The World’s Factory Is Out Of Power

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What's going on?

Data out this week showed manufacturing activity in China shrank last month.

What does this mean?

China’s reputation as “the world’s factory” is down to the sheer power of its manufacturing industry, which carries so much heft that it typically gives an insight into the economy as a whole. So it’s not promising, then, that a cacophony of issues meant the sector slacked last month.

For one, an extreme heatwave caused historic droughts harsh enough to dry up rivers that feed hydroelectric plants. Even the Yangtze – China’s most important trade waterway – withered to its lowest level on record. Not only has that disrupted shipping routes, but it’s also forced provinces to cut factories’ electricity to manage power shortages. And for another, the country’s relentless commitment to its zero-Covid policy sent demand for products slipping, leaving businesses twiddling their thumbs. That, then, might be why a survey taken by business managers showed manufacturing activity actually shrank in August for the first time since May.

Why should I care?

Zooming in: Here we go again.
The bad news just keeps coming, with reports on Thursday revealing the city of Chengdu – a tech and carmaking hub – will lock down 21 million residents amid another outbreak, which will only stunt manufacturing more. Then again, there mightn’t be much to miss: an export-oriented survey signaled that foreign demand – a key pillar of support for China’s economy during the pandemic – might be drying up.

The bigger picture: Is this… climate change?
This could all be a blessing in disguise for heatwave-stricken Mother Nature: data out on this week showed China’s carbon emissions fell almost 8% this April through June – the last period of major lockdowns – versus the same time last year, the steepest drop in the past decade. But those slowdowns at hydropower plants might be a sticking point, with some analysts expecting China to plug the gap with carbon-pumping coal – dashing the hopes of another greener season.

Originally posted as part of the Finimize daily email.

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