How China’s Historic River Drought May Have an effect on the World Economic system

The Yangtze River is vital to China. It is the largest river in the country – and third in the world –, provides resources for a third of the Chinese population and plays a crucial role in the global economy.

But this summer, the river is at alarmingly low levels due to an unprecedented drought. The consequences are felt in several provinces, where the inhabitants suffer electrical blackouts and several factories have had to reduce and stop their production.

China issued its first national drought alert of the year last week after key regions such as Shanghai and Sichuan suffered weeks of extreme temperatures.

The heat wave has lasted two months and is the longest in China on record, according to the National Climate Center.

It is a situation that not only hampers the dynamics of the Chinese economy, but also increases the pressure on the global economy – already affected by drought and high temperatures on several continents, by the soaring energy prices and by the increase in the cost of living after the pandemic. and the effects of the war in Ukraine.

Power outages and business closures

The lights on Shanghai’s skyscrapers, one of the city’s landmarks, will be turned off for two nights to save electricity.

With the drought, energy consumption by air conditioners increased, and, at the same time, the demand for the waters of the Yangtze River. Several regions in China depend on it for energy. The river covers 19 provinces and supplies water to nearly 600 million people. Its basin is responsible for 45% of the country’s economic production.

“The Yangtze is very important. Many exporting companies from China are located around it. All kinds of products pass through there”, explains Jan Knoerich, professor of economics at the Lau China Institute at King’s College London University (United Kingdom).

In Sichuan province, where more than 80% of energy is obtained from hydropower, large companies suffer from blackouts.

Volkswagen has stopped production in Chengdu, the capital of Sichuan. A company spokesperson said they will experience “small delays” from which they hope to recover in the near future.

“We are monitoring the situation and are in constant exchange with our suppliers,” a Volkswagen spokesperson told the BBC.

Foxconn, Apple’s supplier, also had to close its Sichuan factory, although it says the impact on its production is “not significant” so far.

Meanwhile, Toyota told the BBC it was gradually resuming production in Sichuan “using internal power generation”.

Chenyu Wu, China and North Asia analyst at consultancy Control Risk, told the BBC the impact of the blackouts was unlikely to be lasting.

“Local efforts to save energy and increase generation are likely to help mitigate shortages in the coming weeks, especially if the long-awaited end of the heat wave comes to an end,” explains Chenyu.

The race to protect the crops

Authorities are looking to cause rain in central and southwestern China. In the provinces around the Yangtze, experts use techniques to artificially “seed” clouds.

The approaching autumn is a vital season for important crops such as rice and soybeans, so managing water resources is crucial to ensuring a bountiful harvest and food supply.

But rice and other autumn products are in a “critical period” when it comes to irrigation, Liu Weiping, vice minister of water resources, said last week.

With the autumn harvest threatened, the Ministry of Agriculture sent 25 teams to key regions to protect crops, the local Guangming Daily reported.

The heat wave is expected to continue for another week, making this period of extreme temperatures the longest since records began in 1961.

Difficult year for China and the world

It hasn’t been an easy year for the world’s second-largest economy.

In the second quarter of 2022, the Gross Domestic Product (GDP, sum of goods and services of a country) fell by 2.6% compared to the first three months. That gets in the way of the 5.5% growth targets China has set for this year.

The economic slowdown is largely due to the strict lockdowns imposed in major cities as part of the country’s “covid zero” strategy. These restrictions affected, among other cities, Shanghai, a vital industrial and financial center.

In addition to the GDP slowdown, indicators such as youth unemployment are at record levels.

And the real estate sector, which accounts for a third of the country’s economy, is facing difficult times with a growing number of homeowners refusing to pay their mortgages due to growing distrust in the sector.

These are factors that, added to energy problems and the summer drought, only increase uncertainty and concern about the world economy.

“We have the aftermath of the war in Ukraine, droughts in Europe… the magnitude is difficult to predict, but what is happening in China definitely adds more pressure to the global economic situation,” Knoerich told BBC News Mundo (BBC Spanish news service). ).

While Chinese officials do not expect the energy shock to last much longer, it is undoubtedly a situation that serves as an alarm bell.

“If China has difficulties in producing energy and that becomes a bigger problem, this is another factor that can affect prices in the global energy market”, adds the professor from King’s College.

As early as 2021, before the war in Ukraine made energy prices worse, a very cold winter in Asia triggered strong demand in China and other densely populated countries — which has already made fuel more expensive.

Knoerich also mentions the importance of China being able to keep its crops protected.

“If China experiences food security problems and has to increase its imports from abroad, this will also put pressure on prices”, he explains.

Source: BBC News Brazil