SPEAKING
FREELY China's electric mafia
By Mark A DeWeaver
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click hereif you are interested in
contributing.
In a report to the
eighth All-Russia Congress of Soviets in 1920,
Vladimir Lenin famously said: "Communism is Soviet
power plus the electrification of the whole
country." Only with modern large-scale production,
he argued, could the economic institutions of
Russia's smallholder economy
be eliminated. Electricity, by providing the basis
for industrialization, would make possible a
society free of capitalist oppression. Every
electric-power station would become a "stronghold
of enlightenment".
In today's China,
however, weak oversight of the state-owned
electricity transmission and distribution monopoly
has allowed its employees to use the threat of
power disruption for intimidation and extortion.
Rather than being strongholds of enlightenment,
some local power bureaus have become more like
minor fiefdoms, where the local "electric tiger"
(dian lao hu) maintains his authority not
by force of arms but with the flick of a switch.
Contrary to Lenin's expectation, the socialist
electric-power sector seems to be leading the way
backward into feudalism.
Consider a widely
reported case that occurred last summer in
Liuyang, a city of 1.3 million people in Hunan
province, not far from the provincial capital
Changsha. On July 31, the party secretary of the
local electricity bureau cut off the power for the
city's first five-star hotel because the hotel's
general manager didn't personally invite him to a
grand-opening event. (The general manager had
entrusted the task of delivering the invitation to
an assistant.) The secretary even demanded that
female hotel staff members drink with him,
offering to reduce the blackout by an hour for
each bottle they finished. Luckily for the hotel,
the electricity was only off for one night and the
"tiger" was subsequently fired.
In the
countryside, people aren't always so lucky. In the
city of Urumqi, the capital of the northwestern
autonomous region of Xinjiang, delegates to a 2004
meeting of the municipal People's Congress
complained of electricity-price gouging in
neighboring rural areas severe enough for some
households to start using candles. There were also
reports of exorbitant prices for simple electrical
equipment; power-distribution boxes, for example,
being sold for as much as 10,000-20,000 yuan
(about US$1,250-$2,500). Arbitrary outages were
said to be common occurrences as well,
particularly at harvest time, when farmers are
most in need of electricity and thus most
vulnerable to extortion.
Occasionally,
rural areas have been blacked out for months at a
time. In 1999, for example, Guangzhou's Yangcheng
Evening News reported the case of Jinghai
township, a community of 70,000 people in
Guangdong province, where the manager of the local
power office had been charging more than double
the price of the electricity provided by the
county electric company. In an effort to go around
him, township officials raised 480,000 yuan (about
$60,000) to build a 28.5-kilometer power line
connecting directly to the source. But the
manager, with help from friendly officials, was
able to block the new supply, leaving the town
completely without electricity for a year and a
half.
One of the worst cases on record
occurred in the village of Leibei, in Shanxi
province. There the power was cut off for two and
a half years after a fight between a villager and
a power-station employee in 1998. By 2001, the
Guangming Daily reported that the few enterprises
in the area had been forced to close and the
entire population had left. Without electricity,
Leibei had become a ghost town.
Electric
tigers have not limited their depredations to
consumers. They also prey on their own work units
and the power producers, typically by inflating
their own salaries and bonuses or using
employee-controlled "service providers" to sell
equipment, services, or even electricity to the
state at high prices, often with scant regard for
quality control. A recent article in the Jiangxi
Electric Power News cited one case where such a
company installed a substation without even
bothering to level the ground properly before
starting work.
Not surprisingly, the state
earns little profit from power transmission and
distribution. A July 23 article in the 21st
Century Economic Herald put the 2005 return on
assets for the State Grid Corporation of China,
which operates one of the country's two main power
grids, at a mere 2.63%. Average profit per
employee was only 11,000 yuan.
This year,
with monopoly reform and rural development high on
the central government's agenda, there has been a
renewed focus on eliminating abuses in the sector.
Last summer, the State Grid Corp required all
units to limit total employee compensation for
2006 to the 2005 level. And a State Council
document dated November 1, "Opinions on the
Deepening of Electric Power System Reform during
the Eleventh Five Year Plan", calls for separating
non-core businesses (such as "service providers")
from transmission and distribution enterprises
during the next two years. "Test cases" for the
separation of the transmission grids from
distribution networks are to begin during the
following three years.
Such policies are
obviously a step in the right direction, but may
be of limited usefulness. State grid employees
should not have much trouble circumventing the new
rule on compensation, particularly as this is only
an internal policy with no outside oversight.
There is also no reason to think that the problem
of employee-controlled companies will be easy to
solve - this is an issue that has plagued China's
entire state sector for years despite numerous
crackdowns. Similarly, separating transmission
from distribution will have little effect in the
absence of stronger regulation.
The
problem with combining electricity and
authoritarian rule is that transmission and
distribution are natural monopolies, which makes
it especially easy for whoever is put in charge of
them to engage in opportunistic behavior. These
sectors are unlikely to become "strongholds of
enlightenment" without a high degree of
independent supervision, something it may be
unrealistic to expect from a government that is
itself not accountable to anyone.
Mark A DeWeaver, PhD, worked as
a research analyst in Shenzhen from 1991-95, first
for W I Carr and later for Peregrine Brokerage. He
manages Quantrarian Asia Hedge, a fund that
invests in Asian equities (on the web at
www.quantrarian.com), and can be reached at
deweaver@quantrarian.com.
(Copyright 2006
Mark A DeWeaver. Used by permission.)
Speaking Freely is an Asia Times
Online feature that allows guest writers to have
their say. Please click hereif you are interested in
contributing.
