China Economy Too Hot - Power Brown-Outs May Limit Export Production

DONGGUAN, China, May 13, 2004; Wendy Lim writing for Reuters reported that as temperatures rise in southern Guangdong province, China's export engine, factories are bracing for a long summer of disruptive and costly power cuts.

Chow Chun Yu, owner of the Bo Tak Garment Factory, said his plant suffered four or five days last month without power from the overtaxed provincial grid. He expects nine days of shutdowns this month, forcing a switch to diesel generators.

"We're not using air conditioning," Chow said as hundreds of workers at the Hong Kong-run, low-rise factory sewed casual clothing, including windbreakers bound for Denmark.

Chow said running back-up generators has more than doubled Bo Tak's monthly power bill to about 70,000 yuan (US$8,454).

Manufacturers across Guangdong and broad sections of China face higher electric bills and more frequent brownouts as the country's power supply fails to keep up with a soaring economy.

The ramificiations are global: demand for fuel for diesel generators is contributing to a voracious thirst for oil in China that has helped push international oil prices towards record highs.

China, the world's sixth-largest economy but the second-largest power user, endured brownouts -- managed, limited power cuts -- across more than half of the country last summer.

Already this year, temperatures in the Pearl River Delta region, which includes southern Guangdong province and Hong Kong, have topped 30 degrees Celsius (86 F).

Guangdong is expected to fall more than two million kilowatts short of its needs this year and is buying more power from western China and neighbouring Hong Kong to help close the gap, said Jeffrey Lam, deputy chairman of the Federation of Hong Kong Industries, many of whose members have plants in the province.

RATIONING, RESCHEDULING

Officials in wealthy Guangdong province, which accounts for 11 percent of China's economy and more than one-third of its exports, are rationing power and offering lower electric rates to encourage night and weekend shifts to help ease the shortage.

Companies that fail to switch to back-up power or shut down during scheduled brownouts can be fined, one executive said.

To avoid potential blackouts, the Guangzhou Honda auto joint venture between Japan's Honda Motor Co (Tokyo:7267.T - News) and Denway Motors Ltd (HKSE:0203.HK - News) has ended Friday shifts and started working on Sundays instead.

China, which years ago underestimated demand for electricity, is scrambling to build new power plants. Power generation across China grew 15.7 percent in the first three months of 2004 from a year earlier.

Operators such as Datang International Power Generation Co Ltd (HKSE:0991.HK - News), China Power International and Shenzhen Energy are in the midst of a fund-raising frenzy to finance expansion.

However, because the construction process alone for a 300-megawatt plant takes more than a year, the shortage is not expected to ease until 2006, analysts have said.

"Even if the government wants to fix the problem, it will take time," said L.W. Choi, chairman of Shenzhen-based white goods maker Goodway Electrical Co.

The company spends about one million yuan a month on electricity and expects its power costs to rise by up to 30 percent this summer as it uses back-up generators.

Factory owners said the depth of the shortage this summer depends on how hot and dry the weather turns out.

Industry watchers said that if China's efforts to cool its roaring economy result in a "hard landing" rather than a softer slowdown, the power crunch will ease.

"There is increasing indication that the power shortage for this year is likely to deteriorate," said Merrill Lynch utility analyst Joseph Jacobelli after a recent visit to Guangdong. "The situation could get worse before it gets better."

Factories big and small are feeling the heat.

"There are always power shortages, but it seems we are facing more pressure this year," said Raymond Wong, a spokesman for global oil giant Exxon Mobil Corp , which operates a chemical plant in the Guangdong province city of Pangyu.

Another company, Foshan Plastics Group Co, lost one million yuan because of a 30-minute power cut last year, Chairman Feng Zhaozheng said. (US$=8.28 yuan)