Record heat in China puts global exports at risk

Record heat in China puts global exports at risk

Dry rivers, lack of electricity, closed businesses and supply chains that are in danger of skipping. The tense and controversial Chinese summer is reserving an indigestible menu for the Communist Party, already struggling with a slowing economy. Faced with the hottest heat wave of the last 60 years, many factories in southwestern China are forced to close. A severe drought has shrunk the rivers, disrupting the supply of water and hydroelectricity and prompting officials to limit electricity to businesses and homes. Offices in some cities have been ordered to turn off the air conditioning to save the overloaded electricity grid.

The epicenter of the crisis is Sichuan but the difficulties also extend to the nearby metropolis of Chongqing, an autonomous municipality of over 30 million inhabitants and of great production and technological importance. Here, temperatures have soared as high as 45 degrees, with the Yangtze River reduced to less than half its usually powerful flow. The third longest river in the world has retreated to an all-time low. The drought is putting a strain on electricity supplies in Sichuan, which relies on hydroelectricity to generate 80% of its energy capacity. The capacity of the province's hydroelectric plants has halved since July, with electricity flow falling from around 900 million kWh to around 450 million kWh, and it is estimated that it will continue to decline at an average daily rate of 2%. To save energy, the subway stations and trains of the capital, Chengdu, have turned off the lights, including those of the ubiquitous billboards. The fountains, light shows and commercial activities during the night have been suspended. In Chongqing, around 300,000 inhabitants are having difficulty getting water. In all, more than five million people are experiencing power outages instead.

What is this story about China analyzing big tech algorithms The government said it looked into the workings of 30 big tech algorithms of digital, such as Alibaba, Tencent and Baidu. It is the "new normal" for the local IT industry The crisis is spreading: here are all the sectors most at risk According to analysts, if the heat wave persists, the energy crisis could affect other eastern provinces such as Zhejiang and Jiangsu , which depend in part on the purchase of electricity from Sichuan. It is in fact a key province of China's west-to-east energy transmission program, even though nationally Sichuan accounts for only 15% of China's hydropower supply. And only 18% of China's energy comes from hydropower, as over 60% of electricity supply is still based on coal.

The situation is obviously affecting industrial production. Nineteen of the 21 cities in Sichuan province have been asked to suspend production until Saturday 20 August. The sectors most affected are those of chemicals, military industry, coal and non-ferrous metals. Electricity rationing has led to the stoppage of production at around 20 steel mills, while energy-intensive aluminum and zinc smelters have reduced production. Thousands of factories producing chips for processors, solar panels and auto parts have closed for at least six days. Chengdu-based Xuguang Electronics said the stop would reduce its production by 48,000 electronic circuits.

China increases sales of electric cars in Europe Among the electric vehicles of national brands and the vehicles produced in Asia by the giants of the old continent, the Dragon is consolidating its leadership in the mobility of the future. With risks on the industrial resilience of the European automotive sector Problems for Toyota, Foxconn, Apple, Tesla and the auto manufacturers Toyota and Foxconn, Apple's supplier, are among other international giants that have suspended the activities of the plants in the area. Chinese media reported that Catl, an electric vehicle battery maker and Tesla supplier, has closed its Sichuan plant. Tesla is particularly exposed, given that in 2021 it recorded about 26% of sales in China. In addition, the Tesla plant in Shanghai is the company's most productive assembly plant. The drought could also affect General Motors. But a reduction in the supply of components would have repercussions on almost all car manufacturers, already hit by the consequences of Covid-19 and the shortage of semiconductors in recent years. And according to Everstream Analytics, production stoppages at component manufacturers in China may have a more severe impact on supply chains than recent measures linked to the Covid-19 pandemic. High temperatures are not expected to decrease until the end of August and there is a risk that factory closures will prolong or extend to other provinces.

Interruptions in production plants could also have serious consequences on the production of lithium compounds for electric car batteries and polysilicon used in the production of solar panels. The transition to green energy undergoes a new setback after the energy crisis last fall. The impact will also be on agriculture. The intense heat is expected to significantly reduce the rice crop as the rice paddies in the area have almost completely dried up. Problems also for eggs, since chickens and hens often refuse food due to too high temperatures.

At Cop26 China and the United States surprisingly announced that they want to collaborate on the climate The two giants announce that they want to cooperate on methane, deforestation and emissions, but coal is not touched, on which neither Washington nor Beijing have announced the definitive exit The difficulties of the Chinese economy exacerbated by climate change The drought problem comes in an already very complicated contingency for the Chinese economy . Gross domestic product grew by only 0.4% in the second quarter, also due to the strict "zero Covid" strategy, with urban youth unemployment reaching a record 19.9%. Citic Securities analysts estimate that the energy crisis will cut China's industrial added value growth one percentage point in August and reduce GDP growth by about 0.13% in the third quarter. Goldman Sachs lowered China's gross domestic product growth forecast for 2022 from 3.3% to 3% after looking at the July data and looking at energy woes.

The problem is the future , like almost everywhere, on the climate front it does not bode well. Chinese scientists have said that the frequency and intensity of extreme weather events will increase in the coming decades, given the slow reduction in global greenhouse gas emissions. As southern China grapples with drought, the northwestern province of Qinghai is experiencing severe flooding that has resulted in several deaths.

Reappearing after the annual Beidaihe rally, outgoing Premier Li Keqiang traveled to Shenzhen and the port of Yantian, symbols of the reform and opening season inaugurated by Deng Xiaoping. Li spoke of the need to take responsibility for the country's economic recovery at a "critical" time. However, after Covid, even the climate seems to be rowing against.

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