A severe drought and sweltering heat have led to low water levels and a drop in hydroelectric power generation in China in recent weeks, causing power shortages and forcing the government to ration electricity in some provinces.
The Yangtze river basin — stretching from the southwestern Sichuan province to Shanghai city on the coast — has been the hardest hit. The region is home to more than 370 million people and contains several key manufacturing hubs.
China relies heavily on hydroelectric power to meet its electricity needs, with the source accounting for about 15% of its overall energy mix. In places like Sichuan, which has been the worst affected, the figure is as high as 80%.
Authorities in some places have resorted to energy-saving measures, like switching off decorative lights and cutting back on the opening hours of shopping malls, among other things. They are also boosting coal power generation and transfer electricity from other regions.
Steve Manners, a senior manager at 2K China Chengdu, a gaming company based in the outskirts of Chengdu, said the software park where his firm was based turned off air conditioning in all the offices to cope with the power shortages.
Authorities also told them to allow all nonessential employees to work from home, he told DW.
Power cuts affect both big and small firms
While the government has made provision of power to households and public facilities a priority, many factories have had to endure power cuts and slash production.
The affected region hosts factories of some of the world’s biggest carmakers like Toyota, as well as manufacturers of auto parts that are crucial to global supply chains.
The power cuts have already disrupted the operations of companies like Apple and Tesla.
Li Hong, an employee working for the Messer Group, a German supplier of industrial gases, in Chengdu, told DW that 90% of factories in Sichuan province have completely shut down.
This is not the first time they have faced power cuts in the region, but this is the first time even large firms are affected, he noted.
“There have been power cuts in the past, but they only affected small businesses and not big ones like ours. This time, it’s a big deal for everyone.”
Huang Huan, general manager at the European Union Chamber of Commerce office in Chengdu, echoed a similar view.
He said 80% of businesses in places like Chengdu and Chongqing were completely shut down for at least two weeks, regardless of industry and size.
The impact was felt by not just small and local companies, but also by big state-owned enterprises as well as foreign firms, he added.
Concerns over autumn harvests
The power crisis in the world’s second-biggest economy came 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.
It threatens supplies of everything from metals like aluminum to automotive parts, as well as food commodities.
Speaking to DW, Ye Tan, an economist and founder of the consulting group Ye Tan Finance, said the current crisis also hits the agriculture sector hard, pointing out that the provinces affected are the “food basket” of China, 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, she warned.
The investment bank Goldman Sachs issued a similar warning, saying that rice harvests will be at the greatest risk if the severe weather continues.
China’s Agriculture Ministry also said over the weekend that high temperatures and unusually low rains since July have posed “a severe challenge” to fall grain production, Bloomberg reported.
A bigger impact than last year’s outages?
In recent years, China’s power consumption has been growing at almost double its usual rate, despite the government’s attempts to reduce the economy’s energy intensity.
China faced widespread electricity outages even last year, when coal supply shortages, among other problems, forced energy companies to cut off power to millions of homes and businesses.
A broad range of industries was affected, including power-intensive sectors like aluminum smelting, steel making, cement manufacturing and fertilizer production.
But Dan Wang, chief economist at the Hang Seng Bank, believes that the drought and power shortages this year will have a bigger impact on the economy than last year’s outages.
She underlined that the power cuts have adversely affected manufacturing, particularly in the case of energy-intensive sectors like fertilizers, chemicals, steel and glass, among others.
“These sectors are quite important for China’s as well as global supply chains, so it’s going to have a big knock-on effect on the economy,” she told DW.
The economist expects China to record lower economic growth than previously estimated. “We’re looking at 3% GDP growth for this year,” she said — down one percentage point compared with a previous forecast.
Better preparation needed for future crises
Jens Hildebrandt, the head of Germany’s chamber of commerce in China, told dpa news agency in Beijing on Wednesday that manufacturing companies were facing serious problems in China due to electricity shortages.
The production lines of German companies in the worst-hit regions had come to a halt, Hildebrandt said. “Absence of energy security is posing major challenges to German companies in China,” he added.
Some 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 food stuffs.
Li, the Messer Group employee, said that firms need to be better prepared for such crises. “In the future, we must make plans and stock up on more products for better preparedness.”
Edited by: Uwe Hessler
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