The May 12th earthquake in western China’s Sichuan Province will have effects reaching further outside China than Beijing is letting on. Sichuan Province holds the key to China’s hydroelectric power generation plans in its renewable power targets and the area is also a hub for worldwide outsourced wind turbine equipment. Both were badly damaged.

This infrastructure will take months or years to repair, but in the meantime Chinese media report that “The quake in dollar terms is minimal and it seems unlikely to set back China’s economic growth by very much.” I beg to differ.

This earthquake cracked dams and roads, but at the same time it cracked holes in the myth that an ever-expanding China can accommodate an infinite number of companies wanting to open facilities there. We have been hiding behind a wall of outsourcing dependence to solve our domestic pollution and economic problems and that great wall is about to collapse.

The hydroelectric crutch: The quake zone area generated 62 percent of Sichuan province’s total electricity production by way of hydroelectric dams, of which “396 dams were believed badly damaged and many of the power stations on the river systems were damaged and several major reservoirs are being drained to prevent their dams from failing. The seismic safety of these dams is a concern and it is expected that many of them will need repair and strengthening,” according to Ministry of Water Resources minister Chen Lei.

Even before the quake, Beijing had admitted there are major flaws in many of the country’s 87,000 dams. “Roughly 37,000 dams across the country are in a dangerous state,” Ministry of Water Resources deputy minister Jiao Yong said earlier this year, noting that many had been built decades ago.

Two weeks after the quake, the Water Resources Ministry acknowledged that 69 reservoirs and dams were on the verge of collapse, and nearly 3,000 throughout China had sustained damage.

If the always secretive central government is publishing this type of information, I can only conclude that reliable power from that region is no longer assured. This single set of facts revolving around hydroelectric production in western China is a link in a chain that stretches from China right around to your back yard, and that link has broken.

Don’t count your renewable energy eggs before they hatch: China has more dams than any other country – about half the world’s total. And the 11th Five Year Plan pins its hopes on rapid and massive development of every metre of flowing water in the rivers of Yunnan, Sichuan, and Gansu Provinces in the west to satisfy the insatiable power demand for factories and homes. The Chinese government will now have to reconsider its aggressive dam-building program.

If hydroelectric projects are scrapped there will be continuous permanent electric shortages throughout the country. China’s hydroelectric consumption was around 7% of their total prime energy consumed in 2007.

Pre-quake, the central government was thinking: ‘Sichuan possesses the country’s largest possible reserves of hydropower resources, estimated at more than 110 gigawatts. Yunnan has a number of hydropower stations under construction on the lower- and middle-reaches of the Lancang River, with 11 GW and plans for dozens more projects between now and 2016. Gansu’s abundant Yellow River hydropower resources can provide electricity for the neighbouring provinces of Qinghai, Shanxi, Sichuan and Ningxia, and their further potential is great.’

Not anymore.

The China Electricity Council believes less than 20 percent of the country’s hydroelectric resources are being utilized. According to the pre-quake governmental plan, the hydroelectric installed capacity should have reached 125 GW in 2010, accounting for 28 percent of total installed capacity; in 2015 it could have reached 150 GW and by 2020 the goal was 300 GW. These plans are not likely to go forward as planned. This will leave China far behind its electrical generation goals and far short of the capacity it needs to attract manufacturing businesses to that part of the country.

The slow decline: China’s Go West Campaign is designed to lure college graduates and businesses to western parts of the country, thereby spurring the economy in China’s less affluent interior.

The bait most frequently used by the central government is in the form of Major Economic & Technological Development Zones, Special Economic Zones and City Industry Zones, which confer tax-free status along with preferential transportation and wage agreements. This is great when there is a continuous power supply, but now in the western region that is anything but assured. China’s State Power Grid announced Sichuan’s electricity grid is running at 76% of pre-earthquake levels. Notice how they conveniently leave out the surrounding provinces, which also sustained damage.

A recent article appearing in the China Daily – “China expects power shortages amid surging demand” – quotes the State Electricity Regulatory Commission general office as saying “Guangdong Province would be short of 5.5GW, Guizhou 1GW, and Yunnan 1.5 GW.” Yet again they left out shortages in Sichuan, Gansu, Inner Mongolia, Zhejiang, Jiangsu and Shanxi provinces to get a reliable total. This will be the fifth consecutive year of power shortages countrywide. Now consider this: the last four years were short with all of the country’s hydropower up and running.

This year, power is likely to be 10 GW short, so keep an eye on the power ratings – “normal shortage”, “severe shortage” and “power crisis” – to see how your favourite town or industrial zone is getting along.

It seems there is a masking of the real numbers. What business would want to set up in a country with consistent electrical shortfalls?

Devastation in Beichuan: Combine electrical shortages with the amount of factories that need to be relocated now that fewer enterprises will want to rebuild on an active fault line and the veil begins to lift on what they are hiding. Labourers are refusing to return to work until government inspectors sign off on the integrity of the buildings, despite the fact that it might take months or years before they get around to every company. The psychology of danger for the worker and investor is the overlooked factor X in the Chinese equation. Now, how appealing are the Regional Development Zones in western China??

As for us living outside China, outsourcing heavy industry to China is the norm. Even the worldwide renewable energy sector has many of its wind turbines and solar panels produced in China. Unfortunately, Deyang – a town about an hour and a half north of Chengdu – had wind turbine operations including majors from Europe, Australia and North America carrying out some of their production at Dong Fang Turbine. In the same area there were also carbon fibre blade, wind tower and ball bearing operations supplying parts to Dong Fang. Buildings in the surrounding area from Deyang to Mianyang were heavily damaged or flattened.

Business Week sums it up in an article titled “Dongfang Turbine Badly Hit.” The operations of Dongfang Turbine, China’s largest steam turbine producer and third largest domestic manufacturer of wind turbines was virtually wiped out. Dongfang, which produces 30 percent of China’s locally made turbines estimates direct losses from the earthquake will reach $1 billion. Its parent company, Dongfang Electric Corp., has seen its stock price plummet as the steam turbine business accounted for 20% of its operating revenues in 2007.

Although Chinese media reports suggest that facilities for its wind turbine business was unaffected, sources inside the company said that most of their wind business’ senior engineers have unfortunately perished and one of their wind components factory was badly damaged.

The electric shortage earthquake triangle: Where does this leave us? Peak Oil is apparent and can no longer be denied. We as a world need to begin a transition to renewable power and these circumstances will set the wind industry production in China back a year or two. China’s answer to the electrical shortage will be to build more coal-fired power plants. As outsourced production is now being limited by fault lines and electrical shortages, what will our answer be?

The electric shortage earthquake triangle from Kunming in the west to Chongqing in the east and Lanzhou to the north with Chengdu in the centre is all sketchy territory from now on. The central government was funneling new business to this exact area because there is very little space along the east coast. That’s why there is a massive push to send the economy west. If you have been to coastal China you have seen how densely packed a society can be.

Price is the main reason we buy Chinese goods and have our industries there. However, when something is in short supply it costs more. Electricity is no different. There are now daily diesel shortages along the east coast, electric shortages in the west and along the coast. Add in the recently appreciating yuan and China is no longer the utopia for business it once was. Until the damage in western China is repaired, increased usage of oil, natural gas and coal will replace hydropower to an extent. This in turn creates higher prices in China’s manufacturing sector. You will pay at the check out counter.

Please understand: The rest of the world is far less dependent on China’s exports than China is dependent on the rest of the world. We need to prepare to take care of ourselves again. As oil prices continue to rise and the global economy declines, I believe we will see a resurgence of light industry returning to our home countries. China’s electric problems could be partially solved if light industry moved elsewhere and left heavy industries in China. Unemployment is going to become more and more ferocious over the next few years as our fossil fuel based economy declines.

What a great way to put millions of people to work: Bring companies back home. This will take one link out of the globalization dependency chain, and save energy along the way.