It’s not unusual for China to have to ration electricity during the summer but this year the Government started rationing in April meaning businesses are already facing electricity shortages.

Over the last 10 years the most industrialised areas of China have had to put up with power shortages during the summer months, largely as a result of the extra demand placed on the system by air conditioning units.

However, this year rationing has started earlier and the country could be faced with an electricity shortfall of 30 million kilowatts during the summer, according to the China Electricity Council.

Small businesses in the UK may find they are struggling with increasing business electricity prices at the moment but small factory operators in some areas of China have to stop work for two days a week due to shortages of electricity. Some may have to shut down permanently.

China has been affected by events in Australia where flooding in Queensland has slowed coal extraction – Australia is one of China’s key exporters of coal. China does have its own coal but repairs on the rail line from the coal region have not been completed and this has again affected price and the availability of coal.

As China still generates 80% of its electricity from coal high prices are affecting energy suppliers especially as coal prices are now at their highest for two years.

Despite being short of electricity, most power plants are only working at 50% capacity because of financial constraints. The problem is that electricity providers have to sell energy to utility companies that don’t cover their costs. Consequently, energy suppliers are running at a loss and as a result, when supplies are short, they won’t generate any extra because they know that to do so will increase their losses.

There are concerns that if electricity companies charge more, it will force inflation up and incite social unrest. And with unrest in a number of countries around the world at the moment this is something the Chinese government won’t want to risk.