3 - Reform of the Chinese electric power market: economics and institutions

Summary

Introduction

The People's Republic of China was founded in 1949 with only a primitive 1.85 GW electricity industry. It has since grown into the second largest electric power system in the world, with an installed capacity of 442 GW in 2004. The number of people who have no access to electricity has been reduced from 245 million in 1979 to around twenty million, less than 2 percent of the population. Nationwide, average per capita power consumption is about half the world level, and in China's largest cities the power system is up to world standards. Development has been particularly impressive since the boom in investment began in the 1980s. According to industry accounts, an estimated RMB 1.107 billion ($134 billion) was invested between 1981 and 2001 in new generation and delivery capacity. Three-quarters of this sectoral capital came from domestic sources, with foreign investment making up the rest.

This chapter explains this remarkable transition and explores the ways that institutional reform has affected the Chinese power sector. It begins with the founding of the People's Republic of China in 1949 and the adoption of Soviet-style administration of the economy. The government nationalized all industries, including electric power, and instituted five-year central planning with the goal of promoting industrialization. The central government planned the scale and location of all power projects, provided the funds for infrastructure expansion, operated the system and set the priorities according to which end-users were allocated electrical service.