China’s Drought and Heatwave Causes Severe Power Shortages

The recent drought and heatwave in China have caused severe power shortages and rationing of electricity in some provinces. This has had a huge impact on the country’s economy, with factories and businesses of all sizes being forced to shut down or reduce production.

The Yangtze river basin — home to more than 370 million people and several key manufacturing hubs — has been the worst affected. China relies heavily on hydroelectric power to meet its electricity needs, with the source accounting for about 15% of its overall energy mix. In Sichuan, the figure is as high as 80%.

The power cuts have already disrupted the operations of companies such as Apple and Tesla, and have affected the production of auto parts that are crucial to global supply chains. The crisis has come at a time when supply chains were already strained by the impact of the coronavirus pandemic, China’s strict lockdowns and Russia‘s invasion of Ukraine.

The power crisis has also hit the agriculture sector hard, with the provinces affected accounting for over 20% of the national agricultural output. Poor autumn harvests in China will have a huge impact on the global market for agricultural commodities, causing already high prices to surge further.

Dan Wang, chief economist at the Hang Seng Bank, said the drought and power shortages this year would have a bigger impact on the economy than 2021’s outages. She said the power cuts had adversely affected manufacturing, particularly in the case of energy-intensive sectors such as fertilizers, chemicals, steel and glass, among others.

Experts warn that the growing water stress and intensity of droughts in China will likely cause similar and more acute crises in future — potentially causing major disruptions to the global trade in industrial materials, as well as foodstuffs. Companies will need to be better prepared for such crises, stocking up on more products for better preparedness.