The restructuring of the power industry looked to be one of China's biggest and most exciting areas of reform when changes began to unfold three years ago. But the effort has since landed unceremoniously on its face. Underlying the serious setbacks is a good deal of hesitation and doubt.
Traditionally, China's market reforms have come in waves. The changes are 'gradualist', as experts put it, but there are 'emphatic pushes' behind them. This approach serves to avert major backlashes, which could lead to total collapse of reforms. Certain interest groups, however, can take advantage of excessively gradual change. Therefore, big pushes are necessary.
Since the mid-1990s, this need for more aggressiveness has emerged in more and more sectors, among them the power industry, where reforms lagged behind for years. In April 2002, a new blueprint was drafted for the industry, which laid out a three-step agenda for reform. By the end of 2002, Beijing set out to split up the State Power Corporation.
The first step was to separate the power-generating business from the operation of power grids. Then major power-generating firms were to be divided from supplemental ones, and power transfer divided from sales. All these steps would work towards the final goal of a well-regulated, fair and efficient power market.
However, reforms hit a snag soon after the State Power Corporation was chopped up and the big five power-generating firms and two grid operators were established. The proposed second step remains locked in theoretical debate.
The clearest evidence of this has been the explosive growth of power-generating assets owned by provincial power grid firms. The most recent example is the quiet development of the Xinyuana company under the State Power Grid Corporation, with 2.2 billion yuan in registered capital and 6.47 million kilowatts of power-generating capacity. The new system allows power-grid operators to monopolise the transfer of electricity within their business regions. Generator companies, however, must compete to get their power on the grids. Thus, there is an obvious conflict of interest when grid companies come to own generator firms. And the trend is growing. Many factors can be blamed for the backsliding of reforms. Among them are the severe power shortages and the gross underdevelopment of the nation's grids. But such difficulties do not justify reversing the course of reform.