Hot and getting hotter, but China’s economy cools as drought bites

Climate change has induced the worst drought and heatwaves in China’s recorded history, now stretching into its 72nd day across its food basket provinces Sichuan, Chongqing and elsewhere, triggering yet another energy crisis.

The unfolding disaster in the world’s most populated country that is affecting 900 million people, about 65% of the total population, provides a warning about how climate change is significantly affecting the world’s second-largest economy — one Australia depends upon — as well as global supply chains.

The crisis has also laid bare China’s endemic water problem that has been growing in recent decades as run-off from its primary water source, the Himalayas, have begun drying up due to rising temperatures, shrinking glaciers and smaller winter snowfalls.

The statistics are frankly frightening. The regional heatwave in southern China that began on June 13 is directly affecting more than 600 million people and is the strongest since complete meteorological observation records started in 1961, according to the China Meteorological Administration.

China’s power grid is once more under pressure due to increased demand for air-conditioning in homes and offices. This is the third year running that China has experienced widespread power shortages leading to rationing that forces factories to reduce working hours or shut down to comply with energy restrictions. 

South-western Sichuan is one of China’s most populous provinces — about 80 million people — and it relies on hydropower for 80% of its electricity. Hydro is also a key source of future clean energy growth in south-east Asian nations downstream. Shortages and shutdowns have spread to industrial eastern seafood provinces like Zhejiang, Shandong and Hennan. Authorities in Shanghai have ordered that its spectacular Pudong skyline to go dark for two days next week.

Experts say the extreme heat threatens infrastructure, including large and often controversial dams in the earthquake-prone region.

As rivers have dried up and fires rage, agricultural production is being affected and that will flow into higher food prices. More than 5000 large pig farms — along with chickens, the country’s main source of meat — face “severe challenges” due to the heat, according to state media.

Authorities are also warning that the drought will damage this year’s crops. Six regions suffering the worst drought — including ​​Hubei, Henan, Jiangxi and Anhui — accounted for almost half of China’s rice output in 2021 and this year’s harvest faces “severe challenges”. Wheat and corn production are also expected to be affected, and although China produces about 95% of its own grain needs, it is likely to be forced to import more than usual, putting further strains on global grain supplies pummelled by the war in Ukraine.

Key metals-mining, including lithium used batteries and electric vehicles, are being affected too, along with aluminium smelting and copper. Sichuan is also a major player in semiconductors and solar panel manufacturing, and factories making these products have been slowed and/or shut down.

China’s increasingly regular power crunches are set to become a regular feature also adversely affecting global supply chains. Companies face significant delays in obtaining supplies and this raises costs for them and their customers, contributing to global inflation. Imports from China to Australia are almost three times those from the US, our second-biggest supplier, and two-way trade between the two countries is almost 30% of Australia’s total trade.

Supply problems from China have played havoc with just-in-time manufacturing. The combined effect of all this has been to make countries like Australia reconsider decisions to cut homegrown manufacturing and has seen companies move out of China and into neighbouring nations like Vietnam and elsewhere in South-East Asia.

China’s climate troubles are also having a devastating human cost. Heat-related deaths rose more than 400% between 1990 and 2019 to 26,800, according to a study in The Lancet, a number predicted to rise. China’s rapidly ageing population is particularly at risk. Climate is also causing widespread internal population displacement; more than 92 million displaced between 2008 and 2021.

Last September’s power crisis caused a slump in economic growth of 1% or more. A similar hit this year will further damage an already troubled economy. Beijing has set a growth target of about 5.5% — almost 3% lower than last year and at the bottom end of the range for the past 30 years — but analysts are warning of lower growth still.

This comes in the environment of continuing COVID lockdowns that show no sign of easing until at least November after the quinquennial Communist Party Congress, which is expected to secure President Xi Jinping at least five more years in power.

Despite diplomatic tensions, Australia still relies heavily on China and its economic slowdown has seen prices for commodities, led by Australia’s biggest export, iron ore, to slump next year, put fresh pressure back on to the Australian economy.