COVID-19 lockdowns in China threw a wrench into global supply chains earlier this year, causing shipping and production delays worldwide, and hindering economic growth.
Now, the country is facing another major threat—and this one could be even worse for the economy.
China has been coping with its worst heat wave in 60 years this month, with temperatures in several provinces routinely reaching 40°C (104°F). But one key province is experiencing the worst financial repercussions from the suffocating heat.
In Sichuan, a regional manufacturing powerhouse that is home to more than 80 million people, the record heat wave has exacerbated an ongoing drought, cutting water levels at hydropower reservoirs in half this month, according to the Sichuan Provincial Department of Economics and Information Technology.
Sichuan relies on hydropower for roughly 80% of its energy needs, and with consumers using more energy than usual to stay cool during the heat wave, energy supplies are running short.
As a result, officials announced on Aug. 15 that factories in 19 cities and prefectures would be forced to close their doors for five days to reserve electricity for “use by the people.”
But an expert told Fortune that the ongoing heat wave is more than just a regional problem, and could have dramatic repercussions worldwide. Because of the specific challenges that heat poses, manufacturing work-arounds that became common during the height of COVID will no longer be possible, potentially leading to even more severe economic outcomes.
“These shutdowns have the potential to be equally if not more impactful on supply chains than recent COVID lockdowns,” said Mirko Woitzik, global director of intelligence solutions for Everstream Analytics, a supply-chain insights and risk analytics company.
From Sichuan to the rest of China
Some factories in China were able to remain open during pandemic lockdowns through the use of “closed loop” systems, where workers would isolate themselves at factories in order to continue operations.