Electricity failures threaten to disrupt foreign businesses operating in China

Wu Ying (吳鷹), vice chairman of telecommunications equipment maker UTStarcom Inc, says failures in China's electricity distribution system are ruining weekends for his workers in the eastern city of Hangzhou.

"We're facing regular power cuts," said Wu, who's also chief executive officer of UTStarcom China Ltd. "We used to work from Monday to Friday. We had to change the shifts to have some workers in on Saturdays and Sundays."

UTStarcom China and Shanghai-based Internet service provider Sina Corp (新浪) are bracing for more disruption as leading electricity producers such as Huaneng Power International Inc (華能國際電力) and Datang International Power Generation Co (大唐國際發電) struggle to meet demand.

Power consumption rose 17 percent in the first quarter from a year earlier, outstripping the record 16 percent growth in power output, the Shanghai Securities News newspaper reported last month, citing China's top planning ministry.

"The power situation is getting worse," said James Liu, a fund manager who helps oversee US$2.3 billion at APS Asset Management Ltd in Shanghai. "Now 24 out of 31 provinces are facing power outages and rationing. Last year it was 22."

Last summer, power failures swept two-thirds of China, disrupting production at companies from General Motors Corp's car plant in Shanghai to Coca-Cola Co's Hangzhou bottling plant.

Detroit-based General Motors will wait for the Shanghai government's power-consumption forecasts before setting its production schedule this summer, said Xue Hao, a spokesman at Shanghai Automotive Industry Corp (上海汽車), China's biggest carmaker and one of the US company's partners.

General Motors shut its Shanghai plant for two days last year and banned employees from using washroom hand-dryers to help authorities save power.

"Shanghai is more prepared now than last year," said Peter Borger, president of Siemens Shanghai Mobile Communications Ltd. "Nevertheless it will affect certain industries."

Power failures in late July and August at Hangzhou BC Foods Co (杭州中萃食品), which runs China's biggest Coca-Cola factory, cost the company about US$360,000, according to director Jeremy Hu.

Economic growth averaging 9 percent over the past decade has left China short of 30,000 megawatts of generation capacity, according to the planning ministry.

Growing shortages helped prompt China's banking regulator April 30 to tell banks to stop lending to power-hungry industries such as aluminum and automaking. That crackdown was widened Friday to include textiles, petrochemicals and pharmaceuticals.

Sina chief executive Wang Yan (汪延) said the failure by local authorities to warn of power rationing meant his company, one of China's top-three Internet service providers, was unable to plan for disruptions.

An April power cut in Beijing "was meant to be a planned four-hour cut, but we weren't warned," Wang said.

"We came to the office and there was no power, so our workers had to go home. It's been happening regularly," Wang said.

The government's control measures may halt investment in some energy-intensive industries, said Wu of Alameda, California-based UTStarcom, which vies with Siemens AG and Ericsson AB to sell equipment to phone companies.

"That could ease our power problems," he said.

Some foreign investors have agreements with local governments to ensure power supplies, said Mark Mobius, who oversees more than US$13 billion in emerging-market assets at Templeton Asset Management Ltd.