Climate change forcing new unexpected factory closures in China

Just a few months after Shanghai emerged from the city-wide COVID lockdowns, which disrupted supply chains and forced factories to halt operations, manufacturers have been closed again, this time by the impact of climate change. A new challenge to Chinese production and sourcing.

An intense heatwave and drought around the Yangtze river basin has seriously depleted water levels in dams and rivers, curbing electricity generation at hydropower plants, just as air conditioning demand is spiking.

To prevent power outages, authorities in Sichuan province, which relies on hydropower for about 80% of its energy needs, ordered factories to halt operations, with data showing that the impact of closures is climbing amid concerns that power rationing could have a knock-on effect for supply chains.

These energy linked closures, that have been reported in the international press, could have more impact than COVID-related factory closures, which were geographically compact in specific locations and operations can gradually resume under“closed-loop” conditions, while the effects of power shortages can be more extensive and indiscriminate.

Sichuan, Chongqing and Hubei provinces export power to manufacturing hubs on China’s east coast, but this year, Sichuan’s hydropower has operated at 20% of capacity, and as the river flow rates remain depressed, Sichuan hydropower generation loses the capacity to meet the minimum level of demand. So the situation is much more widespread throughout China’s manufacturing regions than it would first appear.

The heatwave sparked huge demand for electricity as hundreds of millions of people turned up their air conditioning, which in turn led to major power shortages, with authorities suspending or rationing electricity supply to factories, shopping malls, homes, and public transport.

Sichuan province began to restore power for some industrial users at the start of the week, but the impact on the broader economy from the heatwave, has been severe, drying up the rivers that feed hydroelectric plants, including China’s largest the Yangtze, which dropped to its lowest level on record.

Light to moderate showers are moving into central and southern China and may intensify this week across the drought-stricken Sichuan basin, bringing a risk of flash floods and some areas could see up to twice as much rain as usual, which should help replenish reservoirs, but drought warnings are still being maintained and power rationing continues in many areas.

The Chinese economy growth has been severely downgraded by leading experts for 2022 and as the ubiquitous saying goes when China sneezes the world catches a cold – let’s hope this isn’t the case.

We continue to monitor the situation and will update you if anything significant occurs, but we do recommend checking with any of your vendors in the Sichuan, Chongqing and Hubei provinces, to check if they have been affected.

Metro’s cloud-based supply chain management platform, MVT, simplifies the most demanding global trading regimes, by making every milestone and participant in the supply chain transparent and controllable, down to individual SKU level. 

To discuss how our technology could support your supply chain, please contact Simon George our Technical Solutions Director or any of your Metro team contacts.