China is enjoying unprecedented inflows of foreign direct investment into almost every industrial and service sector. Its power industry, however, is unique in that the flow is entirely the other way.
As exemplified by China Resource Power's (CRP's) recent acquisitions of Sithe's entire mainland power portfolio and Mirant's 33 per cent stake in Dongguan's Shajiao C power plant, foreign investors are fleeing the sector en masse. Factors include fatigue after years of reneged contracts - as guaranteed rates of return turned out not to be so guaranteed - augmented by fears about the implications of industry reform on the mainland, with its emphasis on power pooling, competitive bidding and lower tariffs.
'It hasn't been a smooth ride in China. Everyone has experienced haircuts on [previously agreed] tariffs or lower output than their guaranteed minimum take,' said a Hong Kong-based industry analyst, who asked not to be identified.
A Hong Kong industry executive with years of experience on the mainland added: 'Reform has created a lot of uncertainty - the next step is even worse. Rates of return used to be good in China. But now it's not competitive with other places.'
But, for all the bumps along the way, another factor looms even larger for many foreign investors on the mainland - Enron.
Since the now infamous energy company's precipitous collapse, companies with substantial operations in the United States - such as AES, Mirant and Sithe - are facing a harsh new operating environment and onerous debt obligations.
