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Was this newsletter forwarded to you? Sign up here First China’s zero-Covid policy, then property woes, now a power crisis tests Beijing ahead of key event Andrew MullenDeputy Editor, Political Economy 10 September 2022
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Dear Global Impact Readers,
The adage goes “with great power comes great responsibility”, but who is responsible when the great power needed to light up and drive the world’s most populous nation runs out?
At the moment, Mother Nature is the main suspect behind China’s second power crisis in less than a year, having hit the southwestern Chinese province of Sichuan in July and August after drought wreaked havoc on the hydropower-reliant region. In this issue, Wendy Wu, the Post’s economy editor, looks back at the latest crisis and asks what is next for China as it seeks energy security. In other news, we will be taking a break from our regular schedule in the coming weeks as China’s 20th party congress looms into view. Given the magnitude of the five-yearly event where major leadership changes are announced, and where Xi Jinping is expected this year to secure a third term as party’s leader, we will be focusing the coming issues on the key event that gets under way in Beijing from October 16. As the Post always looks to provide our readers with a window into China, given the 20th party congress will take up so much of the view over the next couple of months, we felt it only right we devote our flagship newsletter to such a key event to bring the latest news and analysis from our team of reporters in China and around the world straight into your inbox each week.
Deputy Editor, Political Economy
Challenges ahead for China
When the Baihetan Dam, the world’s second-largest hydropower plant, located in the southwestern Chinese province of Sichuan, became fully operational in July and began sending electricity more than 2,000km across China – eastward to Jiangsu province via a newly established ultra-high-voltage grid – few could have foreseen that a drought-induced power crisis was looming on the horizon.
Scorching heatwaves from July to August – unseen in six decades – coupled with a sharp drop in rainfall to roughly 60 per cent of the previous level, have reduced the water inflows to reservoirs, dried up some lakes and hampered shipping around the Yangtze River basin where many of the country’s economic hubs are located.
As a result, China suffered another power crisis in the space of a year, after an electricity shortage hit more than 20 provinces in the third quarter of 2021, which was partly due to the mismanagement of Beijing’s low-carbon push.
Sichuan, the biggest hydropower producer and supplier in China, was hit the hardest, along with the neighbouring municipality of Chongqing. Power rationing and factory closures were enforced, and public events and business trips were cancelled or postponed to prioritise residential power.
The power shortage, rigid zero-Covid controls and a protracted real estate crisis present challenges to social and economic stability ahead of the 20th party congress while testing Beijing’s capabilities to deal with unintended consequences amid the already bleak economic outlook.
Though the heatwaves have subsided, the drought is yet to recede completely along the Yangtze River, posing risks to the autumn harvest, which accounts for around 75 per cent of China’s grain output.
And the situation threatens to become worse still as this year’s rainy season has come to an end. The state weather centre has warned that the drought may drag into the autumn, while concerns persist that water transport will be impacted until next spring, and that the water supply to manufacturers may also fall short.
Construction of a megacity cluster has begun in Sichuan and Chongqing to energise growth in the southwest and it is expected to lead to a surge in power demand in the region and reduce Sichuan’s supply capacity to east China.
So, what next? There is no doubt that we are facing a more unpredictable nature. Clean energy, such as solar, wind and hydropower, have yet to become a sustainable alternative to fossil fuels.
Technological breakthroughs on renewable power storage, along with the ability to maintain stable power supplies in adverse conditions, remain yet within reach for Beijing, although it has been firm on its decarbonisation target of 2060, which could lead to a tug of war between energy security and clean energy.
Beijing has repeatedly stressed that energy and food security are pillars for its broad security strategy, after tensions and rivalries with the US-led Western nations escalated in recent years.
The issue has gained more urgency in the wake of global market turmoil induced by Russia’s invasion of Ukraine and the looming global recession.
The crisis also refuelled discussions on reducing investments in high-voltage grid networks, which supply power from the resource-rich west to energy-intensive east. A more efficient energy mix and decentralised power structure may be one option, to allow local authorities greater flexibility and self-sufficiency over power use in emergencies.
It would also mean a new challenge for China’s market-oriented reform of the electricity sector that started 20 years ago, but is yet to set up a functional power market. 60 SECOND CATCH-UP
•China drought highlights risks of relying on ‘unsustainable’ hydropower•Infographic: China’s record heatwave, worst drought in decades
• ‘World’s worst’ heatwave in China triggers energy, food and water crises
•China’s record-breaking drought takes heavy toll on farmers as crops wither in the fields
• First Covid, now historic heatwave hits farmers in southwest China hard
•China’s power shortage leaves 1 million electric cars, 400,000 stations in search of the jolt to charge their batteries
• China turns to artificial rainfall to combat drought amid record heatwave
•China’s heatwaves stoke drought fears ahead of ‘critical’ autumn grain harvest
•Explainer: Why is it happening and what does it mean for the economy? DEEP DIVES In India and China, farmers fret as drought and heat threaten rice harvest
•Drought in China, low rainfall in India and massive monsoon floods in Pakistan are threatening global supplies of the grain•China, the world’s largest rice producer and importer, is largely self-sufficient. But drought may affect the coming harvestIn June, when Mahendra Pratap began planting his rice paddy fields in Kannauj, a district of India’s Uttar Pradesh state, he was hoping for a good harvest.The year before torrential rain had destroyed his crops and he did not receive any help from the government. Read more As China reels under record heatwave, is this the future of summer?•Longest period of extreme highs in six decades has hit public health, power supplies and shipping in China, as a severe drought threatens crops•As extreme heat also sweeps across Europe and the US, scientists see proof of how climate change is making extreme weather the norm globallyBrutal heatwaves have ravaged a vast swathe of China for 70 days straight, as half the country’s landmass endures its longest sustained period of extreme high temperatures in six decades.Sustained temperatures of over 40 degrees Celsius (104 degrees Fahrenheit) were recorded in many places along the Yangtze, the world’s third longest river, where record low water levels have disrupted cargo traffic and hit power output. Read more Could blackouts push factories out of China’s hydropower-reliant southwest?
•Manufacturing hubs along the Yangtze River are restricting power consumption in multiple industries to accommodate surging electricity demand•In the future, Chinese manufacturers may channel future investment towards cooler regions that are less dependent on hydropower, experts sayDisruptions to electricity supply in southwestern China could see manufacturers invest in cooler and less hydropower-dependent provinces in the future, but this summer’s heatwave is unlikely to make them relocate outright, analysts said.Since June, temperatures of more than 40 degrees Celsius (104 Fahrenheit) have smothered parts of China, from Sichuan in the west to Shanghai in the east, causing the country’s most severe heatwave since 1961. Read more Cloud-seeding rocket nearly hits pedestrians in China as it falls on pavement Climate change creates ‘serious, long-term problem’ for China’s energy security, carbon neutral goal
•Sichuan province relies on dams to generate around 80 per cent of its electricity via hydropower, but high summer temperatures have dried up rivers and reservoirs•China has cut fossil fuel power projects due to overcapacity and carbon emissions targets, but investment in coal-based thermal power projects has continuedThe ongoing power crisis in China’s Sichuan province has prompted companies to rethink their energy-sourcing strategy and consider returning to the stable supply of fossil fuel as unresolved issues including climate change are set to affect the nation’s long-term development of sustainable energy, analysts said.The southwestern region relies on dams to generate around 80 per cent of its electricity, and analysts believe that the current high summer temperatures have shown the severe impact climate change can impose on hydropower, which is also important to other parts of China, including Yunnan province. Read more Energy crunch under Shanghai’s heatwave send post-lockdown recovery into spasms in China’s commercial hub
•Shanghai authorities switched off lights for two days along The Bund waterfront and the Lujiazui finance zone to save power
•The two-month lockdown caused Shanghai’s economy to contract by 13.7 per cent in the second quarter, the worst slowdown in four decadesThe unprecedented heatwave in Shanghai has raised concerns about the possibility of a power crunch and disruption to construction work, hampering the city’s economic recovery from a two-month Covid-19 lockdown.This summer, China’s biggest commercial city recorded at least seven days where the temperature rose above 40 degrees Celsius, the most since meteorological records started in 1872, according to the local meteorological station. Shanghai also logged its hottest day ever on July 13, when the mercury hit 40.9 degrees. Large parts of the country have been affected by a severe drought because of a record-breaking heatwave.
•China’s power crisis has been mainly caused by a lack of water flowing into hydropower facilities and high power demands due to a prolonged heatwave
•Rain and temperatures have started to fall in Sichuan province, but concerns remain that the economic and inflation fallout could still be ‘felt for months’The extreme heatwave and power crunch along the Yangtze River Basin has added to China’s economic woes and inflation concerns, and further threatened the country’s status as the so-called world’s factory, even though the situation is expected to ease as rainfall kicks in next week, analysts and industry insiders said.This year’s power crisis – centred in Sichuan province – has been mainly caused by a lack of water flowing into hydropower facilities and soaring power demands from households. Read more China heatwave hits supply chain for lithium batteries and solar panels•Leading producers including GCL-Poly Energy Holdings, Tongwei Solar, Tianqi Lithium and Yahua Lithium are complying with a government-ordered shutdown
•The six-day stoppage will increase prices of lithium salts and polysilicon in the short term, putting pressure on downstream players, analysts sayA heatwave baking parts of China is putting pressure on the supply chain for lithium batteries and solar panels as providers of key materials in central Sichuan province comply with a government mandate to shut down industrial production to conserve electricity for household use.The province suspended electricity supply to all industrial activities starting on Monday and lasting through Saturday to relieve pressure on an electrical grid that is straining to handle record-breaking power usage at the same time that a drought has reduced hydropower generation. Read more