China Power Sector (New ed)

China's power sector experienced accelerated growth after the mid - 1980s, with surging demand for electricity boosted by increased investment and residential consumption, both associated with market reforms.

In the late 1990s, however, a temporary power oversupply was witnessed.

It was mainly caused by the government's efforts to restructure its numerous State Owned Enterprises (SOEs), in which many big enterprises were closed.

The 1997/1998 Asian financial crisis also worsened the situation.

The growth pace of the power sector was therefore impeded.

Foreign funded power plants faced increasing pressure to reduce prices and were asked to renegotiate their Power Purchasing Agreements (PPAs).

As a result, many foreign investors either substantially scaled back operations or avoided new exposure.

So this report faces a challenge from prospective investors: why should we invest in China's power sector while others failed before?

The answer is very simple: things have changed and one cannot afford to ignore this huge market.

After entry to WTO in late 2001, China has increasingly become a workshop for the entire world.

Foreign direct investment (FDI) surged to USD52.7 billion in 2002, and China is expected to replace the US as the world's No. 1 FDI recipient. At the same time, the expansion of the power sector has lagged.

Thus the sustainability of the state economy is under threat.

In order to overcome the energy constraint, hefty investment will be needed.

According to a two year research made by the International Energy Agency (IEA), nearly USD2000 billion investment will be required in the period 2001-2030.

This provides new opportunities to foreign investors.