Extreme heatwave and drought . . .
China has issued a red-level extreme weather alert – the highest in China’s National Meteorological Center’s warning system – across 10 provinces as extreme heat and drought continue to batter the densely populated southwest. In a rare move, Shanghai turned out the decorative lights across its iconic Bund riverfront district for two days beginning Monday in an effort to conserve energy. The heatwave and drought are causing severe power shortages, in part due to the inability of dams to produce electricity.
Energy at a premium . . .
As residential demand for energy increases in response to extreme weather events, China’s National Energy Administration and provincial authorities are implementing policies to conserve energy, including rationing power and, in extreme cases, closing factories. In Sichuan, the provincial government announced closures across all of the province’s factories on August 15 to alleviate power shortages and extended the measure for another six days on Monday. While not all impacted provinces have resorted to factory closures, other power conservation measures implemented in these provinces will undoubtedly be disruptive for residents and businesses.
Ripples across the global economy . . .
Localized energy shortages have ripple effects across the global economy. The factory disruptions in China’s southwestern provinces will impact the production schedules of domestic manufacturers integrated within global supply chains. The closures are already impacting the automotive and electronic sectors leading to production delays among several well-known brands, including Volkswagen, Tesla, and Apple. The heatwave and associated drought are also negatively impacting China’s agricultural sector. Crop failures and manufacturing delays will ultimately lead to increased costs for commodities and manufactured products, exacerbating existing inflationary pressures. With energy rationing becoming the new norm in China, energy security will become a critical area of concern for Chinese policymakers and international enterprises operating in China.