Power shortages are sweeping China. So far, 24 of 31 provinces have had to ration consumption one way or another. Power supplies are insufficient not only in Zhejiang, Jiangsu, Shanghai, Fujian and Guandong - where economic activities and, thus, demand for power are very strong - but also in Jiangxi, Sichuan and Chongqing where water levels are low, and in Shanxi and Shaanxi, where power generation is constrained by the supply of coal.
A number of possible causes have been identified. To begin with, the state still has a monopoly in the power industry and usually responds more sensitively to policy directives than market signals.
In addition, the State Planning Commission reached an incorrect conclusion in 1998 that there would be an excess supply of electricity in China. Therefore, it did not approve any major power-generator projects for the next five years.
Next, while coal prices have risen significantly during the past year, electricity prices are still highly regulated. This also limits power generators' supply responses. And, of course, factors such as the unusually hot summer weather and the slow supply of electrical machinery have exacerbated the problem.
In response, the government has introduced a number of policy changes. Investment in the power industry has increased significantly. In many coastal provinces, the authorities have encouraged energy-consuming factories to avoid production at peak times. Electricity prices have also been raised.
But the most immediate response to the power shortages came from the market itself: the number of single, stand-alone generators has rocketed, especially in Zhejiang, Jiangsu, Fujian and Guangdong provinces.
