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Thu, Jul 29, 2004 - Page 12 News List

Power crunch has firms worried

SHANGHAI SHOCK Although China has cast the city as the high-tech capitol of the country, the city has found itself scrambling to deal with worsening shortages

By Ben Blanchard  /  REUTERS , SHANGHAI

Chinese businesswoman Zhang Huiying is feeling very empowered this summer.

With Shanghai stewing in temperatures just shy of 40?C and power supplies at the limit, the fast-talking store manager is selling her 50,000 yuan (US$6,000) suitcase-sized diesel generators as fast as she stocks them.

"They've been flying out of my shop," Zhang said, standing in front of a rank of shiny red generators at her shop just off the city's historic waterfront Bund.

"Better get one while you can -- who knows when the power is going to go off," she said. Her sales have surged 30 percent in the past month.

Zhang is playing on the biggest fears of city cadres and business executives this summer: that demands on stretched power resources from an increasingly rich populace and breakneck industrial activity could spark a wave of power cuts.

The city's woes mirror an accelerating nationwide crisis. Despite a spate of draconian emergency measures already in place across China, residents and businesses along the more developed coast are preparing for worse to come.

In neighboring Zhejiang Province, Anhui Conch Cement Co Ltd shut a 120,000-tonne-per-month plant last Friday for 15 days. Other plants in the provincial capital, Hangzhou, have shut for up to four days a week.

Beijing, suffered its first brownout -- a managed power cut -- last Friday.

"My suspicion is that next year could be as bad or worse than this year," said UBS economist Jonathan Anderson. "Growth is very strong in Shanghai and capacity coming on nationwide does not mean that Shanghai is going to have more access to energy."

The city government is scrambling to build an additional 10,000 megawatts of capacity annually, on top of plans to invest 20 billion yuan (US$2.4 billion) to upgrade the grid. But that may have come too late.

Thousands of Shanghai's factories have already been forced to work the graveyard shift. Hundreds have shut during peak hours.

In the evenings, the decorative lights along shopping streets and on the city's skyscrapers are switched off to save power. The city was one of the first in the world to introduce widespread use of neon lights -- during its heyday in the 1920s and 1930s when it was known as the "Paris of the East".

"What sort of message does this give the foreign business community? It's a disgrace that this is still happening," said one Western executive, adding that signs to scale back use of the air-conditioning in his office were just laughed at.

"They knew this was going to happen five years ago," said an executive at a German manufacturing company, which has been forced to operate at half capacity for the past two months.

"And this from a city trying to compete with Hong Kong," the executive said.

More worried about output and profits, plant operators are racking their brains for alternative energy sources.

Generator wholesalers report increases in business of between 20 percent and 30 percent as manufacturers stock up.

Others want to build from the ground up. Hangzhou Iron and Steel says it plans to boost in-house generating capacity by 10 percent a year.

But individual investments are hardly a solution for all.

Years of under-investment in generation capacity and transmission -- partly a result of grinding bureaucracy -- coupled with rapid economic growth and a ballooning middle class have stretched energy resources as far as possible.

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