The Straits Times Interactive
JULY 26, 2004

China's power crisis

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

By Tschang Chi-chu

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

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