Utility Analysts Need to Understand How China Operates
Unless you like being caught by surprise
If you’re an electric utility analyst like me, you need to understand China. Even if you’re a municipal shop with 100% Certified US Persons™️ in your staff, Chinese and anti-Chinese industrial policy looms over your work. And that policy is getting increasingly volatile by the day.
Your Stuff is Still Made in China
Get “cheap Chinese junk” out of your head—China is now a major player in technologies you care about: lithium-based batteries, photovoltaic panels, transformers, survey drones. And the stuff is good!
If China stops shipping product, everyone still buying Chinese will be up a creek. If the United States slaps a tariff on Chinese product, you’ll feel it pretty quick. Even if your company has a “buy American” policy, a lot of your compatriots in the industry do not. Municipal utilities especially are used to being small fish shopping for supply, but it might get even worse.
And the disruptions are coming. The Chinese Communist Party (CCP)’s party-trick is responding to tariffs and sanctions by laser-targeting American or European products that hurt the most. Recently, it was a drone producer supplying the National Fire Agency. They’ve gotten bolder, though—on 3 December, China banned the sale of obscure-but-vital semiconductor materials to the United States. On the American side, Republican legislators, having realized they’ve swept the 2024 election, have proposed a bill that would revoke trade relations with China. The replacement? A 35% tariff on everything out of China, unless it’s:
A genset
A photovoltaic panel
An electric meter (especially if it’s AMI)
PCBs in a transformer
Mineral oils in a transformer
Electric energy storage
Infrared imaging
…in which case it’s a 100% tariff. With full permission for the President to jack it up at will. Sure, this is a draft bill for a Congress that hasn’t opened yet, but this is just the opener. Pray they don’t alter it any further.
You know how transformer prices doubled after COVID? Slap another 30% on top of that.
The Inflation Reduction Act Was About China, Too
It’s been two years. I think we can all agree that the titles “Bipartisan Infrastructure Law” and “Inflation Reduction Act” were…lies. Neither of them were about bipartisanship or reducing inflation.
They were about industrial competition with China. Whereas Donald Trump implemented tariffs and revised trade deals, Uncle Joe opened the money taps and dumped billions into infrastructure investment—much of it going to power infrastructure, clean energy, EV chargers, artificial intelligence, and the manufacturing thereof. Speaking from experience, those DOE grants are pretty sweet, as are direct-pay “tax incentives” for public entities.
This is something new—this is industrial policy. The USG isn’t trying to in-house energy production and manufacturing because Milton Friedman said so—it’s doing so because Democrats and Republicans agree that war with China is incoming.
Politicians will say this is for jobs or sustainability or the climate, but none of those reasons explain why these policies have bipartisan support. The continued interest comes from competition with China—meaning Beijing gets to decide how fast that money tap flows.
Hybrid Warfare Is Coming
On the other side of the world, the Russo-Ukraine war has shown energy infrastructure to be an extremely easy target. A substation can’t dodge missiles. It’s got barbed-wire fences at best. In 2022, a yahoo with a rifle knocked out a North Carolina substation for a week. But in 2024, a jury-rigged FPV drone could turn a 25 MVA transformer into scrap. What’s your lead time to replace that?
And then there’s the cybersecurity—your AMI data, your SCADA network, your ISO-NE eMarket credentials. Unless your IT staff is actively hiring cybersecurity staff (it’s tough), you’re a weak link for a state actor trying to disable infrastructure in anticipation of, say, an amphibious assault across a strait.
The problem is especially acute for small municipal utilities. My employer has an IT staff of under 10. Our office has Parks and Rec vibes. Yet a state actor likely has us on a target list—they’d be stupid not to.
You’re on that list, too.
The Next Five Years Are a Turning Point
There are good odds (Probable 55-80%) that China will move aggressively between now and 2030. The government is building military and industrial capacity, they’re pushing technological development forward, and they’ve made a plan for Trump 2.0.
But their industrial development is built on a financial house of cards. Their population is aging at a terrifying rate. Xi Jinping is 71 and has packed his staff with loyalists as fervently as Trump has. And young Chinese have circulated the phrase “garbage time of history,” as if China is so far behind in the great-powers race that all they can do is lose gracefully.
These trend lines intersect in the next few years. China might secure and leverage a stranglehold on global supply chains. Or it might collapse. I’ve heard convincing arguments for both. But in the meanwhile, federal, state, and private actors will enact policies hitting your storage yards because China China China.
If you know why these policies are coming, you can make your interests known before you get trampled.
Where to Start
You don’t have to dig too deep. A big-picture view is good enough for government work.
For a historical view, I liked Henry Kissinger’s book On China.
For a year-over-year view, Dan Wang’s annual letters have been valuable.
If you like the weeds as much as I do, the ChinaTalk Substack gets there.
This post and the information presented are intended for informational purposes only. The views expressed herein are the author’s alone and do not reflect those of their current or previous employers or any elected officials. The author makes no recommendations toward any electric utility, regulatory body, or other organization. While certain information contained herein has been obtained from sources believed to be reliable, the author has not independently verified this information, and its accuracy and completeness cannot be guaranteed. Accordingly, no representation or warranty, express or implied, is made as to, and no reliance should be placed on, the fairness, accuracy, timeliness or completeness of this information. The author assumes no liability for this information and no obligation to update the information or analysis contained herein in the future.