At least one man has drowned in crude during the clean-up operation, which has expanded as the area of the slick has doubled in size despite earlier government assurances that it was being contained and posed no risk to ecologically sensitive areas.

Five days after a pipeline explosion at the north-east port of Dalian, oil had reportedly spread over an area of 430 square kilometres, prompting a dispersal mission along the coast.

Hundreds of local volunteers are spreading absorbent matting along the Yellow Sea shoreline in an attempt to stop the slick from damaging beaches.

Out at sea, authorities have started to use oil-consuming bacteria to try to disperse the slick, along with chemical agents and lengthy floating barrages.

Even though maritime officials have mobilised 800 fishing boats to assist the 40 specialist vessels in the operation, the winds and tides are spreading the slick wider and thinner.

The difficult conditions have proved fatal for at least one man. A 25-year-old firefighter, Zhang Liang, drowned on Tuesday when a wave threw him from a vessel, according to the state news agency Xinhua.

In some areas, volunteers equipped only with rubber gloves, rubber boots and rudimentary tools have struggled to cope with the waves washing up on the beaches.

“I’ve been to a few bays today and discovered they were almost entirely covered with dark oil,” Zhong Yu of the environmental group Greenpeace China, told the Associated Press. “The oil is half-solid and half-liquid and is as sticky as asphalt.”

Fishing in the waters around Dalian has been banned until the end of August.

“The oil spill will pose a severe threat to marine animals and water quality, and sea birds,” Huang Yong, deputy bureau chief for the city’s Maritime Safety Administration, told a regional TV station.

The authorities say the leak was staunched within 24 hours of last Friday’s accident, but they have yet to reveal how much oil was discharged before then. The state-run China Central television channel estimates the spill at 1,500 tons, less than 0.5% of the amount released into the ocean by the BP spill in the Gulf of Mexico.

Local officials have been upbeat about the prospects of a quick clean-up and a resumption of normal services at the port, which has had to redirect 420 vessels from the area of the slick.

“Our priority is to collect the spilled oil within five days to reduce the possibility of contaminating international waters,” Dalian’s vice mayor, Dai Yulin, told reporters earlier this week. Other officials expect the operation to last twice as long and even then it is far from clear that the ecological damage will end.

http://www.guardian.co.uk/environment/2010/jul/21/china-oil-spill-disaster-wildlife

The place? Australia.

The offending country selling machinery from misappropriated patents? The USA.

The land of the Free Trade Agreements and GATS is finally reaping what it has been sowing for years.

America is that blind to double standards and deciding its laws have jurisdiction all over the world, that as the chickens come home to roost, they cry fowl over every deed they have perpetrated on every other country they are supposed to share the planet with.

The Commerce Department has imposed penalties of up to 99% on imports of oil field pipe equipment from China, just the latest in a growing list of duties slapped on Chinese products found to be ‘unfairly priced’.  America has long practiced ’dumping’ on countries all around the world, even ‘allies’ have been subjected to USA corporate bully boys; poor Haiti had many of its small farmers crushed by subsidised food imports.

Mind you, it begs the question as to the how’s and why’s and where’s China buys massive amounts of worthless Greenbacks so that Americans can buy Chinese products that put American companies out of business and then also China underwrites the value of much of their goods sold to the USA on top of it. If I didn’t know better, I equate China to an atypical Mafia type American loan-shark who continues to lend money, knowing that it can’t be paid back, but doing it to totally own and debase the victim.

The funny thing is a steelworkers union president is alleged to have said ‘that companies that make oil field pipe were forced to lay off workers in recent years as Chinese imports spiked and now might begin rehiring’.  Where will the Americans drill for oil; they are pretty much all tapped out; who will buy their oil pipes when Chinese pipes are far cheaper ? If their ‘self-respect’ is won back with such a hollow victory, its sure is a sad indictment on their state of being.

Reading other comments such as ‘China’s government and exporters are being told we are fed up with their cheating on our fair trade laws’ penalties for these transgressions are long overdue’ would be laughable if they weren’t so childishly indicitive of the American mentality.  The USA imposed a 35% tariff on Chinese tires last year and there has been increasing anger among labor and business groups over policies that they say keep China’s goods unfairly cheap. China, in turn, has argued that the U.S. government is trying to appease labor unions by imposing the duties and has responded with measures including recent rules meant to encourage the purchase of locally made technology products. The USA needs export markets far more than China.

At the end of the day, the piper has to be paid; and America will go under and China likewise will soon suffer the same financial crisis as the Americans; afterall, you can only live beyond your means for so long, but eventually the rubber-band will snap.

Not so much as problem as paradox.

The Middle East is known for its oil reserves,  Australia for energy resources like coal, uranium and some ‘rare earth’, but it appears that the ‘balance of things’ sees most of the raw materials known as ‘rare earth’ come from China.    

A ‘rare earth’ shortage threatens the world’s green revolution (and underlines my earlier article ‘carbon reduction or human reduction’ about reducing our reliance on energy).

The shortage of mud and minerals – essential to low carbon technologies – will curtail the world’s plans for a green future.

All low carbon technologies, from wind turbines to electric cars and low energy light bulbs, use elements known as ‘rare earths’; and about 95% of these are found in China and in 2009 the Chinese decided to restrict export of these essential metals and minerals and a shortage is predicted which could effect the development of green technologies.

The Chinese are not known for subtlety and their extraction methods are at best poor;  extracting and processing ‘rare earth’ is ruining thousands of villager’s farmland because their processing is messy, dangerous and polluting, as they use toxic chemicals (acids, sulfates and ammonia), also, workers have little or no protection.

‘Rare earth’ elements like yttrium and cerium are prized for their magnetic properties and high conductivity; low carbon technologies depend on them. While Green campaigners love wind turbines, the permanent magnets used to manufacture a three megawatt turbine use about two tonnes of ‘rare earth’.

‘Rare earth’ is extracted along with iron ore and pumped into – often times – frozen tailing lakes, where it mixes with mud, waiting for processing at nearby factories. Computers, mobile phones and energy saving light bulbs all use ‘rare earths’ processed there and local villager’s farmlands have been ruined by seepage from the tailing lake.  

China is now refusing to sell ‘rare earth’ as they can value add to it themselves and who can blame them …

Rare Earth factoids

There are 15 ‘rare earth’ elements numbered 57 to 71 on the periodic table, that are essential for new ‘green’ technologies; each Toyota Prius motor uses 1 kg of neodymium, and each battery 10 – 11 kg of lanthanum, both ‘rare earth’ elements.

Compact fluorescent light bulbs use europium, terbium and yttrium; without these they don’t work (thats why I said about 2 years ago we should have skipped from incandescent to LED; even though LEDs also use these, they contain no mercury) and the permanent magnets used in a three megawatt wind turbine need about two tonnes of neodymium and other rare earths.  

Hard discs, I-phones and various military technologies also need rare earth minerals and metals and although China has 53% of the world’s rare earth deposits, it provides more than 95 per cent of the world’s supply. In the last 10 years a 40,000-tonne per year global market for ‘rare earth’ has grown to 125,000 tonnes per year and by 2014, it’s predicted to be 200,000 tonnes.

Only two projects outside China are expected to be producing rare earth in the next five years, Lynas Corporation in Mount Weld in Australia and Molycorp Minerals’ Mountain Pass in California.

Americans (and for that matter the rest of the world) were warned by USA President Eisenhower that corporations and the military were positioning themselves to take over, however, the relief of the war ending probably made people less concerned, the lessor of to evils.

But ‘world hegemony’ is not new, where tribes expanded and took over new territories.

The way the Americans did it was by a) disbanding the League of Nations and funding the United Nations, which basically was a group who drew new lines and divided the world up amongst themselves and as the USA was the major funder, the US% became the world’s reserve currency, the measuring stick and for every transaction, they took their cut.

However, greed being what it is, the new found wealth meant they could ‘afford’ more (usually at other people’s and countries expense as the USA has less than 5% of the world’s population yet uses over 25% of the world’s resources); as the population grew, so too did the need for more income to pay for the additional hangers-on.

But reality is that everything is finite; there is only so much potable water on the planet, arable soil and the energy and materials to make fertilizers; growth or more importantly population growth is required to drive demand and as more money was created by various schemes in America, this soon outstripped the real money; people no longer are able or willing to borrow from their future to buy stuff today.

So what does someone do if they can’t get the money they need to keep the system going … well in the USA’s situation, they just borrow more and if they can’t borrow it, they just print more and of course others looked away, but the doubt is there.

The Arab states were looking to the ‘Gulf’ as a new / replacement currency similar to the Euro; China – now the most affluent country – is looking for ways to have the Yuan as a more stable reserve currency and we see various fluctuations where we compare the AUS$ to the US$ but more importantly the Yen and the Euro; the English £ will soon follow the US$.

Banks look for trends or better still emerging opportunities where they can make money, regardless of the ramifications. One must wonder what backdoor deals are being done, the ‘you scratch my back and I’ll scratch yours’, the secret little clubs. Waring bells rang for me when the National Australia Bank invested heavily this year in an already collapsed American financial institution.

David Bloom (the HSBC bank’s currency chief) obviously believe the US$ is about to lose favour as the world’s reserve currency.

The global credit boom is bust but the financial crisis temporarily masked the effect; but as new markets emerge, non-productive countries like the US, UK and other old world orders will fall behind, Australia’s only saving grace at present is resources, we now import more food and other goods than we grow or manufacture.

The loss of relative wealth and economic power of the old guard is slipping irreversibly; the Euro, Yen, £ and Swiss franc and more ‘established’ currencies will be relegated along with the US$ as the world economy re-balances and China, Brazil or Latin America compete.

So what could go wrong?

Well the Yen is lent out less the 1% and the US$ is even less, China is using its money (a lot of it actually US$’s) to buy ownership in resource companies around the world, so where does the investment $ head, Europe is struggling with lower demands of goods, so Australia looks like the next best bet, problem is though, as experience shows all to clearly, when you have access to more money than you need, the value of things loses proportion and eventually that artificial growth ends and those at the end of the currency ‘chain mail’ pay, so we continue to boom, but eventually this bubble will also burst.

With much of our arable land under dams (to wash dust from our cars), or dozed aside to extract more coal and no income from resources, what will our children’s children be left with other than an even bigger dust bowl than it is today … only then will we rue the day …

Just as Kevin Rudd is weighing up borrowing more money to pump into the economy to make it look like its business as usual, so too is China wondering how much more money to pump into the American economy to buy Chinese manufactured goods.

And before China it was the Japanese and Saudis and many other punters looking for a quick $.

So what comes first, the chicken or the egg when the cost of buying all these consumer goods kept climbing, was it due to rising energy costs and competition for other resources?

An interesting and perhaps telling indicator is that Saudi Arabia was one of the biggest oil exporters and funders to the USA; however, as their oil well ability to meet demand has been slipping (at almost the same percentage rate as the North Sea supplies to the UK, which is also in financial turmoil) so too has their cash injections into the American economy.

There would be quite a few of concerned Saudi princes these days as the USA’s ability or commitment to support the regime is increasingly questionable.

Canada is the biggest supplier to the USA followed by Venezuela, and although America consumes less due to a collapsed financial system (some $9 trillion in debt), people selling to the USA must be wondering what the real dollar value is of the currency the Americans are paying with.

Based on figures posted on the U.S. Department of Energy Web site, Venezuelan exports to the U.S. fell 5.4 percent to 1.39 million barrels a day in the second quarter and jumped to second place from third, leapfrogging Saudi Arabia, which shipped 32 percent less fuel.

Venezuela continues to send the bulk of its oil exports to the U.S., five years after President Hugo Chavez started seeking to diversify his nation’s customer base away from the country he calls “the empire.”

So, if you need to sell your oil to an *‘enemy’ to keep a constant income stream to support your social policies to prevent local unrest, what do you – that is Canada, *Venezuela, Saudi Arabia – do when the value of the payment is no longer there … can you afford to dig for, extract and refine a product that eventually you will never effectively be paid for ?

Nobody seem to be willing to admit the emperor has no clothes and the cost of finding oil (all the major oil finds are long gone) is going up while the public can only afford to pay so much.

Peak Oil has arrived and this concentrated energy source is no longer abundant and tighten belts we must.

While Malcolm Turnbull correctly suggests we are handcuffed to China (what would he have done will remain the unanswered), it was the ‘Coalition’ who put us into leg-chains with the Americans (Pine Gap, war on Terrorism etc) and while debate revolves around even using the word recession, China is helping to bankroll Labor’s ‘economic rescue plan’; any suggestion that there should be concerns over the relationship between Communist China and the Labor Party are more than a bit late, considering the Labor party’s socialist / communism principles.

Chinese ‘investment’ in Australian government bonds is funding billions of dollars in a ‘stimulus package’ to the tune of about $300 million a week; how long will it be before will are over a similar barrel to the USA is a troubling question. For reasons that include confidentiality and privacy, we – the greater unwashed – are not allowed to know who controls the purse-strings as the buyers of Australian bonds are a secret.

When you consider the government keeps a tight control of the movement of funds banked by everyday Australians (crooked and otherwise) on one hand and then on the other hides the details of who Australia they are indebting us to, it is of concern; however, for me the real concern (as a person with some 30 years in the finance industry) is the Labor Party fiscal policies. Treasurer Wayne Swan is the face that is correctly associated with an Australian debt bill approaching $200 billion in about 18 months; extrapolating this out to four years, sees us with – at the very least – a $530 billion debt and at only 2% interest, the interest only is just over $20 million a week’. Just what did Captain kRudd’s promise in a secret meeting with China’s fifth most powerful figure, Li Chang Chun at the Lodge ?

When Labor came to power under the Hawke / Keating government, they inherited a $9.6 billion deficit and an economy in recession; however, economic conditions were improving as the banking institutions were formulating their strategies (which ultimately lead to this, the biggest – and never to be surpassed – economic crashes). Heated debate – with no productive outcome – would be wasted about the floating of the Aussie $ in December 1983 as the reason the Australian economy grew and now is collapsing as the global economic crisis. kRudd inherited a budget surplus of more than $20 billion.  Australia had recorded 17 consecutive years of economic growth since 1992, averaging 3.3 per cent a year. The forecast for 2008-09 was 2.75 per, which while above the average growth rate members of the Organisation of Economic Cooperation and Development (OECD) of 2.2 per cent, tellingly revealed the ignorance of our growth being dependant on other OECD countries.

Government debt was eliminated in 2005-06, making Australia a net creditor nation and in May 2008, the Australian Government committed to a budget surplus equivalent to 1.8 per cent of GDP – some $21.7 billion, which now, coincidently will be the interest bill on borrowings. Australia – as it now turns out – falsely boasted a sound and practical structure of financial regulations and institutions that provided certainty for business and open investment without undue delay; however, like the terminology ‘good government’ GDP has likewise proven to be little more than window dressing through various indirect imposts; new ‘certificates of competency’ in every spectrum of industry has artificially given the appearance of growth, from courses in assessment of over-drinking recognition to blue cards from safety to child carers’ all under the banner of a ‘strong, transparent corporate governance system along with business-oriented corporate regulation and insolvency regimes’; spin-doctoring at its best.

According to the World Bank, a new business can be established in Australia within two days compared with an OECD average of 20 days, but these days, it appears we are in competition with other countries as to how quick a business can be shut down. Australia’s long period of economic growth has stretched infrastructure past its capacity and despite of the good intent of the Government’s commitment in 2008 to creating an organisation called ‘Infrastructure Australia’ to provide a new, national approach to planning, funding and implementing the nation’s future infrastructure needs, the fast approaching depression will see public infrastructure deteriorate with equal speed. At the end of the current and future public works programs (where corporations make the most money under the guise of Labor’s DNA of jobs, job’s, jobs), elsewhere, contractions will continue.

kRudd is either a consummate politician kissing and assuring the Americans he is all for them (re the Chinese) and then jumping on a plane and assuring the Chinese, or he is a fool who believes having a high IQ and apathy will win the day. I believe it’s the latter; he has ripped out the chapter on being a media tart from the ‘jump before he was pushed’ leading tart Peter Beattie, signing the Kyoto Protocol and then sabotaging every child’s future by kowtowing to those who bought his way into the Prime Minister’s position.

So if you know what is going on or have a theory, let me know how kRudd is arguing for a stronger role for China in global affairs (during his visit to the US and Britain) and yet supports the USA$ as the ‘world currency’, or is he just muddying the waters to keep the focus elsewhere.

If you think about it, China has amassed a $trillion-plus portfolio of US bonds; how much can Australia extract out of the Chinese and when the USA$ does fall, will our debt to the Chinese likewise be watered down ? And while senior government figures privately admit the growing level of Chinese investment raises significant issues, including national security, having a Minster of Defence with close relations with a Chinese woman, sheds more light rather than less light on the subject matter.

The answer is in the question of how a rapidly growing primary producer of food exported all over the world can be relied on when these same producers have put ours out of work and the lead time to rebuild food growing infrastructure.

China’s soil is quickly eroding and its water rapidly becoming so polluted that it isn’t just unsafe to drink; even unsafe for fishing, farming and factory use; the ecosystems it relies on is on the verge of collapse.

Last month Xinhua (the official Chinese news agency) had an article on a 3 year investigation that revealed almost 40% of China’s territory (about 3,569,200 square kilometres of land), suffers from soil erosion, putting crops and water supply at risk; the survey was reportedly carried out by China’s bio-environment security research team.

In Shanghai, the Yellow River – which provides drinking water to millions of people in northern China – is now so badly polluted that 85% of it is unsafe for drinking. China’s heavy industries have tipped so much waste into the river that enormous stretches of it, amounting to over a third of its entire length, cannot be used at all anymore, either for drinking, fishing, farming or even factory use, according to criteria used by the United Nations Environmental Program.

This is not new, but the fact that it is getting more airplay suggests that even the Chinese – who care little for the environment or its people – now comprehend the ramifications of being the world’s biggest, most populous country whose economy is desperately being counted on by a recession-savaged world as well as the growing number of unemployed.

China’s water and soil woes appear to have now reached the point at which food and water shortages leading to a health crisis could be possible at any moment, leading in turn to a reduction in GDP at the exact wrong time.

But is there ever a right time to eat polluted foods containing a cocktail of toxins?

Fast forward and in the last few moths, we’ve heard of the Henry Paulson threatening Congress with martial law if they didn’t get their way with the most blatant theft recently and we’ve see billions more misappropriated – OK stolen – from the American tax-paying public to cover fraudulent investment schemes that Paulson helped set up.

Earlier this week I posed the possibility that other countries would demand payment in their own currency or an accepted third party currency, which would still leave the USA obligated – but unable – to pay these debts.

However, there are now rumours that China may devalue their currency – the Yuan – by as much as 30% and this may be the first in a domino line that will see the USA back where it started and from the fat to the fire – recession to depression.  If will be most unpleasant to live in the USA when people can’t afford to buy food and start to take the law into their own hands.

The Russians use the military to oppress their people, but the military eventually refused. We are headed for dark days.

But the reality is that the system – driven by greed – has tempted one too many and delivered on one too few investments; the king has no clothes and soon his subjects will join him.  The larger the energy dependent and consuming the country, the farther they will fall. Those least dependent on energy and well versed on making ends meet will suffer as well, but practice will have given them the edge.  Those closest to living off the land will be least under threat.

So did it have to end like this ? Well the answer is yes; we don’t recognize limitations like our ancestors did; population growth was policed by the immediate environment to support a community; cheap energy in this day and age meant we could ship food from anywhere around the world; however, two things have happened, disproportionate population growth in resource rich countries have translated into these highly exporting countries scaling back exports to support their own populace before the populace rebel and take over.

Now, the realization is that there is a bottom of the barrel, resources are finite and if ‘we’ sell \them off to the highest bidder, regardless of the jobs it may create, at the end of the day we are left with big holes in the ground and the profit has disappeared off-shore with some locals receiving blood money to sell out.

In the ‘great depression’, a small proportion of the population was mobile, looking for work just for a meal, these days there is far less arable land, a higher incidence of food is imported and farming communities have long suffered from poor prices, drought and interest rates that drove many farmers to their own private depression and even suicide.

As disposable income shrinks, people are looking for ways to reduce their exposure to debt, but the ripple effect reduces everyones ability to get in front; financial institutions have pushed the envelope too far and humanity will hit a wall that is immovable.

The G20 meeting in Washington was largely ineffective; no significant actions came out of the meeting and the our Leaders showed no comprehension, no understanding and no foresight for any actions that will mitigate or prevent the financial collapse. A little known Baltic Dry Index (a ocean shipping volume index) is at record lows, dropping to 841 this week from a record high of over 11,473 just last May. That means that the cost to charter an ocean-going vessel is at or below the cost per ton to crew and fuel the vessel.

A Ukrainian operator of about 55 vessels, filed for bankruptcy last month and Zodiac Maritime Agencies Ltd. (a shipping line managed by Israel’s billionaire Ofer family), said last month it may idle 20 capesize ships which typically haul coal and iron ore. That’s about 5 percent of the fleet operating in the spot market. Why the collapse ? Banks refuse to issue Letters of Credit because the S&P GSCI index of 24 raw materials has dropped 31 percent this month, its worst performance since at least recession.

If cargo trade stops, a whole lot of supply chain disruption starts; wheat doesn’t get exported, the mills have nothing to grind into flour; no flour means bakeries and food processors can’t produce bread and pasta and other foods means there is no foods in the shops no foods in the shops means people go hungry; if families go hungry, people will riot and governments fall, but before that anarchy will take hold and it will be survival of the fittest.

Nations like Russia and China seem to be heading toward the former (after signing a 20 year multi-billion $ loan-for-oil swap, which guarantees China a place at the head of the line, when crude oil supplies start to dwindle from Russia.  So, will falling crude oil supplies, shrinking water resources, shared cross-boarder aquifers and harder to extract minerals be hoarded by nations or shared between nations? What conflicts will result from this?

Are you getting just a little concerned ?

“In the last 15 years, more than three million jobs have been directly and indirectly lost in Kano with the closure of more than two-thirds of our industries — due mainly to power shortages,” said Ahmed Rabiu, vice-president of the city’s Chamber of Commerce.”There were 500 industries in Kano in the mid-1990s, but more than 400 have since closed down and the workers left without a means of earning a living,” he told AFP on Monday.

Nigeria has been grappling with a power crisis for almost two decades with its generating plants described as a shambles amid corruption and mismanagement within its sole national power generating company PHCN.

A review of the sector issued last week by a special presidential committee said 85 billion dollars (54 billion euros) would be needed for the country of 140 million people to enjoy a “stable power” supply. Nigeria poured 16 billion dollars into its epileptic power sector under former President Olusegun Obasanjo over the past eight years, but manufacturers say power has become even less reliable.

Twice in recent days, the country was thrown into total darkness with the collapse of the power generation system at its only source of electricity at Shiroro hydro station in central Niger state.

Despite nine new thermal stations being slated for completion, Nigeria remains drastically under-supplied — with the head of the Nigerian Electricity Regulatory Commission (NERC), Ransom Owan, telling AFP last May that demand stood at 20,000 megawatts but that generation capacity was only 3,000 megawatts.

In Kano alone, the daily power requirement stands at 250 megawatts but PHCN’s supply does not exceed 80 megawatts, according to PHCN officials. There are now less than 100 factories operating, under strain, because none of them is producing at half of capacity due to high production costs as a result of lack of power,” said Ali Madugu, head of the Manufacturers Association of Nigeria (MAN) in Kano.

Increased production costs are attributed to the price of diesel, needed to power machinery. Kano once had flourishing textile, plastic, food and beverage industries, as well as foundries and tanneries. But a visit to the city’s three industrial estates of Sharada, Challawa and Bompai shows them desolate with the bulk of the factories now closed.

President Umaru Yar’Adua promised to declare a state of emergency in the power sector by the end of June, but has yet to do so as he fights corruption and unrest in his stated bid to use the country’s vast oil wealth potential to propel its economy into the world’s top 20.

Saidu Dattijo Adhama, a garment manufacturer who closed down his factory and laid-off 314 workers, cited the lack of power as his major reason.  “High interest on bank loans and stiff competition from cheaply produced Asian goods kill local industries, but these pale in significance compared to the lethal blow lack of power inflicts on industries,” Adhama said.

Kano state government has for the past five years been promising to set up an independent power plant, but negotiations with Canadian and Indonesian firms have yet to result in concrete proposals.

And China

A worsening coal shortage means that China faces the prospect this summer of the most extensive power cuts it has seen in four years. Despite encouragement to keep the current flowing, with new approval to raise electricity prices, power generators are struggling to find enough fuel, in part due to China’s clampdown on illegal coal mines.

This, coupled with robust demand for electricity, explains why the National Development and Reform Commission recently said the power shortfall this summer could be as high as 10 gigawatts, with 60% of the disparity in Guangdong province, a manufacturing hub.  But analysts say the shortfall may well be larger than the government economic-planning agency’s forecast.

Cuts are already causing major problems, and the situation may well get worse, not least due to inadequate connections, which hinder regions with surpluses from filling gaps elsewhere. Electricity rationing has been imposed in several provinces, and many power plants are struggling with shrinking coal stocks.

On July 6, inventories at 541 coal-fired power plants connected to the state grid averaged 34.64 million metric tons — the equivalent of 11 to 12 days of stock, below the normal level of 15 days — according to domestic media reports. Stocks at 64 plants were below three days’ supply, while an additional 181 had stocks of less than seven days.

On Tuesday, shares in Aluminum Corp. of China Ltd., China’s largest alumina producer by output, slumped in Hong Kong after the company said two of its smelters in Shanxi province were forced to cut production because of a power shortage.

The Chinese government has been stepping up efforts to close down illegal mines since 2005. Output from small coal mines, which account for nearly one-third of China’s total production, is now stagnant at best, and large state-owned mines haven’t bridged the gap, said Wang Shuai, an analyst with Shanghai-based Orient Securities. At the same time, demand has been growing robustly in the past year, with a slew of new coal-fired electricity capacity coming online.

Yang Tao, an analyst with KGI Securities, estimates that the coal shortage is likely to reach 10 million to 20 million tons this year. Though that volume is a fraction of China’s total coal output — around 2.5 billion tons in 2007 — it is still significant, because more than 80% of China’s electricity is produced by coal-fired power plants.