China’s Electricity Crisis Worsens as More Factories Suspend Operations During a Lingering Heatwave

The exposed riverbed of Yangtze river on a hot day in Chongqing, China, on Aug. 17, 2022. cnsphoto via Reuters

China’s power crisis has worsened as more factories shutter while an extreme heatwave spreads across southwestern China, according to a report from Nikkei Asia on Aug. 17.

The municipal authorities in Chongqing ordered all factories, including foreign-owned factories, to suspend operations through Aug. 24, in order to conserve power as the heatwave causes a surge in electricity demand due to air conditioner use.

Many key industries are heavily concentrated in the Liangjiang area of Chongqing, primarily in the automobile, electronics, and computer sector.

The companies in the metropolitan region that were affected include the Chinese Communist Party (CCP)-owned Chongqing Changan Automobile, Ford Motor, BYD Auto, and key Taiwanese electronics manufacturers.

Japanese-owned Isuzu Motors and Honda, as well as other important auto parts manufacturers, have plants there.

“Besides COVID-19 and property collapses, China is now facing heatwaves and drought, which means crop failures and hydroelectricity shortages,” Arminius Capital wrote on Twitter. “Factories, offices and homes are facing power cuts. The picture shows a dry riverbed at Chongqing, one of China’s largest cities.”

The city closely followed its neighbor, Chengdu, in Sichuan Province, which suspended factory production earlier this week, after a downturn in hydropower generation forced some of the world’s largest multinationals, including Toyota, to suspend operations there until Aug. 20.

The province has supplied much of the power for surrounding regions in the area, but can no longer do so due to the extreme heat that hit the province back in July.

Top CCP officials in Sichuan earlier this week warned that it is currently facing one of the “most severe and extreme” shortages ever in power supply, according to CCP-owned Sichuan Daily.

The failure of hydropower to supply crucial energy during the heatwave will only boost China’s reliance on coal, commented Moody’s Vice President and Senior Credit Officer Boris Kan.

Sichuan also happens to be China’s key lithium mining hub, crucial for batteries, chips, and solar panels, with foreign electronics companies, such as Apple, Foxconn, and Intel maintaining operations there.

The latest news from China has been bad for its economy, as its central bank unexpectedly slashed its key interest rates in a recent attempt to prop up its failing economy, after months of “COVID-zero” lockdowns, a real estate bubble crisis, major bank runs, and now a crippling heatwave.

The reduction in interest rates comes after Chinese economic data for July showed bad returns, a sign of a major economic slowdown.

CCP leader Xi Jinping addressed the critical situation on Aug. 18, calling on local authorities in the hard-hit southwestern provinces to address the threat to electricity supplies, which has become a threat to the nation’s economic growth.

Xi also promised that China would accelerate the reopening of its economy as a worsening global trade crisis is causing a downturn around the world.

The multiple factory shutdowns across China are having a negative impact on global supply chains.