Dr Andy Xie: How China’s coal crisis exposes the hypocrisy of the West’s carbon footprint

Dr Andy Xie

In a recent SCMP article, Dr Andy Xie talked about China’s coal crises and how it exposes the hypocrisy of the West’s carbon footprint

The surging electricity demand is driven by export recovery. China is on pace to increase exports by US$700 billion this year, more than Japan’s total exports. As central banks and governments hand out money to people during the pandemic, they are having a good time by ordering goods made in China.


The tremendous growth in China’s exports is happening against the backdrop of the three-year trade war that the United States has waged on China and a growing bad vibe towards made-in-China goods. Yet the global economy is becoming ever more dependent on China as the factory of the world. It exposes the disconnect between perception and reality.

My two cents’ worth is that people want goods, but they don’t want to make them. Central banks and governments are giving them free money. All they need to do is press a few buttons on the mobile phone. The orders go to the lowest-cost producer – China. And consumers like the low prices and don’t really want to know where the stuff is made.


A coal shortage is threatening the global economic recovery. Blackouts could spread from China and India to all the emerging economies still mostly reliant on coal. As supply can’t be ramped up in the near term, the shortages could worsen as energy demand rises with winter’s arrival. That may trigger another emerging-market crisis.
The coal price has more than tripled in a year to near historical highs, while oil prices are halfway to their peak. The near-term trend is still up. As blackouts trigger a political backlash at home and domestic supply remains difficult to ramp up quickly, China is likely to bid for more coal in the international market, possibly increasing imports by 15 million tonnes per month, or over 50 per cent more than last year.
As the global supply can’t respond so quickly, the price has the potential to skyrocket again. How high it goes depends on how much China is willing to pay. During the previous coal shortage in 2008, China was paying close to US$200 per tonne. As China is much richer now, the price could go much higher.
China’s coal-fired electricity production rose by 12.6 per cent in the first eight months, while coal production was up only 4.4 per cent. The big gap needs to be met by either running down inventory or increasing imports. China consumed 3.8 billion tonnes of coal or 52 per cent of the global total in 2020, according to the International Energy Agency, of which 2.3 billion tonnes was for electricity production.

The gap between electricity demand and coal production works out to a shortfall of 189 million tonnes. China imported about 300 million tonnes of coal last year. An additional demand of such magnitude in a global trade of just 1.4 billion tonnes would trigger an enormous price response.
The surging price so far has deterred China from fully filling the gap with imports. Running down inventory has played a substantial part. As inventory dwindles, rolling blackouts have become an option.

The surging electricity demand is driven by export recovery. China is on pace to increase exports by US$700 billion this year, more than Japan’s total exports. As central banks and governments hand out money to people during the pandemic, they are having a good time by ordering goods made in China.

Adding one Japan’s worth of exports in a year obviously requires a huge increase in energy consumption. As China depends on coal for roughly 70 per cent of its energy use, this global demand recovery is shifting energy use to coal – the dirtiest fossil fuel. It must be hard for the lawyers who run the major central banks to fully appreciate how their actions are affecting the world’s climate.
The tremendous growth in China’s exports is happening against the backdrop of the three-year trade war that the United States has waged on China and a growing bad vibe towards made-in-China goods. Yet the global economy is becoming ever more dependent on China as the factory of the world. It exposes the disconnect between perception and reality.
My two cents’ worth is that people want goods, but they don’t want to make them. Central banks and governments are giving them free money. All they need to do is press a few buttons on the mobile phone. The orders go to the lowest-cost producer – China. And consumers like the low prices and don’t really want to know where the stuff is made.

Chinese manufacturing thrown into disarray as country’s electricity crisis rolls on
The world has been waging war on coal. The West, in particular, has been shifting away from coal in recent years. Last year, global coal demand fell by 5 per cent due to politics and Covid-19.
As the global economy emerges from the pandemic, coal demand has shifted more to the emerging economies that are coal-dependent. The climate warriors in the West have pushed coal out of their homes, only for it to re-emerge elsewhere. The war on coal is far from won.
The sky-high price would predictably lead to widespread capacity expansion in emerging economies. When this supply is ready, the global economic cycle may already be on a downward path. Just as the price is overshooting now, so it would undershoot in such a scenario. This is the age-old story of commodity boom-and-bust cycles.

Climate change activists in the West are putting pressure on fossil fuel production there, especially on coal. “Outsourcing” to China has been an easy way out. These countries can report good numbers in fighting climate change. But the global total does not reflect a proportionate cut.

Emerging economies need cheap and plentiful supplies of energy to grow. Coal fits the bill perfectly. The world needs to find alternative energy sources that are not just green, but also cheap. Meantime, the only solution is for rich countries to cut their consumption sharply.

Andy XieDr Andy Xie 謝國忠 is a renowned Chinese economist based in Shanghai who has been named one of the “50 Most Influential Persons in Finance” by Bloomberg.

Andy Xie’s skill and has been tried and tested through the years. He is one of the few economists who has accurately predicted economic bubbles including the 1997 Asian Financial Crisis and the more recent subprime meltdown in the United States.

He joined Morgan Stanley in 1997 and was Managing Director and Head of the firm’s Asia/Pacific economics team until 2006. Before that, Andy spent two years with Macquarie Bank in Singapore an associate director in corporate finance and  five years as an economist with the World Bank. Dr Andy Xie is currently a director of Rosetta Stone Advisors.

Dr Xie earned a PhD in economics in 1990 and an MS in civil engineering in 1987 from the Massachusetts Institute of Technology.

Contact us to have Dr Andy Xie speak at your upcoming event.


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