Foreign investors mum on China's energy
shortage By Jayanthi
Iyengar
Normally, if any country faced power
shortages of the dimensions that China does, the
industries hit would be up in arms castigating the
government, while officials would try telling the world
it's not such a big deal.
In China, it is the
other way around. The Chinese authorities, through their
various government and quasi-government arms, repeatedly
have confessed that the country faces a dearth of
electricity, which is likely to ease only in 2006. They
have, however, been reassuring industry, particularly
foreign investors, with promises of additional
generating capacity. Foreign investors in China, on the
other hand, have been a surprisingly quiet lot as they
understand the importance of getting on well with the
powers that be. As a group, most of them confess to
shortages and inconvenience. Some have even indicated
that they would be forced to shift base if the situation
continues, yet mum's the word when it comes to
individuals or company officials speaking out.
Take for example
the Taiwanese, Korean and Japanese companies, the
dominant players in the electronics industry. Early
this year the Financial Times highlighted a report by the
Hong Kong office of the Association of
Japanese Trade Revival (AJTR). According to this report,
most Japanese enterprises in Guangdong province intended to
move their offices north, including their generating
plants, to Guangxi province. The reason: frequent
blackouts and power rationing in Guangdong. The Honda factory
in Guangzhou City shut down in early 2004 after
power supply was reduced. The newspaper went on to
quote a representative of the Beijing office of
the AJTR who mentioned that many Japanese manufacturers
had developed a "three-three" strategy, whereby they
divided their total investments into three, one part
each being invested in Japan, the Chinese mainland, and
in other areas of Southeast Asia. The veiled threat:
shape up or we ship out.
The New York-based Epoch Times,
which claims to be the largest Chinese-language newspaper
outside the mainland and Taiwan, and
claims that it provides uncensored coverage of events
in the Middle Kingdom, later picked up the Financial Times
story and went on to comment: "Phenomena such as
dispersed and migrating investments have occurred all
over China and are not limited to Japanese firms. A
factory of Korean giant LG Corporation, located in Nanjing
City, admitted that the biggest problem it faced was
electricity shortage ... Companies are paying
special attention to the availability of electricity and
have said that if conditions continue the way they are,
they would have to take appropriate measures."
This report also quoted Lu Lijia, from
the Japanese Jingci (Tianjin) Trading Limited
Corporation, who said he did not encounter any major difficulties
in managing his company because of power shortages,
but would analyze its long-term options all the same.
Lijia is not alone in such guarded response.
Taiwanese electronics and computer manufacturers Walsin
Lihwa Group and Mitac International Corp have gone on
record saying none of their China-based companies have
been affected, though they have operations in
hard-hit energy-shortage areas such as Shanghai, Jiangsu, Zhejiang,
and Guangdong. The Taiwanese government, meanwhile, has
been gleefully inviting its multinationals to return
home to better manufacturing, infrastructure, and lots
of electricity.
Honda, Volkswagen and Sony are
some of the global brands that reportedly have been hit
in various degrees by power cuts. Yet the reactions of
these companies are no different from those of the
smaller ones. Kai Grueber, corporate communications
chief of the Volkswagen Group, China, told Asia Times
Online: "Volkswagen was able to meet its production
targets despite occasional lack of energy by working
flexible time at Shanghai. So the company wasn't
affected seriously. At FAW-Volkswagen in Changchun, no
shortage of energy has appeared yet. As more power
stations are being built up at the moment, the company
is convinced that the availability of energy will be
ensured in future."
New
opportunities The experts - at least those who do not
fear any direct fallout on their operations from negative
comments - are more forthcoming. Sun Li, chairman
of China Energy Savings Technology (CEST), told Asia
times Online that the current power shortages would impact
foreign companies in China to a certain extent. "China's
exports will be affected," he said, adding that foreign
manufacturers, rather than service providers, are
more in the eye of the storm, while the domestic manufacturing
industry will be as badly hurt. Li, who swears
by energy conservation and savings rather than captive
generation, has had the vision to take advantage of
the crisis. In October, CEST, which is in the business
of supplying energy-saving devices, went on to expand
its presence in China by setting up a network with
more than 2,000 salespeople to distribute its products
in the major cities.
CEST is not
alone in grabbing this "opportunity".
US-based Rockwell Automation recently cornered the contract,
along with the Sihai Automation Control Engineering Company
- a subsidiary of SEPCO (China's largest
electric-power holding company) - to provide medium-voltage
drive solutions throughout Greater China and the entire
Asia-Pacific region. The contract was awarded after Rockwell
was able to provide value to the Qingdao-based Shandong
Huangdao Power Plant and achieved savings amounting to
US$1.2 million annually.
According to Shen Jie, Rockwell's
commercial manager for medium voltage for the Asia-Pacific region,
"Our solution is based on Rockwell
Automation's concept of an information enabled enterprise. Huangdao
was an old power plant. Our solution
made it energy efficient." This solution involved
installing switches that allowed the power plant to run its motors
when needed, instead of running them full stream at all times under
the old model. This constant running of the
motors resulted in wasteful consumption of power. Rockwell's
solution helped the plant save 30-million-kilowatt hours annually.
While shortages have
caused hardships as well as created new opportunities,
James P Dorian, the Washington, DC-based International
Energy and Minerals economist, sounded a note of
caution: "While government officials suggest the outages
may end by 2006, some industry experts disagree.
Problems with the inefficient coal and power sectors
[which enjoy near monopoly status] will have to be
resolved first. Given this, companies or foreign
investors considering Chinese projects must factor in
potential periodic disruptions in power - and consider
the economics of a project with this in mind. Many
companies last year, for example, simply shut down for
days when power was restricted. Bottlenecks in coal
transportation are adding to the overall problem."
Interestingly, some of the calculations used
by many experts to predict that the power situation will
ease in 2005-06 are beginning to go awry. The
promised slowdown of the Chinese economy, which is necessary
to resolve the demand-side issues related to
power shortages, hasn't happened so far to a
significant degree. Third-quarter figures still show 9.1% growth.
This is slower than 9.8% in 2003, but still higher than
the desirable level of 8%.
Rush to
China This raises the question, why are
multinationals of all stripes continuing to rush to China? Denso,
the Japanese automotive giant, may have an answer.
Denso went on to expand operations in China in July 2004, a
time when reports of the power crisis were rampant. Its
plant was started in Guangzhou in south China's
Guangdong province, one of the areas that have seen the
worst power shortages. "China is one of our most
strategic areas for growth, and our goal is to be one of
the top suppliers there in several years. We will
establish a supply network that is always ready to meet
customer needs and at the same time avoid issues related
to major investments in a rapidly growing market,
including the power shortage problem," Denso
spokesperson Miwa Kurokawa told Asia Times Online.
The company chose Guangzhou because
it is a region where other automobile manufacturers are
likely to increase production. "Honda as well as Toyota
have been establishing production networks there,"
explained the spokesperson. The new plant is situated in
the Guangzhou Nancha development zone approved by the
Chinese government. Kurokawa explained that the
development zones approved by the government have
stronger capabilities to supply power than other areas.
The company conceded that it is difficult to correctly
predict the future, but it does expect to receive the
power necessary for its production in the development
zone. The company does not expect any problems -
currently some 130 gigawatts of new capacity are under
construction, a 31% increase over the existing level -
but it is amply prepared with a back-up plan in the form
of self-generating power equipment. "However, in case of
power shortage [the company denies there is any yet in
the area where it has set up shop], we will consider
several counter-measures, including export from Japan,"
Kurokawa said.
Experts like Sun Li of CEST argue
that captive generation is a limited solution. "It can
only help solve trivial matters like lighting. When it
comes to bigger issues like manufacturing, captive
generation can't help much," said Li, who argued that
the solutions to China's power woes lie as much in
energy conservation and saving measures as in
self-generation.
Jayanthi Iyengar is a
senior business journalist from India who writes on a
range of subjects for several publications in Asia,
Britain and the United States. She may be contacted at
jayanthiiyengar1@hotmail.com.
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