China is shuttering factories in the southwest as a worsening drought has begun to limit hydroelectric energy generation at several reservoirs, triggering rolling blackouts across cities in the region. Added to worsening outlooks in the property sector, and recurrent Covid-19 outbreaks, it is just one more economic strain weighing on the nation just as president Xi is looking to extend his leadership into a new term.
Makers of cement, solar panels, and urea in Sichuan province, as well as other companies in the region, have all been ordered to ration power for five days, due to the strain on the electric grid. Due to the drought, reservoirs are approaching record lows, just as scorching temperatures have pushed air conditioning usage to highs.
An order from the provincial government on Tuesday said, “Leave power for the people.”
According to the Sichuan Provincial Department of Economics and Information Technology, hydropower reservoir levels in Sichuan, which supply electricity to 94 million people, are at half their normal level this month.
In one city in Sichuan, Dazhou, the power company began imposing 150 minute power cuts per day on its 3.4 million residents, and increased that to three hours on Wednesday, according to The Paper, a Shanghai news outlet. Meanwhile in Chengdu, the provincial capital, office staff have been told to shut off all air conditioning.
The power problems come at a sensitive time for the ruling Communist Party, as it comes up on a five year meeting, to be held in October or November, where it will select its leader for the next five years. President Xi has hoped to break with the tradition of only serving two five year terms, and award himself a third five year term.
But as the meeting approaches, China faces a raft of setbacks. Growth in factory output, retail sales, and foreign orders are all weakening, as China is attempting to reopen after repeated Covid-19 lockdowns earlier in the year crushed output.
Growth of the economy in the first half of 2022 year over year was just 2.5%, which more than halves the official state goal of 5.5%.
Meanwhile China continues to battle, for now politically, with the international community over the independence of Taiwan, as various US leaders have visited the island nation, in direct opposition to Chinese demands to respect Chinese sovereignty by acknowledging the nation’s status as a province of China.
Now manufacturing output in a critical region will be shut as a drought creates its own humanitarian problems. With summer rain at as little as half normal levels, the official Xinhua News Agency said firetrucks were forced to carry water to two villages which had lost all water supply near Chongqing in the southwest.
Across central and northern China, hundred of thousands of acres of crops were withering due to lack of water and heat, with temperatures spiking to as high as 104F, as some areas report this year’s growing season was a total loss.
In a company announcement, s subsidiary of Guoguang Co., Ltd. that makes pesticide and fertilizer said it will close between Monday and at least Saturday. Solar power manufacturers in SIchuan say they have received notices requiring them to ration power. One manufacturer, Tongwei Solar Co. Ltd., said the, “power cut and production shutdown have not had much impact,” in an interview, however.
At the same time, authorities are warning areas from the northwest, across inner Mongolia, to the northeast now face possible flooding from torrential rains forecasted in the coming days.
The Daily Financial Trends
