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Price reform needed:
Experts
By
Michael Lelyveld
WASHINGTON - this coming summer, China will again
attempt to solve massive energy shortages by
forcing businesses to close, but experts say
nationwide improvements to energy efficiency and
reforms of the centrally planned energy price
structure are the key to the country's power
problems. Shanghai - China's biggest consumer of
energy - has ordered 3,000 businesses to take
forced vacations this summer because of power
shortages, marking the third year in a row of
costly shutdowns, state media reported.
"It's an interim solution and it would
appear to be based on the assumption that all will
be well tomorrow because we will have that much
more power capacity available, but it doesn't
actually get to the root of the problem," Philip
Andrews-Speed, China energy expert at the
University of Dundee, said in a recent interview.
"There are no incentives for efficiency, and they
could be brought in either through raising
end-user power prices, which is being resisted at
the moment, or they could say, for example, that
the most inefficient energy users will be shut
down in the summer. But if you have a certain
level of efficiency, you'll be allowed to
operate."
The Shanghai shortages are part
of a nationwide problem in China, where
electricity output rose by 14.5% last year but was
still unable to keep up with demand. The
government has blamed the problems on an
overheated economy and coal shortages, but coal
production rose by 17.3% last year, and the
increase wasn't enough.
Bad for
investments
Andrews-Speed said the cuts
were likely to affect investment in China. "If
this continues year after year and maybe the
number of companies and the number of weeks
increases, then certain areas of China are going
to become progressively less attractive for
investment," he said.
Other analysts
agreed that fundamental reforms to China's power
sector were necessary. "This is all a short-term
thing. I think the government should realize, and
I think they have realized, that they need to
continue to do the fundamental reform of the power
sector," said Kang Wu of the East-West Center at
the University of Hawaii. "The only problem is
that with the tight supply and the high prices, it
may feel difficult and politically risky to do too
much of the reform in this environment," Wu said.
Politically risky
Experts said
China appeared to be treading carefully because of
concerns about a sharp economic - and social -
reaction to a major rise in power prices. "There
are always concerns about stability in China,"
Jason Feer, Singapore bureau chief for the
industry weekly Petroleum Argus, said. "There's
always concern that if the government introduces
some sort of dramatic economic change, such as
raising power prices across the board, that will
raise questions about the stability of the
government...how much will people accept and how
much can people afford to pay before they will
have been pushed too far?"
Powers
controlled
Official media reported in March
that Beijing would address the problems by
appointing a "national leading group", bringing
together top government officials with academics
and industry experts to formulate a policy
approach. But as long as the government tries to
avoid the consequences of a big rate increase, it
is likely to keep the authority over power prices
divided or tightly controlled, Feer said. "If they
create an autonomous agency that's in charge of
setting rates and charge them with levying
reasonable power tariffs, they're likely to set
prices substantially higher than where they are
now, and that's likely to touch off some sort of
reaction."
Robert Ebel, director of the
energy and national security program at the Center
for Strategic and International Studies in
Washington, agreed that the government was
unlikely to take the risk of letting power prices
seek market levels. "They're not going to
deregulate at this time because lord knows what
would happen if they let the market decide," he
said.
Meanwhile, controlled electricity
prices are encouraging Chinese industry to use
more energy for every unit of output. According to
the National Bureau of Statistics, the energy
consumption needed to create 10,000 yuan
(US$1,208) of gross domestic product last year
rose by 5.3% compared with the previous year.
Copyright (c) 2005, Radio Free Asia.
Reprinted with the permission of Radio Free
Asia. |
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