Pacific Money | Economy | East Asia

The Economic Effects of Extreme Heat in China

Extreme heat is roiling China, challenging individuals and businesses in carrying out everyday activities.

The Economic Effects of Extreme Heat in China
Credit: Depositphotos

As heatwaves burn through the country, China will suffer the economic effects of extreme heat. Some cities are on high alert for temperatures above 95 degrees Fahrenheit, while many cities across the nation are likely to surpass 104 degrees F. This extreme heat will have economic impacts through power rationing, reduced crop yield, and effects on delivery and other outdoor workers.

Extreme heat is roiling China, challenging individuals and businesses in carrying out everyday activities. Over 600 million people have been affected, and some cities have reported heat stroke deaths. The heat challenges not only impact human economic activity but may affect infrastructure such as dams, which will face stresses as the heat melts glaciers.

The power grid is already under pressure due to increased demand for air conditioning in homes and offices. Zhejiang province has already asked its households and businesses to save power and has rationed power supply for energy-intensive firms, including textile producers and printers. Electricity consumption hit record highs in the provinces of Shandong and Henan due to increased air conditioning usage. Constrained power supply, coupled with targeted emission reductions, will reduce the amount of power available to electricity-hungry homes and businesses.

China has recent experience with power shortages. Shortages hit last September due to insufficient electricity supplies to meet demand. Many factories were forced to reduce their hours of work or even shut down entirely to comply with energy restrictions. As a result, almost half of China’s industrial activity was negatively impacted, resulting in a decline in economic growth, possibly of 1 percent or more. The power crunch also adversely affected global supply chains, as many firms found themselves facing significant delays in obtaining necessary goods for production and sales, raising costs for those firms and their end customers.

Extreme heat will also impact crop yields. A study by McKinsey and Company found that climate change in China, including extreme heat waves, is likely to reduce crop yields of wheat, corn, and rice by 10 percent each year. Heat waves affect crop health and productivity, as well as the length of growing seasons and crop maturity patterns. Fear of crop failure in China has already resulted in rising pork prices. Soybean meal, corn, and wheat are key pork feeds whose growth is threatened by higher temperatures. China produces one-fourth of the world’s grain, so reduced growing capacity in China will result in lowered domestic and global food security.

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Delivery and other outdoor workers have been hit by extreme heat as well. Hot conditions have increased the likelihood of heat stroke in outdoor workers. One study by Luke Parsons, a climate researcher at Duke University, and his colleagues found that global heat-related labor losses increased by over 9 percent over the last 40 years. Another study carried out by Rachel Licker, principal climate scientist at the Union of Concerned Scientists, and others examined outdoor workers in the U.S. to show that outdoor worker exposure to extreme heat will triple between 2000 and 2050, resulting in income-related economic losses of 3.7 percent.

Heat also reduces overall productivity, not only in strictly outdoor workers but in office workers as well, as some workplaces allow temperatures to rise somewhat to offset high cooling costs indoors. One study performed in Australia on both indoor and outdoor workers found that extreme heat resulted in a loss of 1.2 percent of productive income per year. In this study, 70 percent of the respondents were less productive and 7 percent were absent on at least one day per year due to heat.

The frequency and intensity of extreme heatwaves are expected to rise in the future, as global mean temperatures increase. China’s northeastern and eastern regions are likely to be most impacted, with heat intensity expected to rise by over 5 degrees Celsius in high heat-humidity events by the end of the century. However, all regions will experience a temperature increase of over 2 degrees Celsius, according to a scientific model led by Huopo Chen, a researcher at the Chinese Academy of Sciences.

Assessing the various sources of economic losses due to extreme heat in China is highly challenging since there are many factors to measure at once. Impaired productivity also impacts the rest of the world, since China is well integrated into global supply chains. There is one major takeaway from studying the economic effects of extreme heat: Nations must strive intensively to slow or stop the progress of climate change, which is responsible for generating extreme heat.