China's move to use foreign exchange reserves to buy mainland power generating equipment underscores its intention to develop its power sector quickly. Analysts generally believe that the improved order flow will start to filter through to the bottom lines of Hong Kong-listed Dongfang Electrical Machinery Co and Harbin Power Equipment Co next year. SocGen-Crosby Securities China Investment analyst Raymond Jook said: 'It is a signal effect that China [is beginning] to quicken the development of the power generating and the equipment manufacturing sector.' Under China's five-year plan to 2000, it aims to increase its generating capacity to 300 gigawatts from last year's 230 gigawatts - an annual increase of between 17,000 and 20,000 megawatts (MW). China's power equipment industry has been plagued by fierce foreign competition because foreign investors tend to buy overseas equipment with export credit. It has also been hurt by the credit crunch causing many power plants to shelve construction. As a major boost to the industry, China will earmark US$1.5 billion of its foreign exchange reserves to buy power equipment for four power plants from the three largest domestic power equipment makers - Dongfang, Harbin Power and Shanghai Power Equipment Group Corp. Harbin Power has secured orders for two 600 MW generators at Hebei's Panshan power plant for about 800 million yuan (about HK$745.68 million) and two 300 MW generators at the province's Xibeipo power plant. Dongfang's initial 150 million yuan contract with Hubei's Xiangfan power plant, with four 300 MW generators, will also be paid for with the reserves. The move was one of the measures proposed by Lu Yansun, Vice-Minister of Machinery Industry at the National People's Congress in March last year. He called for state financial support and a minimum domestic content on Sino-foreign joint-venture power plants. UBS Securities senior analyst Vincent Chan said China's latest move would reduce obstacles to buying domestic equipment. 'This policy, as a pilot scheme, will improve the competitiveness of the industry,' he said, but he expected their earnings would only benefit next year at the earliest. BZW Asia analyst Richard Lo doubted that the two companies would catapult back to their 1994 earnings peak next year, in view of the long production cycle and their current limited installed capacity. 'We have not heard from the companies that they are going to expand their capacities [with] their listing proceeds,' he said.