The Chinese government has unveiled tens of billions of dollars in economic support for its energy and agricultural industries, which are grappling with a record heat wave and drought that has reduced industrial output.
The State Council, which acts as China’s cabinet, approved 200 billion yuan ($29 billion) in new debt for the country’s power generators and another 20 billion yuan to fight drought and help the country’s rice harvest.
Financial support for China’s power sector is unlikely to do much in the short term to ease the power shortages that have plagued Sichuan province and the sprawling metropolis of Chongqing in central China, among others. But they show how closely the central government is monitoring the issue ahead of a sensitive Communist Party meeting due to take place later this year.
The drought has reduced hydropower generation in Sichuan, which accounts for much of the province’s power generation, some of which is also shipped to other parts of the country. The lack of rainfall coincided with a heat wave which led to an increase in demand for electricity, with households using more air conditioning to stay cool.
The heat wave is the worst to hit China in six decades. Central and southwestern regions of China have seen temperatures as high as 110 degrees Fahrenheit. Water levels in parts of the Yangtze River – a crucial water source for hydropower and a transportation artery – are at their lowest since records began, the government said.
In response, the government has forced many factories to scale back operations, including major manufacturers such as Foxconn Technology Group, a major supplier to Apple. Inc.
Meanwhile, Tesla Inc. also sought government assistance to ensure that its Sichuan suppliers will have sufficient electricity supply.
Sichuan, with a population of more than 80 million, is particularly vulnerable to droughts, with hydropower accounting for more than 80% of its power generation last year. The fact that this is happening during what would normally be the region’s rainy season means it could take months for reservoir levels to return to normal, indicating that power shortages could persist for some time.
The hit to industrial production is the latest challenge for China’s economy, which has been beset by a number of growing problems. Others have arisen from his strict enforcement of Covid-19 measures, which have included the temporary confinement of tens of millions of people to their homes, with broad economic consequences. A slump in the real estate sector added to fears of risk in China’s financial system.
Data released last week showed the scale of the challenges facing the economy, with factory output, consumer spending, investment and youth hiring plummeting. China’s central bank lowered benchmark interest rates on household and business loans on Monday, although economists said the moves were unlikely to do much to boost growth.
Efforts to prop up the economy are coming ahead of a two-decade party congress, where President Xi Jinping will seek to break with recent tradition and secure a third term. While Mr. Xi is expected to stay in power, his handling of China’s economy has been a source of criticism.
China implicitly ditched the 5.5% annual growth target at a meeting late last month after the world’s second-largest economy reported a 2.5% expansion in the first half of the year, putting the objective out of reach.