1. A recap on #China electricity shortage, National Development and Reform Commission (#NDRC) that’s at the center of news, and what’s next.
2. Like any sudden shortage, it’s demand, supply, low slack and sudden shock. Due to low price of Coal in 2020 right after Covid, and government's push to reduce overcapacity and carbon emissions, coal inventory was low. China electricity is 70%+ coal power.
3. This September 3rd Moody’s report on coal sector was a 2 weeks early to be noticed. They mention 10 largest producers – all SOEs – accounted for nearly 53% of China's coal production in 2020, while three regions represented 70% of total production
4. On the demand side, the economy was recovering, particularly in industrial manufacturing and export, which are the two main drivers of 2020 China growth with continued weak consumption.
5. This coupled with the hard environmental targets that’s forcing high energy users and inefficient users to halt production.
6. Different regional reasons for the electricity shortage. Northeast rust belt, sudden reduction on wind power. Shanghai surrounding area, more driven by environmental targets. Southern provinces, more by heat induced demand. There was electricity imbalance across the country.
7. In most news of electricity shortage, NDRC is brought up frequently. The closest equivalent I can think is OMB(Office of Management Budget). Think NDRC as the planning side of Chinese economy, not the market/private business side which various estimates put around 60% of GDP.
8. Every level of government has a NDRC. The national NDRC is dubbed “little state council”. It’s behind strategic and detailed planning, including one belt one road, or what the electricity/water price should be. Its English website is informative. en.ndrc.gov.cn
9. That lays another #China wrinkle of this electricity crisis. The coal price is decided by market, but electricity price, majority of coal production and electricity production, and energy efficiency standards are set by NRDC! (wink wink, they kind of messed up)
10. As coal price increased in 2021, the SOE electricity generators have no incentive to increase electricity because its price is fixed. The more they generate power using coal, the more money they lose. Classic Econ 101 at work.
11. NRDC’s fingers are everywhere, as every bridge government wants to build needs NRDC approval. Not surprising when there is government power on where money is spent, there is rampant corruption. Search for NRDC corruption and many high profile cases.
12. Huatai Securities’ analysts assessing the production of electronics manufacturing companies, directly affecting most in this high-low order: semiconductor packaging and testing> consumer electronics manufacturing> communications equipment manufacturing> semiconductor foundry.
13. The impact is real, but the hard tech industries favored by the government is less hit. Many of them expect this to be short to medium term, lower growth numbers of next 1-6 months.
14. Expect (NDRC) to order increased coal electricity production, both dominated by state owned enterprises as NRDC needs to show they can clean up the mess. There is also discussion on reforming electricity pricing mechanism to reflect more market prices of coal (#inflation)
15. Some interesting energy crisis history around the world.
16. A very funny joke of the electricity crisis on Chinese social media. Japanese Animation Series Ultraman 奥特曼was taken down and re-stocked after some parents complained of violence. The crisis is the revenge of the Ultraman.
17. Hunan NDRC allows transmission electricity cost from wholesale to end-users. Guangdong Electricity Exchange allows 10% float. NDRC(发改委) central to this crisis. Business oriented provinces/Guangdong follow more market mechanism #China #Inflation
18. National #NDRC Econ. Adj. Bureau gave Q&A for energy security next 6 mons. Points outlined in this thread already. If I were snarky yesterday, should've added extra plot: someone in this Bureau is trying to hold on to his job/praying for a mild winter. ndrc.gov.cn/xwdt/xwfb/2021…

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More from @liqian_ren

26 Sep
1/6 #ChinaTech #Event #Watch: World Internet Conference 2021 opened in WuZhen, Zhejiang. Generally who's who in gov't and businesses showed up with topics as future themes: AI, Cybersecurity, CyberLaw, Internet Charity/ESG, 5G, Internet+Edu
2/6 Panel 1 Guests on AI
3/6 Panel 2 guests. Notice #Megvii and #Iflytek, both on US sanction lists.
Read 7 tweets
20 Sep
1/12 A thread on #ANT and how to read #China #PBOC Governor speech on Fintech(#ANT) yesterday. The headline says only FinTech, but Wink Wink, ANT is all over. Get strapped because I will sprinkle some wide guesses and rumors in the end. pbc.gov.cn/goutongjiaoliu…
2/12 My quick take on Fintech (Ant) SINS: 1. Monopoly power 2. Winner takes all 3. Payment system seeping into finance, insurance, small loan and asset mgt. 4. FIN must be separated from Tech, Payment from FIN. 5. Data Security 6. Global Coop on Fintech regulation
3/12 Points 3, 4, 5 has been addressed! I'v written on ANT credit scoring JV+ SASAC take stakes in the three private credit scoring companies. And Alipay has been ordered to be separated from financial services, because FinTech is more Finny than Techy!
Read 14 tweets
19 Sep
1/9 A thread of one potential negative wind for #China #growth next few months: manufacturing firms forced to halt production under energy/environmental constraints 能耗双控. Firms in #Jiangsu asked to stop production. Malls asked to delay opening for 1/2 hour to conserve energy.
2/9 Background: 2060 carbon neutrality goal, National Development and Reform Comm.(#NDRC) sets a staged road map2025/30/35. Each province, two annual hard targets need to meet: total energy usage growth and GDP per unit energy used. (in Chinese) in-en.com/article/html/e…
3/9 AUG 7th, #NDRC graded each province in YTD red/yellow/green. Economically important provinces like #Guangdong, #Jiangsu #Fujian red for both targets. #ZheJiang yellow for both.
Read 11 tweets
18 Sep
1/3 A short thread of an #Belgian/English children's book with today in Chinese history, Tin Tin & Blue Lotus #丁丁历险记(蓝莲花). My kids (7&10) had loved it for years. I just had a sweet moment of talking about Chinese 9.18 history and kids today.
2/3 My kids had read Tin Tin Series by Belgian artist at least 20 times, each time exclaiming on funny passages, particularly the Blue Lotus. Today(9/18) I casually mentioned that there will be sirens in Chinese cities as is unofficial start of WWII there.
3/3 War can be so brutal and random. Mukden Incident started by low level Japanese soldier but moved countries #China and #Japan toward 14 yrs of war(1931-1945) When I mention 9.18, kids instantly said, yes, that railroad thing, it was in Tin Tin! I laughed. Make laughs, not war.
Read 5 tweets
17 Sep
1/8 Friday night, a light thread on the most exclusive Chinese medical school, started by Americans 100 years ago. It’s a piece of US-China history I want my own kids to know.
2/8 Like income inequality, China university resources are not as equal as in the US. There are top 2 universities (Peking U&Tsing Hua) that everyone agrees among top 2, with the rest vying for the third.
3/8 Peking Union Medical College协和. Each year it admits about 100 students, with 1-3 student from each of 31 provinces, except Beijing having a higher quota of 20. In 1993, My father said he would have gone crazy if I got in. He didn’t go crazy.
Read 10 tweets
15 Sep
1/5 #China YOY Aug #retail #sales actual 2.5% vs expected7.4%. Said repeatedly here/clients that growth is the No. 1 risk but everyone loves to talk Regulation/ WAR. Going forward, count on continued monetary support #PBOC, #growth could even surprise on the positive side soon.
2/5 About Delisting risk, did you know that among large/mid BROAD #China universe, only about 6%, or 28 companies that are only listed in the US, after a barrage of companies like @NetEase_Global dual listed in HK? Below is the details. The key is Broad Universe, of course.
3/5 Hard to write something that has shelf life. The focus of future is really HK EX and Shanghai STAR board. 1 yr later, likely 5-7 comp. would sole US listed among large/mid cap. Chinese companies know both US and China didn't want them to list in US. wisdomtree.com/blog/2020-12-1…
Read 6 tweets

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