The reform paradox and regulatory dilemma in china's electricity industry

Asian Survey

Volumn 51, Issue 3, 2011, Pages 520-539

  Tsai, Chung Min ^a  

^a NATIONAL CHENGCHI UNIVERSITY   (Taiwan)

Author keywords

China; Electricity reform; State Electricity Regulatory Commission; State regulation; State owned power companies

Indexed keywords

ELECTRICITY INDUSTRY; REFORM PROCESS; REGULATORY FRAMEWORK; STATE OWNED ENTERPRISE; STATE ROLE;

CHINA;

EID: 79959362609     PISSN: 00044687     EISSN: 1533838X     Source Type: Journal    
DOI: 10.1525/as.2011.51.3.520     Document Type: Article

References (63)

1. Many countries underwent electricity reform in the 1990s, including both industrialized and developing countries such as the United Kingdom, the United States, Mexico, India, Argentina, etc. See John Surrey, ed., The British Electricity Experiment (London: Earthscan, 1996)
2. Adrian Van Den Hoven and Karl Froschauer, "Limiting Regional Electricity Sector Integration and Market Reform: The Cases of France in the EU and Canada in the NAFTA Region," Comparative Political Studies 37:9 (November 2004), pp. 1079-1103 (Pubitemid 39427669)
3. John K. Turkson, ed., Power Sector Reform in SubSaharan Africa (New York: St. Martin's Press, 2000)
4. and Yi-chong Xu, Electricity Reform in China, India, and Russia (Northampton, Mass.: Edward Elgar, 2004).
5. Since 2004, many cities have suffered electricity shortages and in some cases have had to resort to rationing.
6. The latest trend in power generation is toward a duopoly where two colossal power groups, Datang and Huaneng, have overtaken others to occupy a dominant position; nonetheless, they have adopted different strategies to expand their business. See 21 Shiji Jingji Baodao [The 21st Century Herald Business], September 15, 2006, , accessed October 1, 2006.
7. For a discussion on market culture in China, see Lowell Dittmer and Lance Gore, "China Builds a Market Culture," East Asia: An International Quarterly 19:3 (September 2001), pp. 9-50. 5. Interestingly, most people supporting the former argument are either officials or scholars. The latter statement is drawn from extensive interviews with managers of power industries (both in power plants and grid companies); however, among the managers, the problems caused by the reform project depend on what sector they are from.
8. Ioannis Kessides, Reforming Infrastructure: Privatization, Regulation, and Competition (Oxford: Oxford University Press, 2004).
9. Shaofeng Xu and Wenying Chen, "The Reform of the Electricity Power Sector in the PR of China," Energy Policy 34:16 (November 2006), pp. 2455-65. (Pubitemid 43793092)
10. See Dali Yang, Remaking Chinese Leviathan (Stanford, Calif.: Stanford University Press, 2004)
11. and idem, "State Capacity on the Rebound," Journal of Democracy 14:1 (January 2003), pp. 43-50. (Pubitemid 36195359)
12. Minxin Pei, China's Trapped Transition: The Limits of Development Autocracy (Cambridge, Mass.: Harvard University Press, 2006)
13. and Scott Kennedy, The Business of Lobbying in China (Cambridge, Mass.: Harvard University Press, 2005).
14. Andrews-Speed contends that the regulatory structure is merely "nominally" independent and does not really command substantial authority in the energy sector. Lin shows the interaction between preexisting social relations and reform implementation as the central state transforms the SOEs and reinvents its regulatory capacities. Moreover, Mertha presents the eclectic standpoint that the central government is now experiencing "soft centralization" and combating local protectionism in policy implementation. See Philip Andrews-Speed, "Regulation and Deregulation of Energy in the Asian Market: The Case of China," in Asian Energy Markets: Dynamics and Trends, ed. the Emirates Center for Strategic Studies and Research (Abu Dhabi, United Arab Emirates: Emirates Center for Strategic Studies and Research, 2004), pp. 143-80
15. Kun-chin Lin, "Disembedding Socialist Firms as a Statist Project: Restructuring the Chinese Oil Industry, 1997-2002," Enterprise & Society: The International Journal of Business History 7:1 (March 2006), pp. 59-97 (Pubitemid 43282689)
16. and Andrew Mertha, "China's 'Soft' Centralization: Shifting Tiao/Kuai Authority Relations," China Quarterly 184 (December 2005), pp. 791-810. (Pubitemid 43115711)
17. See Junhao Wang et al., Zhongguo Longduanxing Chanye Jjiegou Chongzu Fenlei Guanzhi yu Xietiao Zhengce [Restructuring differentiated regulatory and coordinating policies in China's monopoly industries] (Beijing: Shangwu Chubanshe, 2005)
18. and Shijin Liu and Fei Feng, Longduan Hangye Gaige Gongjian [The reform in the monopoly industries] (Beijing: Zhongguo Shuili Shuidian Chubanshe, 2006).
19. According to Fortune magazine, there are 30 Chinese central SOEs listed in the world's 500 largest corporations. Fortune, July 8, 2010, , accessed October 2, 2010.
20. For example, the low-level employees in a provincial power company earn at least 8,000 yuan (US$1,000) per month and enjoy housing subsidies ranging from tens of thousands to hundreds of thousands of yuan. Author's interview with a journalist reporting on electricity affairs in Beijing, December 19, 2006.
21. Barry Naughton, "SASAC and Rising Corporate Power in China," China Leadership Monitor 24 (Spring 2008).
22. The idea of separating governments and enterprises first appeared in the late 1980s. In 1987, then-Premier Li Peng mentioned this as one of the five principles in the power reform. In 1988, then-State Councilor Song Ping pointed out that the lack of separation of government and enterprises was one of the hurdles to reforming the economy comprehensively. "Guanyu Guowuyuan Jigougaige Fang'an de Shuoming" [Statement concerning the plan for restructuring the State Council], , accessed September 13, 2010.
23. The first independent regulatory agency, the China Securities Regulatory Commission, was established in 1992. To date, the Chinese government has four independent regulatory commissions. The others are the State Banking Regulatory Commission, State Insurance Regulatory Commission, and State Electricity Regulatory Commission.
24. Margaret Pearson, "The Business of Governing Business in China: Institutions and Norms of the Emerging Regulatory State," World Politics 57 (January 2005), pp. 296-322 (Pubitemid 41320293)
25. and idem, "Regulation and Regulatory Politics in China's Tiered Economy," paper presented for a conference on "Capitalism with Chinese Characteristics," Indiana University, May 19, 2006, , accessed August 20, 2007.
26. Tony Prosser, Law and Regulators (Oxford: Clarendon Press, 1997).
27. Giandomenico Majone, ed., Regulating Europe (London: Routledge, 1996).
28. Giandomenico Majone, "From the Positive State to Regulatory State: Causes and Consequences of Changes in the Mode of Governance," Journal of Public Policy 17:2 (May 1997), pp. 143-44
29. and David Levi-Faur and Sharon Gilad, "The Rise of the British Regulatory State: Transcending the Privatization Debate," Comparative Politics 37:1 (October 2004), pp. 105-24.
30. Some dynamics are critical in identifying whether the Chinese state is regarded as a regulatory state, such as local state corporatism and state-society relations, but they are either slightly discussed or not covered here in order not to complicate the following discussion.
31. However, they work in ways different from their Western counterparts.
32. The State Council, Guanyu Guli Jizi Bandian he Shixing Duozhong Dianjia de Zhanxing Guiding [Provisional regulations on fund-raising for investment in the power industry and implementing different power prices] (State Council [1985], no. 72).
33. Distinguished by different types of ownership, they are public-owned; private-owned; joint ventures; build-own-transfer (BOT); initial public offering (IPO); and transfer, operate, transfer (TOT). See Michel Bellier and Yue Maggie Zhou, Private Participation in Infrastructure in China (Washington, D.C.: World Bank, 2003), pp. 69-76.
34. See SETC, Guojiajiwei Guanyu 'Jiuwu' Houqi Tiaozheng Dianli Jiegou Youguan Wenti de Tongzhi [Circular of the SETC concerning the relevant questions on the adjustment of structure of power construction in the second half of the ninth five-year plan] (Beijing: SETC [1999], no. 182).
35. Philip Andrews-Speed, Stephen Dow, and Zhiguo Gao, "The Ongoing Reforms to China's Government and State Sector: The Case of the Energy Industry," Journal of Contemporary China 9:23 (2000), pp. 5-20. (Pubitemid 30231847)
36. The preferential policies for foreign investment in the generation sector, known as the "three guarantees," guaranteed generation, prices, and returns, were adopted in the late 1980s and formally abrogated in 2002. For more detailed information on foreign investment in China's power industry, see Changyu Ouyang and Mingzhou Yang, Dianli Qiye Liyong Waizi [The power enterprises utilize foreign investment] (Beijing: China Electric Power Press, 2000).
37. The two grid companies are the State Grid Corporation and China Southern Power Grid. The five giant power groups are China Huaneng Group, China Guodian Corporation, China Huadian Corporation, China Datang Corporation, and China Power Investment Corporation. abrogated in 2002. For more detailed information on foreign investment in China's power industry,see Changyu Ouyang and Mingzhou Yang, Dianli Qiye Liyong Waizi [The power enterprises utilize foreign investment] (Beijing: China Electric Power Press, 2000).
38. These generation assets, the so-called "Item 920" and "Item 647," were left to the State Grid Corporation in 2002. Their liquidation was eventually completed in the late 2000s.
39. The Shandong Luneng Group is a good case to illuminate the power companies' misbehavior. For more detailed information, see "Shui de Luneng?" [Whose Luneng?], in Caijing [Finance] 176 (January 6, 2007).
40. The transmission sector has, in fact, experienced a transition of property rights at the county and township levels. Some county grid companies are now owned by either private enterprises or employees as shareholders. Author's interview with the chief of the city power company in Jinan, October 15, 2006. For example, a county government in Sichuan Province sold its network system to the New Hope Group, a private enterprise among the top 500 Chinese enterprises, in 2002. See 21 Shiji Jingji Baodao, December 29, 2004, , accessed October 1, 2006. Similar situations have been found in Henan and Guizhou Provinces.
41. Article 25 of the Electricity Law of the People's Republic of China. See Xinhua Net, .
42. During 1998 and 2003, in addition to the SETC and SDPC, other ministries had more or less authority over the electricity industry, including the Environmental Protection Bureau, Ministry of Land Resources, Ministry of Water Resources, and Ministry of Finance.
43. See the Asian Development Bank and State Council Office for Restructuring the Economic System, Report on Establishing the State Electricity Regulatory Body of China (Beijing: China Financial and Economic Publishing House, 2004)
44. and Noureddine Berrah and Joseph Wright, Establishment of a State Electricity Regulatory Commission in China-A Suggested "Roadmap" (Washington, D.C.: World Bank Working Paper, 2002), http://www.worldbank.org.cn/ English/content/roadmap.pdf, accessed June 30, 2007.
45. In addition, the coherent but indirect efforts that have been undertaken by the central state to deepen power reform and better manage the industry are the establishment of two leading groups as high-level coordinating institutions: the Reform in Electricity, Telecommunications, and Civil Aviation Leading Group in 2003 and the National Energy Leading Group in 2005. The former was led by the late Vice Premier Huang Ju, and the latter is headed by Premier Wen Jiabao.
46. As of today, there are only four independent regulatory agencies in China and the other three are all in the financial sector: the China Securities Regulatory Commission (1992), the China Insurance Regulatory Commission (1998), and the China Banking Regulatory Commission (2003).
47. These are Heilongjiang, Jilin, Liaoning, Shanghai, Shandong, and Zhejiang.
48. See General Office of the State Council, Guojia Dianlijianguan Weiyuanhui Zhineng Peizhi Neishe Jigou he Renyuan Bianzhi Guiding de Tongzhi [Circular of the General Office of the State Council concerning the organizational structure of State Electricity Regulatory Commission] (Beijing: General Office of the State Council [2003], no. 7). As of now, the SERC has expanded to six regional bureaus and 12 provincial offices, but the understaffing problem remains. For example, in the Northeast Bureau there are only 40 staff members, responsible for electricity affairs in northeastern China.
49. The Decree of the State Council [2005], no. 432.
50. "Gaige Jiang Cong Zhongyang Zhubu Tuizhi Difang" [Reform will be gradually moving from the central government to the local states], Guangzhou Ribao [Guangzhou Daily], March 12, 2008, http://gzdaily.dayoo.com/html/2008-03/ 12/content-135528.htm, accessed June 22, 2009.
51. "Wang Xudong Churen Dianjianhui Zhuxi, Wei Chengli Nengyuanbu Pulu" (Wang Xudong was appointed the chairman of the SERC, paving the way for the creation of the Ministry of Energy), Xinxi Shibao [Information Times] (Beijing), May 2, 2008, http://informationtimes.dayoo.com/html/2008-05/02/ content-182769.htm, accessed June 22, 2009
52. Xueqing Wang et al., Guanzhi Longduan: Longduanxinhangye de Zhengfu Guanzhi [Regulating the monopolies: State regulation in the monopoly industries] (Beijing: Zhongguo Shuili Shuidian Chubanshe, 2004), pp. 52-53.
53. Twenty-one out of 30 provinces, municipalities, and autonomous regions suffered restrictions or blackouts in 2003. The number went up to 24 in 2004.
54. The policy is also known as Sannian Bushang Huodian [Suspension of Thermal Power Plant Projects for Three Years]. See fn. 26.
55. Tun-jen Cheng and Chung-min Tsai, "Powering Rent Seeking in the Electricity Industry," in Rent Seeking in China, eds. Tak-wing Ngo and Yongping Wu (London: Routledge Press, 2009), pp. 117-44.
56. "Zhuicha Neimenggu Weigui Dianchang" [Investigating illegal power plants in Inner Mongolia], Caijing 138 (July 25, 2005).
57. "'Jinyuan Diguo' Diaocha" [Investigating the Jinyuan empire], ibid., 115 (September 5, 2004); and "Guizhou Baiyiyuan Weigui Dianchang Kangfa Guowuyuan Sibuwei" [10 billion yuan illegal power plants in Guizhou against four ministries], Tengxun Xinwen [Tengxun News], December 23, 2006, , accessed November 5, 2007.
58. SERC, The Annual Report on Electricity Regulation (2006) (Beijing: SERC, 2007).
59. This is a major economic strategy of the SOE reform that was set in the 15th Party Congress of the Chinese Communist Party in 1997.
60. For example, China National Petroleum Corporation and China Petroleum and Chemical Corporation in the oil industry. See Chih-shian Liou, "Bureaucratic Politics and Overseas Investment by Chinese State-Owned Oil Companies: Illusory Champions," Asian Survey 49:4 (July/ August 2009), pp. 670-90.
61. According to a list announced jointly by the NDRC, State Environmental Protection Administration, Ministry of Land Resources, and Ministry of Water Resources in July 2005 (NDRC [2005], no. 38), 32 projects in the power industry violated one or more of the laws and regulations on environmental protection, land use, water use, and soil and water conservation, or were not included in the macroeconomic plans. Among them, 11 cases were found in Henan Province and 10 in Inner Mongolia.
62. The author would like to thank the reviewer for raising this point.
63. This logic could well be applied to reforms in China ranging from the early telecommunications industry to the current postal service industry.