China's power crisis

JULY 26, 2004

Companies have been asked to curb usage as the worst shortage since the 1980s hits economic growth

SHANGHAI - In the first 11 years since Shanghai Pica Colour Separation & Printing set up shop here, it never had a problem with electricity supply.

Then earlier this year, the Shanghai authorities asked the Sino-Singapore joint venture to stop printing one day out of the week in last month and this month as part of an effort to reduce the metropolis' power consumption.

The company won a reprieve after explaining to the authorities that it could not do so without hurting business because its printing presses run non-stop 24 hours a day, seven days a week to print posters and CD sleeves for Sony Music.

However, Shanghai Pica is not out of the woods yet. The authorities are still asking the company to shut down for one week next month.p> 'That is going to be very bad for us,' said Mr Tan Wing Ming, general manager of the company.

Unless Shanghai Pica can get another reprieve, Mr Tan estimates that his company will lose 300,000 yuan (S$63,000) to 500,000 yuan, or roughly one-tenth of the small- and medium-enterprise's monthly revenue, due to the disruption.

Mr Tan and other businessmen here are experiencing firsthand this summer China's worst power shortage problem since the 1980s.

The power shortage problem is proving to be the greatest obstacle to sustaining the country's rapid economic growth for the next decade.

State Power Economic Research Centre chief economist Hu Zhaoguang estimates that China's gross domestic product could have grown 10.4 per cent last year had power blackouts not interrupted factory production. China's economy officially grew 9.1 per cent last year. 'Unlike two years ago, when the power shortage problem was limited to a few provinces, this year, the power shortage problem has spread throughout the nation,' said Mr Shi Dan, an energy expert from the Chinese Academy of Social Science's Institute of Industrial Economics.

In the first half of this year alone, 24 out of the China's 31 provinces and municipalities have suffered from blackouts because Chinese power companies just cannot generate enough electricity for all of the country's factories and smelters.

This summer, China's power companies are expected to fall short by 30 million kilowatts, more than half of which will be needed in Shanghai and the eastern provinces of Jiangsu and Zhejiang.

These three areas in the Yangtze Delta region have been hit the hardest by power outages because their local economies are growing much faster than the national median.

The authorities have tried to alleviate the power outages by attacking the root of the problem and raising electricity prices, and sometimes banning the sale of electricity to the steel, aluminium, cement and chemical industries, which sucked up 29 per cent of China's total electricity consumption last year.

A growing number of factories in the Yangtze Delta region are being affected for the first time this summer by additional government measures to stagger their power usage outside of peak hours.

The measures have been aimed at the industrial sector, especially state-owned enterprises that are less liable to move their factories away as some foreign investors have threatened to do.

Residential areas, which account for only 12 per cent of total electricity usage, and essential services such as hospitals have been relatively unscathed by the government's restrictions on power usage.

'At home, I haven't had any problems with power outages,' said Mr Gui Zuhua, chief financial officer of Nanjing Hongguo, who lives in the capital of Jiangsu province.

'At the office, we have adopted regulations on air-conditioner, lift and lighting usage to conserve energy.'

Last month, the State Council began promoting a national energy conservation campaign recommending businesses to turn off office lights during the day and set thermostats no lower than 26 deg C.

At the same time, the local authorities have asked Nanjing Hongguo to start its 12-hour workday at 5pm, instead of 8am, and work through the night several times a month at its factories in Jiangsu province and the southern province of Guangdong.

Employees at the Singapore-listed shoe manufacturer's Nanjing headquarters have also started working on Sundays and taking a day off during the weekday instead.

But as the frequency of power outages shows no sign of abating as the weather heats up, the local authorities have resorted to more drastic measures, including offering subsidies for factories to buy their own power generators and asking some companies to give their employees paid vacations this summer.

All these measures helped prevent the 757,000 brownouts that plagued China in the first half of this year from being more than it was, said industry experts.

However, the power outage problem probably will not go away until 2006, when China's power supply catches up with demand.

The root of today's power shortages can be traced back to the Asian financial crisis. At the end of crisis in 1999, China's economy grew at a relatively sluggish pace of 7.1 per cent, leaving the country with a surplus of power.

At the time, government bureaucrats approved the construction of fewer power plants. Consequently, when demand for electricity surged in recent years, China did not have enough power plants to keep up.

Now realising that they underestimated demand, Chinese power companies have been investing heavily to build new plants to increase power generation capacity by 130 gigawatts, or almost a third more than China's current capacity.

Some experts are questioning the wisdom of building so many new power plants, which will take at least three years to complete before they start generating electricity.

'All the new power plants won't begin operations until 2006 and 2007. With so many new power plants coming online, if there is a drop in demand for electricity, we will see another surplus,' said State Power Economic Research Centre's Mr Hu.

Then there are environmental concerns. More than 90 per will be noxious gas-emitting, coal-fired plants, cheaper to build than natural gas and other renewable energy power plants.

'In a couple of years, China's environmental pollution problem is going to be very big,' said Mr Yang Fuqiang, chief representative of the non-profit Energy Foundation.

Mr Yang said the Chinese government has been receptive to the Energy Foundation's proposals to encourage greater energy conservation.

But the authorities have been forced to adopt drastic measures to curb electricity use because 'the power shortfall is too big'.

As if to underscore his point, the power in the Energy Foundation's Beijing office went out while Mr Yang was being interviewed by The Straits Times. -- Additional Reporting By Wang Zheng