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Foreign investors grapple with
power shortages
By Michael
Mackey
Summer in China doesn't mean
packing up and hitting the beaches - the consumer
market and culture isn't that developed yet - but
it does mean the power crunch becoming more acute.
For the last several years, summer power shortages
have become exasperatingly routine in Chinese
cities, and an embarrassment to the government.
Finding a way around the shortages has become a
necessity for foreign investors in the country.
The basic source of the problem is the
booming economy, which has increased demand so
quickly that the government has not been able to
build new power capacity quickly enough to keep
pace. The China Electricity Council, a national
industry group, reports that China's power
generating capacity will rise by almost 16% this
year, but not all generating units will be able to
operate efficiently due to tight controls on coal,
water and oil. The lack of sufficient capacity on
the railways to move the coal required is another
problem.
The Shanghai power
drain
In Shanghai, where so much foreign
investment is headed, power supplies are already
tight with more of the same expected as summer
temperatures rise. As a representative of the
Shanghai Municipal People's Government Foreign and
Exchange Trade Commission told AmChat, the journal
of the American Chamber of Commerce: "This summer,
the electric power supply has increased over last
year, but due to continued economic development
and improved living standards of Shanghai
residents, Shanghai's power supply and demand are
still not balanced. Seasonal, temporary shortages
still exist. In some ways, the shortfall will be
worse than last year, especially during the
peak-temperature period."
"Improved living standards"
is an all-encompassing reference to consumer
goods, but especially air conditioners, which
alone account for up to 40% of consumer demand.
Perhaps surprisingly, given the group-comes-first
qualities of China's culture and official
ideology, there have been few calls for a
wholesale voluntary ban on their use; the spirit
of 'Lei Feng', Mao's self-sacrificing
soldier, does not live on when it comes to
air-cons. Some might show more restraint than
others, but given the city's hot, wet summers, the
cooler is here to stay, and be used.
Government statistics show the scale of
the problem. Power usage in Shanghai has grown
dramatically during the past 20 years, from 3,000
megawatts (MW) in 1986 to 15,000 MW last year.
Much of this surge was recent; demand increased by
21% between 2002 and 2004 alone.
Officials
who recently met the American Chamber of Commerce
to discuss the issue reported that the city has
11,200 MW of installed capacity with potential
capacity of 11,400 MW. Shanghai plans to import
5,000 MW of power from neighboring (and just as
invested) provinces during the summer, but this
will still leave an estimated shortfall of 2,600
MW in 2005, and officials estimate that
electricity supply will again lag behind demand by
roughly the same amount as last year.
Building more capacity and purchasing more
power from adjacent provinces have not been the
only responses of the Shanghai government. In the
short term, authorities are shifting usage away
from peak times not by incentives but by
bureaucratic planning. Officials have recently
dubbed this the "one insist and three ensures"
policy: they "insist" on power restrictions in
order to avoid blackouts, whilst "ensuring"
electricity supplies are available to residents,
industrial users, and services essential to public
order.
The longer-term solution involves
diversifying fuels, construction of new plants and
a new 500 KW grid as well as improving electricity
management. Other components of the strategy are
to adopt efficiency standards in building codes
and consumer appliances (especially air
conditioners); to introduce market mechanisms; and
teach citizens the value of energy conservation.
Foreign businessmen deal with the
shortages
The methods businesses are using
to deal with the issue and the interventionist
approach of the government offer an instructive
lesson for anyone who is doing, or wants to do,
business in China. "I have been approached by the
power bureau with requests - and on one occasion a
[direct] instruction - to take a Tuesday and
Wednesday weekend, work the traditional
Saturday-Sunday weekend, [then] take a week-long
holiday," said Benoit Rimaz, general manager for
industrial operations at Volvo's Construction
Equipment plant in Shanghai, who admits such
mandates are "very disruptive". Such problems are
not insurmountable, but require a different, more
Chinese approach: talking it out. "We went back to
the power bureau and negotiated," said Rimaz. "We
did eventually manage, with negotiation, to save
the traditional weekend and take a week off for
maintenance." This required two or three meetings
but showed that relations with the government are
"very important", according to Rimaz.
Such
cases show the willingness of the government to
give exemptions to foreign owned and invested
factories, although this is not a straightforward
process, bringing in as it does the bureaucracy at
all sorts of levels that businesses elsewhere
don't have to deal with. Although companies
throughout the world work off their accumulated
relationships, at least in part, in China this is
a baroque art form.
Getting exemptions
is a cumbersome process, even when the need
is pressing. Maida Electronics Shanghai, which
makes electrical components in Songjiang, an
industrial suburb of Shanghai, requires its furnace to
be running 24-7 at 1200 degrees Celsius. "We
were able to get the exemption pushed
through," explained general manager for manufacturing,
Bob Hoffman. But it wasn't easy. Forms had to be
taken to the right people at the right agency - not
a straightforward procedure, given the
common Chinese problem of multiple organizations,
all claiming, sometimes feigning, dominion over
the same small pieces of turf. Progress quickened when
it was politely explained that without the
exemption the company could not stay in China or
at this factory - the last words career-conscious
bureaucrats in investment-keen Shanghai want to
hear. "We were able to get the papers through to
the right officials in a timely manner, and get an
exemption in a timely manner," said Hoffman,
although this process took a month and was "quite
slow and laborious".
One of the secrets to
making government relations work in China is to
acknowledge they are reciprocal and ongoing.
Hoffman says: "We have established a relationship
with a government official. He works with the
government but he is a liason officer. The way its
been explained to me is sometimes he's on our
side, sometimes he's on theirs. We found ways to
make him happy." Professional ways, that is. "I
don't want to give the impression we are 'nudge
nudge wink wink' making him happy," added Hoffman
who went on to say this was done by "frequent
communications, going to dinners... We have talked
about our experience in opening the factory here
to other foreign investors, so in that manner, we
have done [the authorities] a favor."
Michael Mackey is a
Shanghai-based freelance writer.
(Copyright 2005 Asia Times Online Ltd. All
rights reserved. Please contact us for information
on sales, syndication and republishing.) |
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