Ongoing restrictions and testing requirements as part of China’s “dynamic zero” pandemic-control measures, although mildly eased on 11 November 2022, continue to weigh on demand in the power market. This, together with the housing market slump, is highly likely to result in low-single-digit growth for the full year, says Fitch Ratings in its latest China Power Watch report.

China’s power demand growth slowed further to 3.8% yoy in 10M22, after falling to 4% in 9M22 from a temporary recovery to 4.4% in 8M22, due to disruption of economic activities by measures taken amid the recent resurgence of Covid-19 cases. Tertiary sector power demand has fallen for two consecutive months.

Some provinces in south China, especially those that are highly reliant on local hydropower, experienced a power crunch in 3Q22. Many local governments have accelerated the approval of new coal-fired power projects to ensure a stable power supply, especially under extreme weather conditions. However, we believe this will not change China’s trajectory for energy transition, as this new capacity will provide load-adjustment services and enhance peak load-servicing capacity.

Coal prices also rose further in 3Q22. We expect this will lower the profit margins of power-generation companies, as the market power tariff is already close to the 20% upward floating limit.
Source: Fitch Ratings