New China crisis poses fresh global threat as 'extreme' disaster unfolds

An unprecedented heatwave is putting the pressure on power supply in China. Photo / 123RF

China is facing its most extreme heatwave in 60 years – and the impact is set to be felt worldwide.

Severe heat and drought has plagued the world's second-biggest economy for weeks on end, with temperatures soaring above 40C in a string of large cities.

As a result, the unprecedented demand for airconditioning has caused the power grid to buckle, while the drought has also reduced water levels and therefore the ability to generate electricity at hydropower plants.

It's a nightmare scenario for the nation of 1.4 billion, and has seen some provinces resort to drastic measures.

In Sichuan in China's southwest, 19 out of 21 cities have been ordered to halt production in all factories for six days via an "urgent notice" from authorities in a desperate attempt to keep the lights on.

The notice, which has been posted on the provincial government's website, revealed that Sichuan had only "encountered [such] extreme high temperature once in 60 years" and that the average rainfall had fallen by 51 per cent from the same period in 2021.

"The sharp drop in water inflow from major river basins has caused a sudden drop in the output of hydropower generation," the notice reads.

"The contradiction between power supply and demand in the province is very prominent."

The extreme move is all the more alarming as Sichuan is a major hub for lithium mining, solar panel production and semiconductors, meaning a week-long shutdown will have a major impact on a slew of household-name companies, including Apple and Tesla, and will likely cause the costs of raw materials to rise.

Already, Sichuan fertiliser producer Lutianhua has predicted a $US4.4 million ($7m) reduction in net profit as a result of the shutdown, according to a notice on the Shenzhen Stock Exchange, while China's National Bureau of Statistics spokesman Fu Linghui acknowledged in a press conference that the heatwave had already led to "adverse effects on economic operations".

And it's likely to get worse before it gets better, with a meeting between officials coming to the conclusion that "the weather with high temperature and little rain will continue for a period of time, and it is necessary to focus on protecting people's livelihood, safety, and operation, and make every effort to protect the power supply". The meeting also called for "extreme thinking to deal with extreme situations" as officials "plan for the worst" during the "current severe situation".

That indicates that the powers that be are bracing for a lot more pain ahead, which could mean forced factory shutdowns last far longer than the initial six days.

Global industries 'at risk'

Analyst for Daily FX and IG Thomas Westwater told news.com.au there was a "real possibility" the shutdowns could have significant impacts on the wider world, with several global companies left in the lurch.

"The primary risk to markets would be an extension of power rationing beyond August 20, which is a real possibility with current weather forecasting," he said.

"A protracted shutdown of industries across Sichuan would result in higher lithium prices, as the province accounts for a majority of China's total production.

"Aluminium and other metals would also be at risk, as well as broader industry, including vehicle production and even iPhone manufacturing."