China’s Power Crisis Worsens As More Factories Suspend Operations

A heatwave-induced power crisis is spreading across southwestern China, shuttering factories and worsening by the day, according to Nikkei Asia. 

The latest news from China is the Chongqing municipal government ordered factories, including Japanese-owned ones, to suspend production through Aug. 24 to conserve power as demand surges because of extreme heat. 

Chongqing is following its neighbor, Sichuan Province, which announced earlier this week that slumping hydropower generation has led to the closure of some of the world’s largest multinationals, including Toyota Motor Corp. and Contemporary Amperex Technology Co.

Moody’s Vice President and Senior Credit Officer Boris Kan pointed out the heatwave will only boost China’s reliance on coal-fired generation. 

The recent power outage caused by heatwaves in Sichuan and Chongqing highlights the importance of coal power in ensuring China’s power supply security, at least in the short term. Moody’s Boris Kan comments. pic.twitter.com/VThsiHG7HD

— Moody’s Investors Service (@MoodysInvSvc) August 18, 2022

In Chongqing, specifically in the Liangjiang area, power demand has surged because extreme heat led to a spike in air conditioner use. Chongqing has a high concentration of factories that make automobiles and computers, and their shutdowns to conserve power could impact global supply chains. 

“Previously, the government had only required that factories cease production during consumption peaks, but the tight power supply-demand situation has become so severe that shutdowns were deemed necessary,” Nikkie Asia said. 

Besides COVID-19 and property collapses, China is now facing heatwaves and drought, which means crop failures and hydroelectricity shortages. Factories, offices and homes are facing power cuts. The picture shows a dry riverbed at Chongqing, one of China’s largest cities. GDP ⤵️⤵️ pic.twitter.com/dqECljnCEl

— Arminius Capital (@ArminiusCapital) August 18, 2022

State-owned Chongqing Changan Automobile, U.S.-based Ford Motor, BYD Auto, and Taiwanese electronics manufacturers are some companies in Chongqing. 

And while a power crisis festers in the country’s southwestern part, Chinese President Xi Jinping addressed the critical situation on Thursday. He called on local authorities to resolve the severe drought in some provinces threatening electricity supplies, adding it could impact economic growth. 

Despite the heatwave and factory shutdowns, President Xi also said China would open up its economy even as globalization has experienced a rise in protectionism in some parts of the world. 

Good luck with the reopening, as July’s economic data is very alarming, which forced the country’s central bank to cut its key interest rates earlier this week unexpectedly. Compound a power crisis and factory closures to an already souring economic outlook (thanks to zero-Covid policies and a collapsing property sector), and China’s downturn appears to be deepening.