventually pass on rising production costs to consumers.

Foshan Haitian Flavouring & Food Co., China’s largest soy sauce maker, has decided to raise its retail price by 3-7% from October 25th. statement(pdf) Exchange declaration dated October 13.

Shanghai listed company Added $ 74.6 billion market value The price increase is to make the business more “sustainable”.

With coal-based electricity producers accounting for 70% of the country’s electricity generation, electricity shortages across China are affecting everything from factory floors to homes. It is also squeezing economic growth forecasts.

Goldman Sachs, a leading bank on Wall Street Decreased China’s economic growth this year is projected to rise from 8.2% to 7.8% amid the country’s energy shortages and significant reductions in industrial production.

The power crisis is a combination of several factors, including the recent rise in coal prices, the hesitation of electricity producers to lose money and generate electricity, and the government-mandated energy cuts aimed at reducing carbon emissions. Is causing.

IHS Markit Lara Dong’s senior director told Reuters.

China’s most active steam coal futures contracts surged 11% on October 12 to a historically high $ 233.55 per ton, according to Reuters.

Mr Don warned that the energy-intensive sector is likely to face record high electricity prices. Aluminum, steel, ferroalloys, papermaking, cement and textiles are one of the most electricity-hungry industries.

China’s factory gate inflation, PPI, is expected to continue accelerating in September, with producer prices expected to rise by more than 10%, state media Shanghai Securities News reported on October 12.

Last month, the country’s PPI expansion reached 9.5%. This is the first high in 13 years that could weigh on profit margins in many industrial and consumer sectors.

Fran Wan