China: How the drought is affecting the Chinese economy

Record temperatures and a severe drought in west-central China have crippled hydroelectric power generation and caused many factories to close, the latest blow to a Chinese economy that already has stagnant consumer spending and a housing market. deeply affected.

Sichuan province in west-central China, one of China’s most populous and fast-growing industrial bases in recent years, typically generates more than three-quarters of its electricity from huge dams. The summer rainy season often brings so much water that Sichuan sends much of its hydropower to cities and provinces as far away as Shanghai.

But an unprecedented drought, coupled with extreme temperatures, have left rivers and reservoirs dry. The vast province’s many dams cannot generate enough electricity even for Sichuan’s own needs, forcing factories to temporarily close.

As troubles in the Chinese economy mount, the country’s central bank announced on Monday that it would cut its five-year interest rate by 0.15 percentage point to 4.3%, which could provide some relief to the country’s huge real estate and construction sector. The five-year rate strongly influences the interest rate on many mortgages.

China’s central bank also said it was cutting the one-year interest rate by 0.05 percentage point to 3.65%.

The power shortage in Sichuan not only forced the closure of factories there, but also caused blackouts in some commercial and residential districts. Since all three major rivers in the province flow into the Yangtze River, hydropower outages have also begun to affect downstream areas along the Yangtze, such as the city of Chongqing and the adjacent Hubei province.

Chinese companies on the move

Many companies, especially in the automotive and electronics sectors, have moved production from coastal provinces to Sichuan in recent years, prompted by lower wages in the province.

These companies now face potential disruptions to their supply chains. The municipal government of Shanghai, near the mouth of the Yangtze River, sent an official request to Sichuan last week asking the inland province to prioritize power deliveries to auto parts makers there, so that Shanghai automakers they are not missing key components.

Shanghai saves electricity: the Bund in darkness

Shanghai is saving electricity by temporarily turning off many flickering lights along the historic Bund and nearby areas.

David Fishman, a senior director in Shanghai at Lantau Group, a Hong Kong-based power and energy consultancy, told Reuters the power shortage in central China was not yet as severe as the one that occurred last September, which causing industrial power outages and residential blackouts across China. coast.

Turning off the lights along the Bund is more a symbolic act of solidarity with inland provinces than a sign of power shortages in Shanghai, he said. The lights also went out during the coastal power shortage a year ago.

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