China's heatwave could have a knock-on effect on its economy, says economist

China is currently caught in the grip of a devastating heatwave that could have a serious impact on its economy, according to the chief economist of Hang Seng Bank China.

The heatwave “is a quite dire situation,” Dan Wang told CNBC’s “Squawk Box Asia” on Thursday, adding it probably could last for the next “two to three months easily.” 

China is facing record-breaking heatwaves and is battling a power outage in the Yangtze River area. Extreme temperatures have disrupted crop growth and threatened livestock.

“It will affect those big energy-intensive industries and it will have [a] knock-on effect throughout the economy and even to the global supply chain,” she said.

“We already see a slowdown in production in the steel industry, in chemical industry, in fertilizer industry. Those are very important things when it comes to construction, to agriculture and also to manufacturing in general.,” Wang added.

According to a state media report, most areas of the Yangtze River basin have seen extremely high temperatures since July. Rainfall in the area fell about 45% compared to the average over recent years, based on data from the Ministry of Water Resources.

The report also cited Liu Weiping, vice-minister of water resources, as saying Wednesday that reservoirs have replenished 5.3 billion cubic meters of water in the middle and lower parts of the Yangtze River since August.

The latest heatwave and power outages were reminiscent of the major blackout last year that enveloped many of China’s key manufacturing hubs such as Guangdong, Zhejiang and Jiangsu.

“Last year, as we have estimated, the power shortage period has caused China about a 0.6% point of GDP growth,” Wang said. “This year we think this number will be a lot higher… I would say 1.5% point lower.”

“Right now, we are giving 4% of GDP growth for the full year. If the current situation continues, then I have to say the growth rate is probably below [3%],” she added.