China has endured a record-breaking heatwave this week – the most severe ever recorded. This has also led to a drought which will seriously impact food production. Images have also shown parts of the Yangtze river completely dried up. Four Chinese government departments sounded the alarm this week, releasing a statement warning that the country’s autumn harvest is under “severe threat.” The heatwave isn’t just threatening the daily lives of the Chinese population, but it will also have big ramifications for the country’s economy.
Chief economist of Hang Seng Bank China, Dan Wang, explained how the environmental crisis will hit Beijing’s economy.
She told CNBC that it is a “quite dire situation” adding that the crisis will probably last for the next “two to three months easily.”
Ms Wang continued: “It will affect those big energy-intensive industries and it will have [a] knock-on effect throughout the economy and even to the global supply chain.
“We already see a slowdown in production in the steel industry, in chemical industry, in fertiliser industry. Those are very important things when it comes to construction, to agriculture and also to manufacturing in general.”
She also explained how the heatwave and drought will hit China’s economic growth in 2022.
Ms Wang continued: “Last year, as we have estimated, the power shortage period has cost China about a 0.6 percent of GDP growth.
“This year we think this number will be a lot higher… I would say 1.5 percent lower.
“Right now, we are giving four percent of GDP growth for the full year. If the current situation continues, then I have to say the growth rate is probably below [three percent].”
The heatwave isn’t the only source of economic pain in China.
A property crisis in the country has seen a number of building projects stalled, costing the sector more than a trillion dollars (£845billion) last year.
For 11 consecutive months, house sales in the country have dropped, its biggest property slump since the 1990s.
Even work on homes that have already been sold has stopped as companies fear they face financial ruin.
The State Council, the Chinese government’s chief administrative authority, has announced nearly £40billion worth of stimulus funding to try and stop the country’s economic slump.
Goldman Sachs analysts are not optimistic that this will change China’s economic fortunes.
They said this week that “with a very weak property sector and headwinds to activity growth from local Covid outbreaks and related control measures, barring major policy easing measures, we think overall growth will remain sluggish during the rest of this year”.
The investment bank isn’t alone in its pessimistic outlook – Huawei founder Ren Zhengfei has warned in a leaked memo that his company will now have to fight for its survival.
Mr Zhengfei said: “The next decade will be a very painful historical period, as the global economy continues to decline.
“Huawei must reduce any overly optimistic expectations for the future and until 2023 or even 2025, we must make survival the most important guideline, and not only survive but survive with quality.”