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    Climate Change Could Worsen Supply Chain Turmoil

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    A drought that has crippled economic activity in southwestern China hints at the kind of disruption that climate change could wreak on global supply chains.Chinese factories were shuttered again in late August, a frequent occurrence in a country that has imposed intermittent lockdowns to fight the coronavirus. But this time, the culprit was not the pandemic. Instead, a record-setting drought crippled economic activity across southwestern China, freezing international supply chains for automobiles, electronics and other goods that have been routinely disrupted over the past three years.Such interruptions could soon become more frequent for companies that source parts and products from around the world as climate change, and the extreme weather events that accompany it, continue to disrupt the global delivery system for goods in highly unpredictable ways, economists and trade experts warn.Much remains unknown about how the world’s rapid warming will affect agriculture, economic activity and trade in the coming decades. But one clear trend is that natural disasters like droughts, hurricanes and wildfires are becoming more frequent and unfolding in more locations. In addition to the toll of human injury and death, these disasters are likely to wreak sporadic havoc on global supply chains, exacerbating the shortages, delayed deliveries and higher prices that have frustrated businesses and consumers.“What we just went through with Covid is a window to what climate could do,” said Kyle Meng, an associate professor at the Bren School of Environmental Science and Management and the department of economics at the University of California, Santa Barbara.The supply chains that have stretched around the world in recent decades are studies in modern efficiency, whizzing products like electronics, chemicals, couches and food across continents and oceans at ever-cheaper costs.But those networks proved fragile, first during the pandemic and then as a result of Russia’s invasion of Ukraine, with companies struggling to source their goods amid factory and port shutdowns. With products in short supply, prices have spiked, fueling rapid inflation worldwide.The drought in southwestern China has also had ripple effects for global businesses. It drastically reduced hydropower production in the region, requiring power cuts to factories and scrambling supply chains for electronics, car parts and other goods. Volkswagen and Toyota curtailed production at nearby factories, as did Foxconn, which produces electronics, and CATL, a manufacturer of batteries for electric cars.The Yangtze River, which bisects China, dipped so low that the oceangoing vessels that typically traverse its upper reaches from the rainy summer into early winter could no longer run.Companies had to scramble to secure trucks to move their goods to Chinese ports, while China’s food importers hunted for more trucks and trains to carry their cargo into the country’s interior. The heat and drought have wilted many of the vegetables in southwestern China, causing prices to nearly double, and have made it hard for the surviving pigs and poultry to put on weight, driving up meat prices. ‌Recent rainfall allowed power to be temporarily restored to houses and businesses in western China. But drought persists across much of central and western China, and reservoirs remain at a third of their usual level.Read More About Extreme WeatherHeat and Destruction: A heat dome over California sent temperatures to all-time highs, making it harder to fight the wildfires burning in various parts of the state.Big Hail: Hailstones of record size are falling left and right, and hailstorm damage is growing. But there is surprisingly little research to explain why.Water Crisis: Aging infrastructure and underinvestment have left many U.S. cities’ water systems in tatters. Now flooding and climate shocks are pushing them to failure.Flooding in South Asia: Amid a relentless monsoon season, deadly floods have devastated Pakistan and inundated Bengaluru, India’s Silicon Valley.That means less water not only for hydropower but also for the region’s chemical factories and coal-fired power plants, which need huge quantities of water for cooling.China even resorted to using drones to seed clouds with silver iodide in an attempt to trigger more rain, said Zhao Zhiqiang, the deputy director of the Weather Modification Center of the China Meteorological Administration, at a news conference on Tuesday.At the same time, the coronavirus, and China’s insistence on a zero-Covid policy, continue to pose supply chain risks by restricting movement in significant portions of the country. Last Thursday, Chinese authorities locked down Chengdu, a city of more than 21 million in southwestern China, to clamp down on coronavirus outbreaks.These frequent disruptions in Chinese manufacturing and logistics have added to concerns among global executives and policymakers that many of the world’s factories are far too geographically concentrated, which leaves them vulnerable to pandemics and natural disasters.The Biden administration, in a plan released Tuesday outlining how the United States intends to bolster its semiconductor industry, said the current concentration of chip-makers in Southeast Asia had left the industry vulnerable to disruptions from climate change, as well as pandemics and war.But setting up factories in other parts of the world to offset those risks could be costly, for both businesses and the consumers whom companies will pass their costs on to in the form of higher prices. Just as the pandemic has resulted in higher prices for consumers, Mr. Meng said, so could climate change, particularly if extreme weather affects large areas of the world at the same time.Companies could also face new costs from carbon taxes when shipping goods across borders, as well as higher transport costs for moving products by sea or air, experts say. Both ocean and airfreight are major producers of the gases contributing to climate change, accounting for about 5 percent of global carbon emissions. Companies in both sectors are quickly trying to find cleaner sources of fuel, but that transition is likely to require big investments that could drive up prices for their customers.Natural disasters and coronavirus lockdowns in China have been particularly painful, given that the country is home to much of the world’s manufacturing. But the United States has also felt the rising impacts from extreme weather.A multiyear drought in much of the Western United States has weighed on American agricultural exports. West Coast wildfires have jumbled logistics for companies like Amazon. Winter storms and power outages shut down semiconductor plants in Texas last year, adding to global chip shortages.A wildfire burned through farmland near Mulino, Ore.Kristina Barker for The New York TimesWhite House economists warned in a report this year that climate change would make future disruptions of the global supply chains more common, citing research showing that the global frequency of natural disasters had increased almost threefold in recent decades.“As networks become more connected, and climate change worsens, the frequency and size of supply-chain-related disasters rises,” the report said.The National Centers for Environmental Information, a federal agency, estimates that the number of billion-dollar disasters taking place in the United States each year has skyrocketed to an average of 20 in the last two years, including severe storms, cyclones and floods. In the 1980s, there were only about three per year.Academics say the effect of these disasters, and of higher temperatures in general, will be particularly obvious when it comes to food trade. Some parts of the world, like Russia, Scandinavia and Canada, could produce more grains and other food crops to feed countries as global temperatures rise.But those centers of production would be farther from hotter and more densely populated areas closer to the Equator. Some of those regions may struggle even more than they do now with poverty and food insecurity.One danger is that increasing competition for food could encourage countries to introduce protectionist policies that restrict or stop the export of food, as some have done in response to the pandemic and Russia’s invasion of Ukraine. These export restrictions allow a country to feed its own population, but tend to exacerbate international shortages and push up food prices, further aggravating the problem.The World Trade Organization, citing the damage that protectionist policies could pose, has urged countries to keep trade open to combat the negative effects of climate change.In a 2018 report, the W.T.O. pointed out that the global food trade was particularly vulnerable to disruptions in transportation that might occur as a result of climate change, like rising sea levels threatening ports or extreme weather degrading roads and bridges. More than half of globally traded grains pass through at least one of 14 global “choke points,” including the Panama Canal, the Strait of Malacca or the Black Sea rail network, the report said.Ngozi Okonjo-Iweala, the W.T.O.’s director general, has described trade as “a mechanism for adaptation and resilience” that can help countries deal with crop failure and natural disasters. In a speech in January, she cited economic models estimating that climate change was on track to contribute to severe malnutrition, with as many as 55 million people at risk by 2050 because of local effects on food production. But greater trade could cut that number by 35 million people, she said.“Trade is part of the solution to the challenges we face, far more than it is part of the problem,” Ms. Okonjo-Iweala said.Solomon Hsiang, the Chancellor’s Professor of Public Policy at the University of California, Berkeley, and a co-director of the Climate Impact Lab, agreed that trade might simultaneously make the world more resilient to these disasters and more vulnerable.In some situations, trade can help soften the effects of climate change — for example, allowing communities to import food when local crops fail because of a drought, he said.“That’s on the good side of the ledger,” Mr. Hsiang said. “But the bad side is, as everyone really acutely understands, we are so interconnected from our supply chains that events on one side of the world can dramatically impact people’s well-being elsewhere.” More

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    China’s Record Drought is Drying Rivers and Feeding Its Coal Habit

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    Dry weather in southwestern China has crippled huge hydroelectric dams, forcing cities to impose rolling blackouts and driving up the country’s use of coal.HONG KONG — Car assembly plants and electronics factories in southwestern China have closed for lack of power. Owners of electric cars are waiting overnight at charging stations to recharge their vehicles. Rivers are so low there that ships can no longer carry supplies.A record-setting drought and an 11-week heat wave are causing broad disruption in a region that depends on dams for more than three-quarters of its electricity generation. The factory shutdowns and logistical delays are hindering China’s efforts to revive its economy as the country’s leader, Xi Jinping, prepares to claim a third term in power this autumn.The ruling Communist Party is already struggling to reverse a slowdown in China, the world’s second largest economy, caused by the country’s strict Covid lockdowns and a slumping real estate market. Young people are finding it hard to get jobs, while uncertainty over the economic outlook is compelling residents to save instead of spend, and to hold off on buying new homes.Now, the extreme heat is adding to frustration by snarling power supplies, threatening crops and setting off wildfires. Reduced electricity from hydroelectric dams has prompted China to burn more coal, a large contributor to air pollution and to greenhouse gas emissions that cause global warming.Many cities around the country have been forced to impose rolling blackouts or limit energy use. In Chengdu, the capital of Sichuan Province, several neighborhoods went without electricity for more than 10 hours a day.An electronic billboard shut down to save energy in Chengdu, China.Agence France-Presse — Getty ImagesVera Wang, a Chengdu resident, said that just to charge her electric car, her boyfriend waited in a long line overnight at a charging station that was only partly operating. It was 4 a.m. by the time he reached the front of the line.“The line was so long that it extended from the underground parking lot to the road outside,” she said.The heat wave has scorched China for more than two months, stretching from Sichuan in the southwest to the country’s eastern coast and sending the mercury above 104 degrees on many days. In Chongqing, a sprawling metropolis in the southwest with around 20 million people, the temperature soared to 113 degrees last week, the first time such a high reading had been recorded in a Chinese city outside the western desert region of Xinjiang.The searing heat set off wildfires in the mountains and forests on Chongqing’s outskirts, where thousands of firefighters and volunteers have worked to put out blazes. Residents said the air smelled of acrid smoke.The drought has dried up dozens of rivers and reservoirs in the region and cut Sichuan’s hydropower generation capacity by half, hurting industrial production. Volkswagen closed its sprawling, 6,000-employee factory in Chengdu for the past week and a half, and Toyota also temporarily suspended operations at its assembly plant.A villager attempting to put out a bush fire with a mop in his field during a drought in Xinyao, a village in Jiangxi Province, on Thursday.Thomas Peter/ReutersFoxconn, the giant Taiwanese electronics manufacturer, and CATL, the world’s largest maker of electric car batteries, have both curtailed production at factories in the vicinity.In Ezhou, a city in central China near Wuhan, the Yangtze River is now at its lowest level for this time of year since record-keeping began there in 1865. People’s Daily, the main newspaper of the Communist Party, reported on Aug. 19 that the Yangtze River had fallen to the same average level it normally reaches at the end of the winter dry season.Read More About Extreme WeatherRelics of the Past: As a drought starves Europe’s rivers and brings water levels down, shipwrecks, bombs and objects dating back thousands of years are turning up at the water’s surface.Preparing for Disaster: With the cost and frequency of weather-driven disasters on the rise,  taking steps to be ready financially is more crucial than ever. Here are some tips.Wildfires Out West: California and other Western states are particularly prone to increasingly catastrophic blazes. There are four key factors.Colorado River: With water levels near their lowest point ever, Arizona and Nevada faced new restrictions on the amount of water they can pump out of the river.But the disruptions from the hydropower shortfall are being felt far from the southwest, including in China’s eastern cities, which are buyers of hydropower. Some factories and commercial buildings in cities like Hangzhou and Shanghai are rationing electricity.Kevin Ni, an online marketing worker in Hangzhou, said that his office was stifling because few air-conditioners were allowed to run.“We have to eat ice pops and drink iced drinks,” he said. “I just put my hands on the ice pops, that cools me the most.”A satellite image showing the Yangtze River last August between Huanggang and Ezhou, in Hubei Province, China.Planet LabsThe same view this month, showing how much lower the water levels are than in the previous year.Planet LabsThe falling water levels in major rivers that serve the region’s main transport hubs have also led to delays elsewhere in the supply chain. The Yangtze River has receded so much that many oceangoing ships can no longer reach upstream ports. The upper Yangtze basin normally gets half its entire annual rainfall just in July and August, so the failure of this year’s rains may mean a long wait for more water.That is forcing China to divert large numbers of trucks to carry their cargo. A single ship can require 500 or more trucks to move its cargo.“We’re losing a few months of really efficient shipping,” said Even Rogers Pay, a food and agriculture analyst at Trivium, a Beijing consulting firm.The heat wave and drought are also starting to drive food prices higher in China, especially for fruit and vegetables. Farmers’ fields and orchards are wilting. Sichuan is a leading grower in China of apples, plums and other fruit, and fruit trees that die could take five years to replace. The price of bok choy, a popular cabbage, has nearly doubled in Wuhan this month.“That’s going to create more economic pain, which is the last thing the leadership wants to see,” Ms. Pay said.Ships sailing on the Yangtze River in Jiujiang, Jiangxi Province, on Tuesday. The Yangtze River has receded so low that many oceangoing ships can no longer reach upstream ports.Alex Plavevski/EPA, via ShutterstockThe Ministry of Agriculture and Rural Affairs and four other departments issued an emergency notice warning on Tuesday that the drought posed a “severe threat” to China’s autumn harvest. China’s cabinet on Wednesday approved $1.5 billion for disaster relief and assistance to rice farmers and another $1.5 billion for overall farm subsidies.The government has urged local officials to seek out more water sources and allocate more electricity to support farmers and promote the planting of leafy vegetables, which are highly perishable, in big cities. Fire trucks have been used to spray water on fields and deliver water to pig farms.The extreme weather sweeping across China also has potential implications for the world’s efforts to halt climate change. Beijing has sought to offset at least part of the lost hydropower from the drought by ramping up the use of coal-fired power plants. China’s domestic mining of coal has been at or near record levels, and customs data shows that its imports of coal from Russia reached a new high last month.But China’s reliance on the fossil fuel raises questions about its commitment to slowing the growth of its carbon emissions.“In the short term in China, the very, very painful realization is that only coal can serve as the base” for the electricity supply, said Ma Jun, the director of the Institute of Public and Environmental Affairs, a Beijing environmental group. Sichuan Province has lured energy-intensive industries like chemical manufacturing for many years with extremely low electricity prices, he said, and some of these industries have squandered power through inefficiency.A dry vegetable plot at a farm in Longquan, a village in Chongqing.Mark Schiefelbein/Associated PressMr. Ma struck an optimistic note, however, about the direction of China’s climate strategy, saying that in the medium term, “China is very committed to carbon targets and renewable energy.”The government has sought to mitigate the effects of global warming on its economy. The National Development and Reform Commission, China’s top economic planning ministry, set up a working group last winter to analyze the effects of climate change on water-related industries like hydroelectric dams.While such efforts may help China preserve the viability of renewable energy programs, they may not prompt China to limit the burning of coal this year as a quick fix, said Ed Cunningham, the director of the Asia Energy and Sustainability Initiative at the Harvard Kennedy School.“They’re much more comfortable with coal,” Mr. Cunningham said, “and the reality is that when there’s a shortage of hydro, they use coal.”Muyi Xiao More

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    Taiwan and U.S. to Begin Formal Trade Talks

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    The Biden administration said on Wednesday that it would begin formal trade negotiations with Taiwan this fall, after several weeks of rising tensions over the island democracy that China claims as its own.The announcement marks a step toward a pact that would deepen economic and technological ties between the United States and Taiwan, after initial talks were announced in June. But relations between the United States and China have markedly deteriorated since then, on the heels of visits by two delegations of U.S. lawmakers to Taiwan this month, including by Speaker Nancy Pelosi.The trips angered the Chinese government, which sees the island as an incontestable part of its territory, and it has responded by ramping up military drills and firing missiles into the waters around Taiwan. The United States, in turn, has accused China of using the visits as a pretext to step up operations to intimidate Taiwan, and has vowed to maintain its own military operations in the region.Despite its small size, Taiwan is the United States’ eighth-largest trading partner. It is an important market for U.S. agriculture and a key supplier of technology, particularly advanced semiconductors.Talks for the pact, called the U.S.-Taiwan Initiative on 21st-Century Trade, will focus on 11 trade areas, the announcement from the Office of the United States Trade Representative said, including expanding trade in agriculture and digital industries, raising labor and environmental standards, and enhancing trade between small and medium-size businesses.The governments also said they would combat market distortions caused by state-owned enterprises, as well as nonmarket policies and practices — an apparent nod at China, where such practices are common.China responded to the news of the trade talks with displeasure. Shu Jueting, a representative for China’s Ministry of Commerce, said: “China always opposes any form of official exchanges between any country and the Taiwan region of China, including negotiating and signing any agreements with sovereign connotations or an official nature.”She added that China would “take all necessary measures to resolutely safeguard sovereignty, security and development interests.”The U.S.-Taiwan trade initiative will be negotiated by the American Institute in Taiwan, which is the unofficial U.S. embassy in Taipei, and the Taipei Economic and Cultural Representative Office in the United States, which represents Taiwan in Washington in the absence of diplomatic recognition.The Biden administration is also carrying out a separate trade negotiation with 13 Asian nations to form a pact known as the Indo-Pacific Economic Framework. Taiwan has expressed interest in joining those talks, but given its contested status, it has not been invited to participate.In a briefing on Wednesday, Daniel J. Kritenbrink, the assistant secretary of state for East Asian and Pacific affairs, defended what he called “an ambitious road map for trade negotiations” with Taiwan.“We will continue to fulfill our commitments under the Taiwan Relations Act,” he said. “That includes supporting Taiwan’s self-defense and maintaining our own capacity to resist any resort to force or other forms of coercion that would jeopardize Taiwan’s security. And we will continue, consistent with our ‘one China’ policy, to deepen our ties with Taiwan, including through continuing to advance our economic and trade relations.”Austin Ramzy More

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    Biden Signs Industrial Policy Bill Aimed at Bolstering Competition With China

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    WASHINGTON — President Biden on Tuesday signed into law a sprawling $280 billion bill aimed at bolstering American chip manufacturing to address global supply chain issues and counter the rising influence of China, part of a renewed effort by the White House to galvanize its base around a recent slate of legislative victories.Standing before business leaders and lawmakers in the Rose Garden, Mr. Biden said the bill was proof that bipartisanship in Washington could produce legislation that would build up a technology sector, lure semiconductor manufacturing back to the United States and eventually create thousands of new American jobs.“Fundamental change is taking place today, politically, economically and technologically,” Mr. Biden said. “Change that can either strengthen our sense of control and security, of dignity and pride in our lives and our nation, or change that weakens us.”The bipartisan compromise showed a rare consensus in a deeply divided Washington, reflecting the sense of urgency among both Republicans and Democrats for an industrial policy that could help the United States compete with China. Seventeen Republicans voted for the bill in the Senate, while 24 Republicans supported it in the House.While Republicans have long resisted intervening in global markets and Democrats have criticized pouring taxpayer funds into private companies, global supply chain shortages exacerbated by the pandemic exposed just how much the United States had come to rely on foreign countries for advanced semiconductor chips used in technologies as varied as electric vehicles and weapons sent to aid Ukraine.Read More on the Relations Between Asia and the U.S.Pelosi’s Taiwan Visit: House Speaker Nancy Pelosi’s trip to Taiwan has exacerbated tensions between the United States and China, which claims the self-governing island as its own. The visit could also undermine the Biden administration’s strategy of building economic and diplomatic ties in Asia to counter Beijing.Reassuring Allies: Amid China’s military exercises near Taiwan in response to Ms. Pelosi’s visit, the Biden administration says its commitment to the region has only deepened. But critics say the tensions over Taiwan show that Washington needs stronger military and economic strategies.CHIPS and Science Act: Congress passed a $280 billion bill aimed at building up America’s manufacturing and technological edge to counter China. It is the most significant U.S. government intervention in industrial policy in decades.In a sign of how Beijing’s rise drove the negotiations for the legislation, Mr. Biden explicitly mentioned China multiple times during his remarks at the bill-signing ceremony.“It’s no wonder the Chinese Communist Party actively lobbied U.S. business against this bill,” the president said, adding that the United States must lead the world in semiconductor production.The bill is focused on domestic manufacturing, research and national security, providing $52 billion in subsidies and tax credits for companies that manufacture chips in the United States. It also includes $200 billion for new manufacturing initiatives and scientific research, particularly in areas like artificial intelligence, robotics, quantum computing and other technologies.The legislation authorizes and funds the creation of 20 “regional technology hubs” that are intended to link together research universities with private industry in an effort to advance technology innovation in areas lacking such resources. And it provides funding to the Energy Department and the National Science Foundation for basic research into semiconductors and for building up work force development programs.“We will bring these jobs back to our shores and end our dependence on foreign chips,” said Senator Chuck Schumer, Democrat of New York and the majority leader, who pumped his fists as he stepped toward the lectern. More

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    They Flocked to China for Boom Times. Now They’re Thinking Twice.

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    A.H. Beard, a 123-year-old luxury mattress manufacturer based in Australia, started eyeing China around 2010. At the time, the family-owned company faced looming competition from low-cost, foreign-made mattresses in its home market. China, with its 1.4 billion consumers and a growing middle class with a taste for premium brands, seemed like a good place to expand.The choice paid off.A.H. Beard opened its first store there in 2013. Before the coronavirus pandemic, sales in the country were growing more than 30 percent a year. There are now 50 A.H. Beard stores across China, with plans to open 50 more. But like most foreign companies operating in China nowadays, A.H. Beard has started to think more carefully about its strategy.Beijing’s strict Covid-19 policy has exacted a heavy toll on business. The company’s exports into China are no longer on the rise.This month, Chinese officials announced that the economy grew at its slowest pace since the early days of the pandemic. Unemployment is high, the housing market is in crisis and nervous consumers — living under the constant threat of lockdowns and mass testing — are not spending.Now, the once resilient Chinese economy is looking shaky, and the companies that flocked to the country to partake in boom times are being confronted by a sobering reality: flat growth in what was once seen as a reliable economic opportunity.“I certainly don’t see China returning to the rates of growth that we had seen previously,” said Tony Pearson, chief executive of A.H. Beard.“I certainly don’t see China returning to the rates of growth that we had seen previously,” said Tony Pearson, chief executive of A.H. Beard.Matthew Abbott for The New York TimesA.H. Beard opened a flagship store in Shanghai in 2013.Matthew Abbott for The New York TimesThe cost of mattress materials and components, such as latex and natural fibers, has increased significantly.Matthew Abbott for The New York TimesSo far, most companies are staying the course, but there is a steady whiff of caution that did not exist just a few years ago.Geopolitical tensions and a U.S.-China trade war have unleashed punishing tariffs for some industries. Covid-19 has snarled the flow of goods, lifting the prices of almost everything and delaying shipments by months. China’s pandemic response of quarantines and lockdowns has kept customers at home and out of stores.A.H. Beard opened its flagship store with a local partner in Shanghai almost 10 years ago. And like any high-end brand, it rolled out products with prices that defy belief. China became the best-selling market for its top-of-the-line $75,000 mattress.Since then, the cost of shipping a container has jumped sixfold. The cost of mattress materials and components, such as latex and natural fibers, have increased significantly. Other worrying signs have emerged, including a housing slump. (New homes often mean new mattresses.)Mr. Pearson said he is hoping that the Chinese Communist Party congress later this year will clarify “the trajectory for China” and imbue consumers with more confidence. “The economy still has growth potential,” he said. “But there’s always a degree of risk.”After the 2008 financial crisis when the rest of the world retrenched, China emerged as an outlier and international businesses rushed in.European luxury brands erected gleaming stores in China’s biggest cities, while U.S. food and consumer goods companies jostled for supermarket shelf space. German car manufacturers opened dealerships, and South Korean and Japanese chip firms courted Chinese electronics makers. A booming construction market fueled demand for iron ore from Australia and Brazil.Chinese consumers rewarded those investments by opening their wallets. But the pandemic has rattled the confidence of many shoppers who now see rainy days ahead.Fang Wei, 34, said she has scaled back her spending since she left a job in 2020. In the past, she spent most of her salary on brands like Michael Kors, Coach and Valentino during frequent shopping trips.Even though she is employed again, working in advertising in Beijing, she now allocates a quarter of her salary on food, transportation and other living costs. She hands the rest to her mother, who puts the money in the bank.“Because I’m worried about being laid off, I transfer everything to my mother every month,” Ms. Fang said. “It’s very depressing to go from enjoying life to subsistence.”A more frugal Chinese consumer is a worry for foreign businesses, many of which offer products that are not the low-cost option but a premium alternative. An Jun-Min, chief executive of Ginseng by Pharm, a South Korean producer of ginseng products, said he, too, has noticed Chinese “wallets have gotten thinner.”Mr. An said sales for the company’s main product, a 2 ounce bottle of a ginseng drink that sells for $18, peaked before the pandemic. The company shipped 600,000 bottles into China and Hong Kong in 2019.There are 12,000 Adidas stores in China, up from 9,000 in 2015, but the company said it expects China revenue to “decline significantly” this year.Giulia Marchi for The New York TimesSales plunged in 2020 because it was hard to get products into the country during Covid lockdowns. Business has mostly bounced back, although it is still down 10 to 20 percent from the peak.While Mr. An said he is concerned about the economic slowdown, he remains optimistic that the market for health products in China, and a familiarity with ginseng — an aromatic root said to have health benefits — will continue to benefit sales. To hedge his bets, though, he is also seeking regulatory approval to sell in Europe.That is a far cry from the unbridled optimism of the past.In 2016, when China was its fastest growing and most profitable market, Kasper Rorsted, the chief executive at Adidas, declared that the country was “the star of the company.” Adidas invested aggressively to expand its foothold. It went from 9,000 stores in China in 2015 to its current 12,000, though only 500 are operated by Adidas. Then the music stopped.After initially projecting that sales in China would accelerate this year, Adidas ratcheted down expectations in May as Covid lockdowns continued to spread. The company said it now expects China revenue to “decline significantly” and that a sudden rebound is unlikely.For now, Adidas remains undeterred. Mr. Rorsted said on a call with analysts that the company is not planning to slash costs or pull back from the country. Instead, it will “do whatever we can to double down and accelerate the growth.”Many foreign companies had bet on the rise of a Chinese middle class as a dependable source of that growth. Bain & Company, a consulting firm, said it expects China to be the world’s largest luxury market by 2025, fueled in part by what Federica Levato, a senior partner, said is still “a big wave” of a rising middle class.Kamps Hardwoods, a Michigan-based manufacturer of lumber used in homes and furniture, said China provided an opportunity to expand — at first.Sarah Rice for The New York TimesRob Kukowski, the general manager of Kamps, said China is such a big buyer of U.S. lumber that the pain is felt by the entire industry when it stops spending.Sarah Rice for The New York TimesBy 2016, China accounted for 80 percent of Kamps’s sales.Sarah Rice for The New York TimesBut those kinds of predictions look less enticing for some foreign companies that once relied heavily on the Chinese market.Kamps Hardwoods, a Michigan-based manufacturer of kiln-treated lumber used for homes and furniture, seized on the opportunity to expand in China — at first. At a Chinese trade show in 2015, Rob Kukowski, the company’s general manager, said a Chinese buyer stunned him with a huge offer to buy enough stock to fill 99 shipping containers. The $2 million order of lumber accounted for four months’ worth of business for Kamps.Chinese buyers were so desperate for lumber back then that they would visit the company’s booth and refuse to leave until Mr. Kukowski accepted a million-dollar deal on the spot. By 2016, China accounted for 80 percent of the company’s sales.Kamps soon realized that it was hard to make a profit from the large Chinese orders because many buyers were not interested in quality and only wanted the cheapest possible price. The company started to focus its effort on finding customers in the United States and other overseas markets who were willing to pay more for a better product.It was fortuitous timing. When China raised tariffs on U.S. lumber in 2018 as part of a trade war, Kamps was better positioned to weather the downturn. Today, China accounts for only 10 percent of Kamps’s sales, but it still has a large indirect impact on the company. Mr. Kukowski said China is such a big buyer of U.S. lumber that a downward price war ensues throughout the industry when it stops spending.“With their purchasing power being so strong and so much of our product going into that market,” Mr. Kukowski said. “Our industry is going to run into significant problems if their economy slows.”Jin Yu Young More

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    China’s Economy Hits a Slump as Covid Policy Takes a Toll

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    High unemployment, a housing market in crisis and sluggish consumer spending during lockdowns are putting pressure on Beijing in a year when officials are focused on projecting stability.When countries around the world have stumbled in the face of pandemic headwinds, China has often stood apart, seemingly impervious to financial pressures that undermined growth.But now, dragged down by its commitment to curbing the spread of Covid-19 with widespread lockdowns and mass quarantines, China has suffered one of its worst quarters in years, threatening a global economy heavily dependent on Chinese factories and consumers.For the country’s ruling Communist Party, the downturn could put added pressure on Beijing at a sensitive moment. China is scheduled to hold its party congress later this year. A thriving economy and growing wealth was part of the bargain that Chinese citizens accepted in exchange for living under authoritarian rule.But the lockdowns, a staple of Beijing’s zero-Covid policy, have heightened the risk of instability — both socially and economically.The National Bureau of Statistics in China said on Friday that the economy expanded 0.4 percent from a year earlier in the second quarter, worse than some economists’ expectations. It was the lowest growth rate since the first three months of 2020, when the country effectively shut down to fight the early stages of the pandemic, and its economy shrank for the first time in 28 years.The 2020 downturn was short-lived, with the Chinese economy recovering almost immediately. But the current outlook is not so promising. Unemployment is close to the highest levels on record. The housing market is still a mess, and small businesses are bearing the brunt of weakness in consumer spending.“China is the shoe that has never dropped in the global economy,” said Kenneth Rogoff, a professor of economics at Harvard University and a former chief economist for the International Monetary Fund. “China is no position to be the global engine of growth right now, and the long-term fundamentals point to much slower growth in the next decade.”Construction in Beijing this month. China has urged local authorities to step up measures to ensure job stability during lockdowns.Wang Zhao/Agence France-Presse — Getty ImagesThis is an unwanted complication in a year when China is trying to project unwavering strength and stability. At the party congress, Xi Jinping, the country’s leader, is expected to coast to another five-year term, further cementing his grip on power.In May, Li Keqiang, China’s premier, called an emergency meeting and sounded the alarm about the need to gin up economic growth to more than 100,000 officials from businesses and local governments. The stark warning cast doubt about China’s ability to reach its earlier growth target of 5.5 percent for the year. The Latest on China: Key Things to KnowCard 1 of 6China’s economy stumbles. More

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    China Offers Women Perks for Having Babies, if They’re Married

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    Beijing is giving incentives to stem a demographic crisis, but its control over childbirth and its suppression of women’s rights are making it difficult for some aspiring parents to start a family.When Chan Zhang heard about the U.S. Supreme Court’s decision to overturn Roe v. Wade, she was baffled that Americans were still arguing over abortion rights.“Here, overall, the society does not encourage abortion,” said Ms. Zhang, a 37-year-old junior faculty member at a prestigious university on China’s east coast, “but I feel like women have the right in terms of whether they want to get an abortion.”Abortion, like almost all reproductive issues in China, is heavily centered on Chinese Communist Party authority. The party for decades forced abortions and sterilizations on women as part of its one-child policy. Now, faced with a demographic crisis, it wants women to have more than one baby — and preferably three.But Beijing is still dictating who can have babies, discriminating against single women like Ms. Zhang and minorities through draconian family planning policies. The question now, many women say, is why they would choose to have any babies at all.With China’s birthrate at a historical low, officials have been doling out tax and housing credits, educational benefits and even cash incentives to encourage women to have more children. Yet the perks are available only to married couples, a prerequisite that is increasingly unappealing to independent women who, in some cases, would prefer to parent alone.Babies born to single parents in China have long struggled to receive social benefits like medical insurance and education. Women who are single and pregnant are regularly denied access to public health care and insurance that covers maternity leave. They are not legally protected if employers fire them for being pregnant.The sweeteners offered to new mothers by the government are not doing much to reverse the demographic crisis, especially in the face of China’s steadily declining marriage rate.Gilles Sabrié for The New York TimesSome single women, including Ms. Zhang, are simply choosing not to have a child, quietly pushing back against Beijing’s control over women’s bodies. Those who find ways to get around the rules often face consequences from the state.“Many people think that being a single mom is a process of confrontation with public opinion, but it’s not,” said Sarah Gao, 46, a single parent who lives in Beijing and is outspoken about reproductive rights. “It’s actually this system.”Chinese law requires a pregnant woman and her husband to register their marriage to get prenatal care at a public hospital. When Ms. Gao found out that she was pregnant, she had to tell doctors at one hospital that her husband was overseas to be admitted.Her daughter was born in November 2016. Eight months later, Ms. Gao was fired from her job, prompting her to file a lawsuit accusing the company of workplace discrimination. The company won because Ms. Gao does not qualify for legal benefits and protections as an unmarried mother.The court said her unmarried birth “did not conform to China’s national policy.” She is appealing for a third time.China’s national family planning policy does not explicitly state that an unmarried woman cannot have children, but it defines a mother as a married woman and favors married mothers. Villages offer cash bonuses to families with new babies. Dozens of cities have expanded maternity leave and added an extra month for second- and third-time married mothers. One province in northwestern China is even considering a full year of leave. Some have created “parenting breaks” for married couples with young children.China’s national family planning policy is meant to favor married mothers. Some single women are choosing to remain childless, quietly pushing back against Beijing’s control over reproductive rights.Gilles Sabrié for The New York TimesBut the sweeteners are not doing much to reverse the demographic crisis, especially in the face of China’s steadily declining marriage rate, which reached a 36-year low last year. Women who came of age during the greatest period of economic growth in China’s modern history increasingly worry that their hard-earned independence will be taken away if they settle down.A politician at China’s most recent annual meeting of its rubber-stamp legislature suggested that the party be more tolerant toward single women who wanted children, giving them the same rights as married couples. Yet even as a shrinking population threatens Beijing’s long-term economic ambitions, the Chinese authorities have often failed to introduce lasting policy changes.The authorities moved last year to scrap the use of “social support” fees — a sort of penalty — that single mothers pay to get benefits for their children. But some areas have been slow to adopt the new rules, and the regulations can vary because enforcement is left to the discretion of local governments. Recent changes to Chinese law make it illegal to discriminate against the children of single parents, but some women still have to navigate an unsympathetic bureaucracy.Last year, landlocked Hunan Province said it would consider providing fertility services for single women, but it has not made much progress. When Shanghai decided to drop its policy of giving maternity benefits only to married women, it reversed the decision just a few weeks later, underlining just how hard it is for the authorities to loosen their grip on family planning.Chinese law requires a pregnant woman and her husband to register their marriage to get prenatal care at a public hospital. To be admitted at a hospital, one single mother had to tell doctors that her husband was overseas.Gilles Sabrié for The New York Times“At the societal level, it is a threat to the legally recognized marriage institution and social stability,” said Zheng Mu, an assistant professor of sociology at the National University of Singapore who studies fertility in China.Ten years ago, Kelly Xie, 36, got married because she wanted to have a child. “I had got to that age at the time, then I was picking and choosing and it seemed that he was the most suitable one,” she said. Four years later, she gave birth to a daughter, but she was unhappy in her marriage.The Latest on China: Key Things to KnowCard 1 of 6Pressure on Taiwan. More

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    Red Flags for Forced Labor Found in China’s Car Battery Supply Chain

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    The photograph on the mining conglomerate’s social media account showed 70 ethnic Uyghur workers standing at attention under the flag of the People’s Republic of China. It was March 2020 and the recruits would soon undergo training in management, etiquette and “loving the party and the country,” their new employer, the Xinjiang Nonferrous Metal Industry Group, announced.But this was no ordinary worker orientation. It was the kind of program that human rights groups and U.S. officials consider a red flag for forced labor in China’s western Xinjiang region, where the Communist authorities have detained or imprisoned more than 1 million Uyghurs, ethnic Kazakhs and members of other largely Muslim minorities.The scene also represents a potential problem for the global effort to fight climate change.China produces three-quarters of the world’s lithium ion batteries, and almost all the metals needed to make them are processed there. Much of the material, though, is actually mined elsewhere, in places like Argentina, Australia and the Democratic Republic of Congo. Uncomfortable with relying on other countries, the Chinese government has increasingly turned to western China’s mineral wealth as a way to shore up scarce supplies.That means companies like the Xinjiang Nonferrous Metal Industry Group are assuming a larger role in the supply chain behind the batteries that power electric vehicles and store renewable energy — even as China’s draconian crackdown on minorities in Xinjiang fuels outrage around the world.The Chinese government denies the presence of forced labor in Xinjiang, calling it “the lie of the century.” But it acknowledges running what it describes as a work transfer program that sends Uyghurs and other ethnic minorities from the region’s more rural south to jobs in its more industrialized north.Xinjiang Nonferrous and its subsidiaries have partnered with the Chinese authorities to take in hundreds of such workers in recent years, according to articles displayed proudly in Chinese on the company’s social media account. These workers were eventually sent to work in the conglomerate’s mines, a smelter and factories that produce some of the most highly sought minerals on earth, including lithium, nickel, manganese, beryllium, copper and gold.It is difficult to trace precisely where the metals produced by Xinjiang Nonferrous go. But some have been exported to the United States, Germany, the United Kingdom, Japan, South Korea and India, according to company statements and customs records. And some have gone to large Chinese battery makers, who in turn, directly or indirectly, supply major American entities, including automakers, energy companies and the U.S. military, according to Chinese news reports.It is unclear whether these relationships are ongoing, and Xinjiang Nonferrous did not respond to requests for comment.But this previously unreported connection between critical minerals and the kind of work transfer programs in Xinjiang that the U.S. government and others have called a form of forced labor could portend trouble for industries that depend on these materials, including the global auto sector.A new law, the Uyghur Forced Labor Prevention Act, goes into effect in the United States on Tuesday and will bar products that were made in Xinjiang or have ties to the work programs there from entering the country. It requires importers with any ties to Xinjiang to produce documentation showing that their products, and every raw material they are made with, are free of forced labor — a tricky undertaking given the complexity and opacity of Chinese supply chains.A Critical Year for Electric VehiclesAs the overall auto market stagnates, the popularity of battery-powered cars is soaring worldwide.Charging Stations: The Biden administration unveiled proposed regulations that would require stations built with federal dollars to be located no more than 50 miles apart.General Motors: The company hopes to become a leading force in the electric vehicle industry. Its chief executive shared how G.M. intends to get there.Turning Point: Electric vehicles still account for a small slice of the market, but this year, their march could become unstoppable. Here’s why.New Materials: As automakers seek to electrify their fleets and to direct electricity more efficiently, alternatives to silicon are gaining traction.The apparel, food and solar industries have already been upended by reports linking their supply chains in Xinjiang to forced labor. Solar companies last year were forced to halt billions of dollars of projects as they investigated their supply chains.The global battery industry could face its own disruptions given Xinjiang’s deep ties to the raw materials needed for next-generation technology.Trade experts have estimated that thousands of global companies may actually have some link to Xinjiang in their supply chains. If the United States fully enforces the new law, it could result in many products being blocked at the border, including those needed for electric vehicles and renewable energy projects.Some administration officials raised objections to cutting off shipments of all Chinese goods linked with Xinjiang, arguing that it would be disruptive to the U.S. economy and the clean energy transition.Representative Thomas R. Suozzi, a Democrat from New York who helped create the Congressional Uyghur Caucus, said that while banning products from the Xinjiang region might make goods go up in price, “it’s too damn bad.”“We can’t continue to do business with people that are violating basic human rights,” he said. To understand how reliant the battery industry is on China, consider the country’s role in producing the materials that are critical to the technology. While many of the metals used in batteries today are mined elsewhere, almost all of the processing required to turn those materials into batteries takes place in China. The country processes 50 to 100 percent of the world’s lithium, nickel, cobalt, manganese and graphite, and makes 80 percent of the cells that power lithium ion batteries, according to Benchmark Mineral Intelligence, a research firm.“If you were to look at any electric vehicle battery, there would be some involvement from China,” said Daisy Jennings-Gray, a senior analyst at Benchmark Mineral Intelligence.The materials Xinjiang Nonferrous has produced — including a dizzying array of valuable minerals, like zinc, beryllium, cobalt, vanadium, lead, copper, gold, platinum and palladium — have gone into a wide variety of consumer products, including pharmaceuticals, jewelry, building materials and electronics. The company also claims to be one of China’s largest producers of lithium metal, and its second-largest producer of nickel cathode, which can be used to make batteries, stainless steel and other goods.Xinjiang Non-Ferrous Metal Industry Group was one of the region’s earliest miners, operating the state-owned No. 3 pegamite mining pit beginning in the 1950s.Shen Longquan/Visual China Group, via Getty ImagesIn recent years, the company has expanded into Xinjiang’s south, the homeland of most Uyghurs, acquiring valuable new deposits that executives describe as “critical” to China’s resource security.Ma Xingrui, a former aerospace engineer who was appointed Communist Party secretary of Xinjiang in 2021, has talked up Xinjiang’s prospects as a source of high-tech materials. This month, he told executives from Xinjiang Nonferrous and other state-owned companies that they should “step up” in new energy, materials and other strategic sectors.Xinjiang Nonferrous’s role in work transfer programs ramped up several years ago, as part of efforts by the Chinese leader Xi Jinping to drastically transform Uyghur society to become richer, more secular and loyal to the Communist Party. In 2017, the Xinjiang government announced plans to transfer 100,000 people from southern Xinjiang into new jobs over three years. Dozens of state-owned companies, including Xinjiang Nonferrous, were assigned to absorb 10,000 of those laborers in return for subsidies and bonuses.Transferred workers appear to make up only a minor part of the labor force at Xinjiang Nonferrous, perhaps a few hundred of its more than 7,000 employees. The company and its subsidiaries reported recruiting 644 workers from two rural counties of southern Xinjiang from 2017 to 2020, and training more since then.Some laborers were sent to the company’s copper-nickel mine and smelter, which are operated by Xinjiang Xinxin Mining Industry, a Hong Kong-listed subsidiary that has received investment from the state of Alaska, the University of Texas system and Vanguard. Other laborers went to subsidiaries that produce lithium, manganese and gold.Before being assigned to work, predominantly Muslim minorities were given lectures on “eradicating religious extremism” and becoming obedient, law-abiding workers who “embraced their Chinese nationhood,” Xinjiang Nonferrous said.Inductees for one company unit underwent six months of training including military-style drills and ideological training. They were encouraged to speak out against religious extremism, oppose “two-faced individuals” — a term for those who privately oppose Chinese government policies — and write a letter to their hometown elders expressing gratitude to the Communist Party and the company, according to the company’s social media account. Trainees faced strict assessments, with “morality” and rule compliance accounting for half of their score. Those who scored well earned better pay, while students and teachers who violated rules were punished or fined.Even as it promotes the successes of the programs, the company’s propaganda hints at the government pressure on it to meet labor transfer goals, even through the coronavirus pandemic.A 2017 article in the Xinjiang Daily quoted one 33-year-old villager as saying that he was initially “reluctant to go out to work” and “quite satisfied” with his income from farming, but was persuaded to go to work at Xinjiang Nonferrous’ subsidiary after party members visited his house several times to “work on his thinking.” And in a visit in 2018 to Keriya County, Zhang Guohua, the company president, told officials to “work on the thinking” of families of transferred laborers to ensure that no one abandoned their jobs.Chinese authorities say that all employment is voluntary, and that work transfers help free rural families from poverty by giving them steady wages, skills and Chinese-language training.“No one has been forced to become ‘transferred labor’ in Xinjiang,” Wang Wenbin, a spokesman for the Chinese foreign ministry, told reporters in Beijing this month.It is difficult to ascertain the level of coercion any individual worker has faced given the limited access to Xinjiang for journalists and research firms. Laura T. Murphy, a professor of human rights and contemporary slavery at Sheffield Hallam University in Britain, said that resisting such programs is seen as a sign of extremist activity and carries a risk of being sent to an internment camp.“A Uyghur person cannot say no to this,” she said. “They are harassed or, in the government’s words, educated,’ until they are forced to go.”Files from police servers in Xinjiang published by the BBC last month described a shoot-to-kill policy for those trying to escape from internment camps, as well as mandatory blindfolds and shackles for “students” being transferred between facilities.Other Chinese metal and mining companies also appear to be linked with labor transfers at a smaller scale, including Zijin Mining Group Co. Ltd., which has acquired cobalt and lithium assets around the globe, and Xinjiang TBEA Group Co. Ltd., which makes aluminum for lithium battery cathodes, according to media reports and academic research. Other entities that were previously sanctioned by the United States over human rights abuses are also involved in the supply chain for graphite, a key battery material that is only refined in China, according to Horizon Advisory, a research firm.An indoctrination center in Hotan, China. In 2017, the regional government announced plans to transfer 100,000 people from the cities of Kashgar and Hotan in southern Xinjiang into new jobs.Gilles Sabrié for The New York TimesThe raw materials that these laborers produce disappear into complex and secretive supply chains, often passing through multiple companies as they are turned into auto parts, electronics and other goods. While that makes them difficult to trace, records show that Xinjiang Nonferrous has developed multiple potential channels to the United States. Many more of the company’s materials are likely transformed in Chinese factories into other products before they are sent abroad.For example, Xinjiang Nonferrous is a current supplier to the China operations of Livent Corporation, a chemical giant with headquarters in the United States that uses lithium to produce a chemical used to make automobile interiors and tires, hospital equipment, pharmaceuticals, agrochemicals and electronics.A Livent spokesman said that the firm prohibits forced labor among its vendors, and that its due diligence had not indicated any red flags. Livent did not respond to a question about whether products made with materials from Xinjiang are exported to the United States.In theory, the new U.S. law should block all goods made with any raw materials that are associated with Xinjiang until they are proven to be free of slavery or coercive labor practices. But it remains to be seen if the U.S. government is willing or able to turn away such an array of foreign goods.“China is so central to so many supply chains,” said Evan Smith, the chief executive of the supply chain research company Altana AI. “Forced labor goods are making their way into a really broad swath of our global economy.”Raymond Zhong More