According to an article in Foreign Affairs, the per capita available water supply around the Northern China Plain (253 cubic meters) is nearly 50% below the UN definition of acute water supply. Beijing, Shanghai, and other major cities are at similar—or lower—levels. Even Egypt’s well-known water plight (570 cubic meters) is better than China’s, and Egypt doesn’t support a manufacturing base like China does. There are already repercussions. For example, China has historically been a significant producer of aluminum, but now imports aluminum from Russia (the instigator of the war with Ukraine). When China runs dry, will it prioritize the manufacturing of your products and materials or its own?
Water Feeds Electricity
Water is required for electricity. In China, they use 60% coal (it is no wonder why China emits more greenhouse gases than the entire developed world combined), 20% hydro, and 20% nuclear, solar and wind. Hydropower, or hydroenergy, is a form of renewable energy that uses the water stored in dams, as well as flowing in rivers to create electricity in hydropower plants. It appears that China might be closer to acute water distress than the world realizes. What happens when China’s manufacturing comes to a halt because the 20% hydro is unavailable without water?
Why are we encouraging solar production and offering incentives to produce in China (instead of the U.S.)? Likewise, why are we encouraging the production of EVs with batteries made mainly in China using vast amounts of coal and requiring transport across the world? China produces most of the active pharmaceutical ingredients (APIs), computer chips (aside from advanced computer chips which are made in Taiwan), and many other items related to critical infrastructure, materials, and national security.
Impact on Manufacturing
Aside from the boatloads of political risk associated with China, this severe water shortage issue has the potential to be FAR WORSE than the pandemic. Let’s NOT let that happen again.
Why is the U.S. government blocking rare earth mining? China accounts for 63 percent of the world’s rare earth mining, 85 percent of rare earth processing, and 92 percent of rare earth magnet production. Yet rare earth minerals are used in the production of electronics, clean energy, aerospace, automotive and defense. What happens when China runs short of water?
China produces most of the active pharmaceutical ingredients (APIs), computer chips (aside from advanced computer chips which are made in Taiwan), and many other items related to everyday life, critical infrastructure, materials, and national security. Need I go on? 🙂
China will try to prevent this the issue as they want to dominate the world on their timing. Thus, they are taking action. They are moving heavy manufacturing away from the most distressed areas and investing heavily in water management infrastructure. They are using cloud seeding to boost rainfall and sometimes to engineer better weather (for the Olympics) which can damage agriculture and create storm events. Yet even with these measures (and more), estimates show them running short of water by 2030. That is only 7 years!
2030 is NOT much time to move your manufacturing and supply base to another part of the world. Remember, it is not simple. You need to pay attention to water, electricity, natural resources, access to suppliers, facility availability for manufacturing, ability to control your logistics (for example, are the port terminals you go through owned by China?), talent, and much more. As more manufacturers reshore and nearshore, what will be the impact on your supply chain? Will you be early or wait to see what happens? If you wait, your situation is likely to change rapidly – and not for the better. Assess your situation now and develop a path forward that makes sense given your end-to-end supply chain and growth objectives.
Roll out a SIOP (Sales Inventory Operations Planning) process as it will provide the tools and process cadence to ensure you are looking ahead, forecasting demand, making decisions based on customer and product profitability, and determining how to best supply your demand to mitigate key risks, support your business growth objectives, improve your customer experience, increase profitability, and accelerate cash flow. Learn more about how to use SIOP to succeed during volatile times in our new eBook SIOP (Sales Inventory Operations Planning): Creating Predictable Revenue and EBITDA Growth. Download your complimentary copy.
Please keep us in the loop of your situation and how we can help your organization prepare to succeed during volatility and prepare to take advantage of the vast opportunities to come in the next several years.