An editorial in the China Business Times says urgent reforms are needed in the electricity industry. An excerpt follows:

The increasing problem of electricity demand outstripping supply is out of kilter with China's sound economy this year. Twenty-six provinces and municipalities around the nation have been plagued by blackouts, which has had some detrimental impacts on their economy.

In answer, China has built some new power plants, which will reportedly produce 280 million kilowatt hours of electricity when they are in place. But excessive investment in power plants could induce a new round of power oversupply.

A well-functioning power industry could sustain a sound economy, and as an economy develops, so should power supply. In China, this unwritten rule has not been observed and the sharp fluctuations in power supply have caused immense problems. There has not been enough planning in the industry. Power plant construction is characterized as long term and large scale, so a sound plan should be in place beforehand. Plan makers should make careful examinations and carry out scientific research on demand to make plans more relevant. One of the culprits of today's failure was a decision made several years ago to ban all power plant building for three years.

Inappropriate investment structure has significantly impaired our power industry. A strict investment approval system has blocked a lot of private capital from entering the market, thus discouraging competition and variety in investment. Local governments do not work in line with the decisions of the central government.

Short-term profit lures them away from investing in more environmentally-friendly hydroelectric power stations in favor of controversial thermal power plants. Such a shortsighted approach has hampered our electricity structure and put pressure on the supply and transport of coal. Other problems, like an insufficient power grid and a misuse of foreign investment, are inevitable under such an investment system.

It is also worthy of note that the electricity industry is still more or less a monopoly. Its operation is largely determined by the planning system instead of the market system.

Like many other commodities, supply and demand can change. Temporary shortages or oversupply are not formidable as long as proper control measures are taken. Restraint, deficiency, more investment, oversupply, restraint; this vicious circle keeps turning.

Reforms must be strengthened. Ameliorating the macro-control mechanism and adopting market measures provide some cures to the problems.

(China Daily December 23, 2004)