Worst drought in China in 50 years may hit its GDP

The drought in China that is impacting more than five per cent of the country's farmlands and is being described as the worst in 50 years, may affect its GDP this year and push up inflation, economists have said.

A lingering drought has affected 3.29 million people and 950,000 livestock in the provinces of Jiangsu, Anhui, Jiangxi, Hubei, and Hunan, according to the latest statistics from the Office of State Flood Control and Drought Relief Headquarters (SFDH).

Zhang Xu, deputy director of the SFDH, said the five provinces are starting to struggle with water shortages as the summer farming season begins. There have also been drinking water shortages, he said.

To help relieve the effects of the drought, the Three Gorges Dam, the world's largest hydropower station started discharging more water to downstream areas to step up water availability, but its own water levels were falling due to poor inflows.

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Currently, the dam is discharging about 200 million cubic metres of water each day, which has helped to raise downstream water levels by 1.39 to 2.72 metres.

A total of 1.96 billion yuan of China's central budget has been allocated to drought relief work so far, the SFDH said.

Economists are worried that the drought could push up the prices of food and raw materials, creating inflationary pressures. Cabbage prices soared by 23 per cent, rape went up 19.8 per cent and romaine lettuce surged 16.7 per cent, the ministry said.

Shen Jianguang from Mizuho Securities said on Friday that he expects China's consumer price index (CPI), a main gauge of inflation, to grow by 5.7 per cent year-on-year in May.

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In April, the CPI rose 5.3 per cent from a year ago, well above the government's control ceiling of 4 per cent.

Inflationary pressure will continue into the second half of the year, due to a lingering drought that has been affecting several of China's primary agricultural regions, Xinhua news agency quoted Sheng as saying.

The drought has increased the prices for crops, labour and electricity in these regions, Sheng said.

Xie Taifeng, an economist with the Capital University of Economics and Business, said the drought might not only result in rising grain prices, but also disrupt transportation on the Yangtze River.

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Excessively low water levels in some channels on the Yangtze River have already resulted in several vessels to stuck, impeding the distribution of important industrial materials in the region.

Xie pointed out that the drought will also have a negative impact on the generation of hydroelectric power, which will aggravate problems that have already resulted from China's current power shortage.

China's National Development and Reform Commission, has raised prices of electricity for industrial use in some regions by about 20 yuan per 1,000 kilowatt-hours.

HSBC announced last week that preliminary purchasing managers index (PMI) for China, a gauge of nationwide manufacturing activity, dropped to a 10-month low of 51 in May.