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    China Business
     May 20, 2011

Power rationing strikes China early
By Olivia Chung

HONG KONG - China is suffering its worst power shortage in years, with the industrial centers of Guangdong and Zhejiang among 20 provinces and municipalities rationing electricity as economic expansion outpaces power supply. Businesses, including low-margin exporters, are having to resort where they can to expensive use of their own generators.

Rationing of electricity is not unusual in China as demand in the fast-growing economy outstrips demand, but this year shortages have began well ahead of the summer peak when blackouts usually occur.

Electricity consumption may increase 12% this year to 4.7 trillion kilowatt hours, the China Electricity Council says, after a 12.7% gain in the first quarter compared with a year earlier. Electricity

use in March alone rose 13.4% year on year, according to the National Energy Bureau.

Urban fixed-asset investment increased at around double that pace in the first quarter, surging 25%. Housing investment jumped 37.4%, official figures show.

In Guangdong, south China's manufacturing hub, which accounts for about 11% of the country's gross domestic product, electricity use rose 8% in the three months to March from a year earlier, to 58 million kilowatts. In the present quarter, the province is expected to be short of 4 million kilowatts of power each day, above the 3.5 million kilowatts previously predicted, a local official said.

In Dongguan, an important production base in Guangdong and like the rest of the province home to numerous labor-intensive factories owned by Hong Kong interests, electricity has been cut off one in every four days since April, forcing many businesses to use their back-up power generators.

"As the price of the diesel power generators costs more than that of electricity sent by power plants, it makes life even tougher for businesses that have been struggling with increasing production cost and surging inflation," said Stanley Lau Chin-ho, deputy chairman of the Federation of Hong Kong Industries.

Lau blamed the power shortages on rising power demand, driven by the country's strong economic growth, and insufficient power supply from western parts of the country, to where many manufacturers have moved due to increasing wages, limited land resources and environmental concerns in south China.

"In recent weeks, some small and medium-sized enterprises in Guangdong have been asked to cut their use of power every three days," Lau said. "If the situation becomes worse, such as electricity being cut off three days in a week, the firms will find it harder to survive as their production plans will be suspended." Small enterprises are considered to have annual output value of less than 5 million yuan (US$770,000).

Zhejiang province, south of Shanghai, has rationed electrical power since March and is buying electricity from other provinces. Zhejiang has bought "all of the available electricity from neighboring provinces since a shortage of about 2 to 3 million kilowatts each day since the Spring Festival [in early February]," China National Radio reported, citing Dai Yan, deputy director of the electricity dispatching center at the Zhejiang branch of the National Grid.

More than 500,000 enterprises in Zhejiang struggled to survive on a rotating electricity supply schedule during the first quarter.

Government controls on electricity charges are exacerbating the crisis, as thermal power energy companies are forced to limit what they charge while having to pay higher prices for coal. The average price of domestically produced coal rose by 15% between January and the end of April.

"As the price of electricity is administered by governments, power plants have no way to make a profit or finance their development with the rising cost of coal," said Ye Tan, an independent economics expert. Lingering drought also has contributed to the power supply shortage, Ye said.

China's top five thermal power companies, including Datang International Power Generation, the biggest publicly traded electricity producer by market value, and Huaneng Power International, have incurred combined losses of 60 billion yuan since 2008, according to a 2010 annual report on electricity regulation. In 2010 alone, the five racked up combined losses of 13.7 billion yuan for their thermal generation businesses, a Datang spokesman said.

"The more electricity we produce, the more financial losses we bear," the Datang spokesman told Asia Times Online.

Faced by rising coal coasts, generators in several provinces have closed, said Yu Yanshan, vice director of the office of the State Electricity Regulatory Commission. Last year, 236 of the 436 coal-fired plants the five state-owned power generation companies operate were in the red and 85 were on the verge of bankruptcy, he said. About 80% of China's electricity comes from coal-fired power plants.

Beijing, having pledged to rein in inflation this year as the population struggles with rising food and fuel prices, is reluctant to lift electricity charges after raising then twice since 2008. The Consumer Price Index, the main gauge of inflation, rose 5.3% in April from a year earlier, just below a 32-month high in March but exceeding for a fourth month the government's yearly target of 4%.

The National Development and Reform Commission, the country's top economic planning body, said last year that China would see an increase  in power prices. But it did not come to reality until early April this year when on-grid coal-fired power tariffs were raised in  16 provinces.

In 2004, the government approved a mechanism linking coal and power prices, under which electricity prices were to go up incrementally after coal prices rise by more than 5% over a six-month period.

Olivia Chung is a senior Asia Times Online reporter.

(Copyright 2010 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)

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