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Power Shortages Should Inspire Reform

There is always a positive side to a crisis.


A crisis can prompt ideas and solutions that might otherwise not have even been considered.


While escaping the fuel shortages affecting many southern cities, Beijing suffered a temporary power shortage on Monday.


High temperatures coupled with devastating humidity overwhelmed the city's power supply capacity, and in some parts power supply was stopped for two hours.


It is the first time this summer that the capital city has suffered a power brownout.


Like the power shortages in other cities, Beijing's latest record-breaking power consumption raises questions about how the country's energy policy-makers can cope with the ever-increasing demand brought on by continuing economic growth.


The recent "sauna weather" in Beijing, in other words hot and humid conditions, saw city residents use air-conditioners and other cooling devices at full blast, jacking up electricity consumption.


Weather conditions, however, are not the main factor behind the power shortages around the country: Statistics show that industrial use still accounts for the bulk of the nation's power use.


China began facing power shortages three years ago, when the economy stepped out of deflation, increasing demand for power.


Last year, despite the fact that national power generation was up 14.9 per cent over 2003, the country suffered its most serious power shortages, with 24 affected provinces and regions.


Soaring demand is obviously the main culprit for the crisis.


Thanks to low economic efficiency, our fast economic growth has been achieved at the cost of huge amounts of energy and resources, including electricity.


Experts estimate that by 2020, the expanding national economy will guzzle 2.6 times the current power use. Without improving efficiency of energy use, power shortages are set to worsen.


While encouraging people and enterprises to save energy, we must understand that it will be a long process before society can generally realize the importance of and consciously engage in energy saving.


On the supply side, policy-makers need to take advantage of the current crisis to reform the power sector and make it more adapted to market changes.


Raising electricity prices, while effective, is not the only solution.


Ten years ago, when the national economy was not as hot as it is now, the State discouraged the construction of new power generation factories for fear of possible future excessive supply, sowing the seeds of trouble.


Now as new power stations are constructed on a large scale, it is predicted that power supply will peak and outstrip demand in the coming two to three years, causing a fresh waste of production. This cycle may repeat in the coming decades.


Policy-makers have been slow in responding to those market changes.


A market economy should not mean a lack of proper planning and regulation, as the global economic process has demonstrated. But global economic experiences also show that it is hard for regulators to keep pace with market changes and navigate the economy accordingly.


In the domestic electricity industry, what is urgently needed is not to maintain strict control, but to encourage competition by introducing more investors into the State-monopolized sector.


Although competitive reform has started in the power industry, it is yet to bring about substantial results, with the sector remaining a State monopoly. The government has been deeply involved in industrial investment, power distribution and pricing.


This has made the sector slow in reacting to changes in supply and demand, which will become dangerous in the future if no systematic change is made.


The current power shortage provides a good opportunity for policy-makers to act. It is not advisable, however, for them to directly manage production, but to reform the sector to make it more adapted to the market.


(China Daily August 17, 2005)


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