Why is China running out of electricity?
Business
“Dark streets
Shut factories
Frozen elevators
Defunct traffic lights
Candle-lit homes and restaurants
Limited air conditioners and water heaters usage”
These are some of the images emerging from China!
News channels and social media platforms are buzzing with reports of long and frequent power outages across many provinces of the country, affecting the daily livelihood of millions of people.
How bad is the crisis?
China, the most populous country in the world, always had the problem of meeting its energy demand. However, this mismatch of demand and supply has aggravated to unprecedented levels in the last few weeks.
China's industrial output for September has now reached its lowest point since the pandemic hit in Feb 2020. Goldman Sachs cut its predicted growth figures from 8.2% to 7.8% for the year 2021.
But why is China facing this crisis?
A vicious cycle
There's demand all over the world.
China, a prime exporter to several countries, saw an uptick in demand for its manufactured goods, which led to its factories running overtime - causing a surge in power consumption.
China needs additional coal to meet the enhanced power requirements, as coal fulfils more than three-fourths of its electricity needs, despite its best efforts to go green.
But the power generating companies are refusing to purchase additional coal.
Regulatory woes
With increased demand, coal prices skyrocketed. The power operators cannot pass this spike in prices to the end consumer because China’s government restricts them from doing so. Hence, the power companies refused to operate at a loss to increase their production capacity, creating a wide wedge in demand and supply.
Is the government intervening?
Green ambitions
China’s President, Xi Jinping, set on an ambitious mission to reduce the country’s reliance on fossil fuels and instead use renewable sources for its energy demand. He also envisages China, the country with the highest carbon footprint, to be carbon neutral by 2060! To realise its vision, the government-mandated strict regulations cutting down the supply - further worsening the situation.
Current situation
The northeastern provinces are the worst hit, as these areas have several industrial hubs. High power-consuming industries such as aluminium smelters, textile manufacturers, and cement & fertilizer producers are asked to reduce their operational hours or shut down altogether for a few days.
Even the households are now facing the pinch, with regular power outages and inconvenient norms that restrict the usage of electronics.
Global supply chains too are affected - many factories of Apple and Tesla lie shut.
Any alternatives?
China seems to be running out of options to explore, at least in the short-to-mid term future. Switching to renewable sources is capital intensive and takes a lot of time to set up the necessary factories. A delayed monsoon season resulted in the hydropower plants being idle - impacting the energy demands in the southern provinces.
Importing more coal seems a viable option, but that also increases the country’s reliance on fossil fuels further, something that the ruling dispensation has been trying to avoid.
Not just China
The energy crisis is not restricted to China alone. Major economies such as the United Kingdom and the whole of Europe are struggling with rising prices of natural gas and coal.
Natural Gas price in Europe is up by +400% from January this year, while the electricity prices have surged by +250%. India saw a spike in its natural gas prices by 60% in the last week!
It is going to take a while for the world to shore up its production capacity. In an ironic turn of events, we now have to deal with post-pandemic effects!
Explained: Pandora Papers leak
Current Affairs
Any news - good or bad - about High Networth Individuals (HNIs) piques a lot of public interest. So this week, when a massive investigation that unveiled the hidden wealth of the rich, was brought to public knowledge, it garnered a lot of attention!
The Pandora Papers leak is the biggest exposé made so far that uncovers dubious assets of the wealthy and the famous, tucked away in far-off offshore locations.
But who is responsible for this investigation?
The investigators
More than 600 journalists and 150 media companies, spread across 117 countries and working as a part of an independent global network called the ‘The International Consortium of Investigative Journalists (ICIJ)’, are responsible for this leak.
The group primarily investigated confidential records of 14 financial services companies that operate as service providers for the rich, enabling them to create shell companies and trusts in low-or-no-tax offshore jurisdictions, often hiding the identity of the owners.
The findings
The leak disclosed about 11.9 million documents consisting of 2.9 TB of data. The leak implicates some big names including - 35 world leaders, 400 public officials, and more than 100 renowned names from the business world spread across 100 countries.
The finding suggests that an amount ranging between USD 5.6 trillion and USD 32 trillion is parked in secret offshore accounts under a maze of ownership patterns to hide the real identity of the beneficiaries.
But why hide money in offshore locations?
Why offshore?
Money made in all major economies is taxed by the local authorities - the higher the income, the greater is the tax liability!
In a bid to evade the local tax administrators, and thereby increase their net worth, a few individuals turn to outside countries where the tax regulations aren’t so stringent. These countries also provide flexible regulations to set up companies and trusts.
While setting up a company in such tax havens is ‘not illegal’, hiding such information from your tax regulators is considered ‘illegal’.
The Indian connection
As many as 300 high-profile Indian names have surfaced in the leak.
The famous cricketer Sachin Tendulkar was one of the exposed names that created a lot of hype. An offshore entity worth USD 8.6 million was set up in the British Virgin Islands, where the cricketer was listed as a beneficiary.
Though his team claims that the entity was legal and legitimate, what seemed suspicious was the fact that the company was liquidated just three months after the Panama Paper leak (Panama leak was one such exposé made in 2016).
Anil Ambani, who declared bankruptcy in the courts last year, has been found to have 18 offshore companies!
The sister of the infamous jeweller - Nirav Modi, had also set up one such corporate in the British Virgin Islands just a month before Nirav fled the country.
Biocon executive - Kiran Mazumdar Shaw and her husband, have also been under the radar since the leak, though their team has claimed the entities set up to be legal.
What’s next?
The Pandora Papers leak is not the first one to be revealed. Such leaks have been made in the past as well. One cannot comment on the legitimacy of these corporations by a mere mention of their names in such leaked papers. Only a proper law investigation will throw light on the issue.
It is now up to the law authorities to conduct a fair investigation to implicate all the individuals that may have indulged in unlawful practices while the average Indian continues to pay his taxes!
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