Faced with a power crisis, China unloads Australian coal despite unofficial import ban

Author: Michael Jian, McGill Faculty of Law

As post-pandemic consumer demand gathers steam, a “perfect storm” of energy shortages and supply crunches threatens to derail global economic recovery. This crisis is very apparent in China where authorities had to loosen up restrictions on Australian coal despite increased geopolitical tensions between the two countries. The unexpected move underscores the situation’s severity as Beijing is hardly known to back down to its foreign adversaries.

After Australia led the calls for an international investigation into the origin of Covid-19 in May 2020, China, its largest trading partner, retaliated with the imposition of new tariffs of up to 200 percent on Australian exports such as coal, timber, seafood, barley, and wine. Meanwhile, Australia denounced China’s new trade policies as incompatible with the latter’s international commitments, initiating a dispute complaint at the WTO[1].

As China faces its worst power crunch in two decades, 450,000 tonnes of Australian coal out of an estimated 1,000,000 tonnes in bonded storage have been released. The energy crisis has its roots in the growing demand for Chinese goods driven by the loosening of pandemic restrictions around the world. As the manufacturing industry’s energy usage skyrocketed, the price of coal followed closely. Since China imposes a strict price-cap on electricity prices, coal-fired power plants drastically reduced their output to avoid operating at a loss[2]. Furthermore, a coal shortage is worsening the situation as severe flooding is disrupting the importation of Indonesian coal while rail bottlenecks also driven by increased consumer demand are affecting the transportation of Mongolian and Russian coal[3].

More than 20 Chinese provinces have experienced power cuts since mid-August, particularly in the Northeastern region where Winter temperatures often reach -30 °C. With the end of the year approaching, Chinese authorities have ordered state energy firms to secure supplies at “all costs”. This could help explain why China has unloaded some of the stranded Australian coal. Nonetheless, the move to allow the delivery of a few coal shipments should not be interpreted as a sign of potential policy reversal as Australia has strengthened its Anti-China stance since the beginning of the spat and Beijing has invested heavily in alternative sources for coal through the signing of new contracts with Indonesia, Mongolia, and Russia[4].

[1] See Yee Nee Lee, “Faced with a power crisis, China may have ‘little choice’ but to ramp up coal consumption”, CNBC (October 17 2021), online: < https://www.cnbc.com/2021/10/18/power-crunch-china-has-little-choice-but-increase-coal-use-analysts-say.html>. [2] See Mary Hui, “China is turning to market-based pricing to tackle its energy crisis”, Quartz (October 14 2021), online: < https://qz.com/2073790/china-turns-to-market-pricing-of-coal-fired-power-to-solve-crisis/>. [3] See Chen Aizhu, “China turns to stranded Australian coal to combat power crunch”, Reuters (October 5 2021), online: <https://www.reuters.com/world/asia-pacific/china-turns-stranded-australian-coal-combat-power-crunch-trade-2021-10-05/>. [4] See Yee Nee Lee, “Faced with a power crisis, China may have ‘little choice’ but to ramp up coal consumption”, CNBC (October 17 2021), online: < https://www.cnbc.com/2021/10/18/power-crunch-china-has-little-choice-but-increase-coal-use-analysts-say.html>.