Climate

China's supply chain is melting in extreme heat. Whose will be next?

Blistering temperatures have baked a large portion of China, curtailing power to factories. It shows the new supply chain woes that await if we don’t adapt.

The lakebed of China's largest freshwater lake, Poyang, is exposed due to high temperatures and drought on August 19, 2022.

China’s heat wave is on another level in terms of ferocity and scope. Daytime highs have reached well into the triple digits across a large swath of the country, crushing all-time heat records.

Photo: Shen Junfeng/VCG via Getty Images

Searing temperatures have turned China into a furnace this summer, with a profound impact on the world’s industrial powerhouse that could be a preview of how other climate crisis-fueled changes will affect factories around the world.

Rivers have dried up and with them, hydropower supplies, right at a time when people are relying more heavily on air conditioning to keep cool. In an effort to keep the lights on, provincial governments have asked factories to cut power.

The issues reflect the bumpy road ahead for climate tech, one where the world’s race to decarbonize will be affected by the results of the climate crisis already baked into the system.

China’s heat wave is on another level in terms of ferocity and scope. Daytime highs have reached well into the triple digits (upper 30s and low 40s for Celsius readers) across a large swath of the country, crushing all-time heat records. Among the more eye-popping numbers are the overnight lows, which include Chongqing, a city of 32 million, cooling to just 95 degrees Fahrenheit. Again, that was the low temperature.

The heat has enveloped manufacturing hubs across the country, leading to factory shutdowns. That includes in Sichuan, where Toyota and Contemporary Amperex Technology, the world’s largest battery maker, have suspended operations in response to provincial demands to save energy. The province produces major amounts of lithium and polysilicon needed for batteries and solar panels, respectively, and numerous other manufacturers have also shut down shop during the blistering heat. SAIC Motor (China's largest automaker) and Tesla have also impacted operations in Shanghai, which is located far from Sichuan, because suppliers in the province have been unable to ship needed parts.

Most research has focused on the impact that climate shocks are having on worker productivity, but there’s a growing body of evidence — both in academic literature and the real world — that supply chains are increasingly vulnerable, too. The heat wave in China is a prime example, one that Christoph Schiller, a finance professor at Arizona State University, said shows the “big knock-on effects” the climate crisis can have on how goods are made and moved around the world.

He and Nora Pankratz, an economist at the Board of Governors of the Federal Reserve System, authored a 2021 paper showing that supply chain customers factor climate shocks into choosing suppliers. But when those shocks — in the case of the research, floods and heat waves — are worse than expected, customers are up to 11% more likely to end their relationship with a supplier.

But it’s not just the supplier-customer relationship that could be disrupted, given that heat and high water aren’t the only shocks that could affect the supply chain. Drought in Europe is currently making waterways unnavigable, affecting the shipping of raw materials.

A 2020 McKinsey analysis found that the odds of a typhoon near South Korea, Japan or Taiwan plunging the semiconductor industry into chaos could quadruple by 2040. Meanwhile, the chances of heavy downpours affecting rare earth mining could increase threefold by 2030, resulting in a 20% drop in production. This is the stuff of climate nightmares given the role those minerals play in the transition to an all-electric future.

While many tech companies have focused on getting their suppliers to decarbonize, the risks that are already here — to say nothing of the future ones in the pipeline — show the need for companies to also work with suppliers to adapt to climate shocks.

“Adaptation can take a whole lot of different ways,” Schiller said. “[There are] physical adaptations, as in, we put a higher wall so the floods aren't going to get to a factory, or it could mean changing patterns of work: Do you work later, do you work earlier?”

Pressure could come from companies looking to keep their supply chains from breaking down as well as people buying their products advocating for more just working conditions or cheaper goods. Ultimately, companies need to be looking to what the future holds. Extreme heat will increase in nearly every corner of the globe, but other effects like drought and downpours are more variable.

“Rather than purely rely on what types of climate shocks have happened to us, over the last two, three, four, five years in this particular supply chain relationship, what if we look at climate models,” Schiller said. “What would be the optimal supply chain if that is the scenario that we were working with? That is a question that managers have to ask themselves.”

Fintech

Judge Zia Faruqui is trying to teach you crypto, one ‘SNL’ reference at a time

His decisions on major cryptocurrency cases have quoted "The Big Lebowski," "SNL," and "Dr. Strangelove." That’s because he wants you — yes, you — to read them.

The ways Zia Faruqui (right) has weighed on cases that have come before him can give lawyers clues as to what legal frameworks will pass muster.

Photo: Carolyn Van Houten/The Washington Post via Getty Images

“Cryptocurrency and related software analytics tools are ‘The wave of the future, Dude. One hundred percent electronic.’”

That’s not a quote from "The Big Lebowski" — at least, not directly. It’s a quote from a Washington, D.C., district court memorandum opinion on the role cryptocurrency analytics tools can play in government investigations. The author is Magistrate Judge Zia Faruqui.

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Veronica Irwin

Veronica Irwin (@vronirwin) is a San Francisco-based reporter at Protocol covering fintech. Previously she was at the San Francisco Examiner, covering tech from a hyper-local angle. Before that, her byline was featured in SF Weekly, The Nation, Techworker, Ms. Magazine and The Frisc.

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FTA
The Financial Technology Association (FTA) represents industry leaders shaping the future of finance. We champion the power of technology-centered financial services and advocate for the modernization of financial regulation to support inclusion and responsible innovation.
Enterprise

AWS CEO: The cloud isn’t just about technology

As AWS preps for its annual re:Invent conference, Adam Selipsky talks product strategy, support for hybrid environments, and the value of the cloud in uncertain economic times.

Photo: Noah Berger/Getty Images for Amazon Web Services

AWS is gearing up for re:Invent, its annual cloud computing conference where announcements this year are expected to focus on its end-to-end data strategy and delivering new industry-specific services.

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Donna Goodison

Donna Goodison (@dgoodison) is Protocol's senior reporter focusing on enterprise infrastructure technology, from the 'Big 3' cloud computing providers to data centers. She previously covered the public cloud at CRN after 15 years as a business reporter for the Boston Herald. Based in Massachusetts, she also has worked as a Boston Globe freelancer, business reporter at the Boston Business Journal and real estate reporter at Banker & Tradesman after toiling at weekly newspapers.

Image: Protocol

We launched Protocol in February 2020 to cover the evolving power center of tech. It is with deep sadness that just under three years later, we are winding down the publication.

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Bennett Richardson ( @bennettrich) is the president of Protocol. Prior to joining Protocol in 2019, Bennett was executive director of global strategic partnerships at POLITICO, where he led strategic growth efforts including POLITICO's European expansion in Brussels and POLITICO's creative agency POLITICO Focus during his six years with the company. Prior to POLITICO, Bennett was co-founder and CMO of Hinge, the mobile dating company recently acquired by Match Group. Bennett began his career in digital and social brand marketing working with major brands across tech, energy, and health care at leading marketing and communications agencies including Edelman and GMMB. Bennett is originally from Portland, Maine, and received his bachelor's degree from Colgate University.

Enterprise

Why large enterprises struggle to find suitable platforms for MLops

As companies expand their use of AI beyond running just a few machine learning models, and as larger enterprises go from deploying hundreds of models to thousands and even millions of models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

As companies expand their use of AI beyond running just a few machine learning models, ML practitioners say that they have yet to find what they need from prepackaged MLops systems.

Photo: artpartner-images via Getty Images

On any given day, Lily AI runs hundreds of machine learning models using computer vision and natural language processing that are customized for its retail and ecommerce clients to make website product recommendations, forecast demand, and plan merchandising. But this spring when the company was in the market for a machine learning operations platform to manage its expanding model roster, it wasn’t easy to find a suitable off-the-shelf system that could handle such a large number of models in deployment while also meeting other criteria.

Some MLops platforms are not well-suited for maintaining even more than 10 machine learning models when it comes to keeping track of data, navigating their user interfaces, or reporting capabilities, Matthew Nokleby, machine learning manager for Lily AI’s product intelligence team, told Protocol earlier this year. “The duct tape starts to show,” he said.

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Kate Kaye

Kate Kaye is an award-winning multimedia reporter digging deep and telling print, digital and audio stories. She covers AI and data for Protocol. Her reporting on AI and tech ethics issues has been published in OneZero, Fast Company, MIT Technology Review, CityLab, Ad Age and Digiday and heard on NPR. Kate is the creator of RedTailMedia.org and is the author of "Campaign '08: A Turning Point for Digital Media," a book about how the 2008 presidential campaigns used digital media and data.

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