You don't miss your electricity till the river runs dry
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China Limits Manufacturers' Power Use
China Limits Manufacturers' Power UseAs Yangtze Runs Low, Tone of Officials Turns Shrill; Factories Feel the Pinch
By James T. Areddy
Wall Street Journal
May 18, 2011
SHANGHAI—Chinese authorities are hitting manufacturers with restrictions on electricity usage that they say will continue in coming months, as low river levels and high coal prices threaten the country's worst seasonal power shortages in several years.
China's mighty Yangtze River is running so low that hydropower production is slowing, shipping traffic has been curtailed and agricultural output has been reduced. Across central China, dry conditions that have persisted for months are now being described in shrill terms in state media and government reports.
Power shortages lead to factory shutdowns most years and drought warnings are common in China this time of year, often to be replaced by flood worries a few months later. But the tone of officials underscores how the impact is being felt earlier in the year and raises the possibility it will become a more widespread problem for the country's manufacturing sector, a key driver of China's growth.
Manufacturers say are they feeling the pinch as local authorities mandate tougher limits on electricity use. Analysts say Beijing may soon encourage power-plant operators to produce more electricity with the first electricity tariff increase since 2009, allowing them to pass rising coal prices onto consumers.
Some factories in Taizhou, a large manufacturing city in eastern China's Zhejiang province, for example, were told to halt production one day a week in March, two days a week starting in April and this month are forced to close three out of seven days, according to Zheng Ding, a sales manager at auto-parts maker Zhejiang Zhengshi Machinery Co.
To complete certain orders, the company is powering its facilities using generators, said Mr. Zheng. "But this method can't be used to deal with long-term production."
China's state-run Xinhua news agency reported that the China Electricity Council, a research arm of the central government, could raise its estimate for power shortages at peak times during 2011 by a third, to 40 gigawatts from 30 gigawatts, which the news agency said would be China's largest shortfall since 2004.
Analysts anticipate electricity shortages in China each year and it's unclear yet whether possible adjustments upward now could have any meaningful impact on broader output in the world's second-biggest economy. In 2004, China's economy expanded more than 10% despite that year's power problems.
Electricity usage has been watched by some analysts as a proxy for economic growth in China. But the picture is increasingly muddled by tightening official controls on electricity use, for instance requirements by factories to power down every few days or switch work to night shifts. When measures started almost 10 years ago, they typically applied during the peak summer months when air conditioning tends to drive up demand. These days, manufacturers in some cities face power limits year round, some driven by Beijing's clean-air goals.
A recent American Chamber of Commerce in China report cited "unintended consequences" of the rationing, including how it prompts use of diesel power generators that are "more polluting than many other forms of electricity generation."
The government plans more alternative-energy production, but according to Citibank Inc., coal-fired plants produced around 84% of China's power in April, followed by 11% from hydropower. Nuclear and wind generated only about 2% each of the country's electricity.
To alleviate the immediate concern of drought in the middle reaches of the Yangtze, the world's largest hydropower producer, China's Three Gorges Dam, was discharging water at 9,500 cubic meters a second, or over three times more than the water flowing in, Xinhua said, a practice clearly unsustainable for long.
Five months without rain have rendered a cotton-producing region known as "land of a thousand lakes" near the central Chinese city of Wuhan so dry that more than 1,300 mostly small reservoirs can't be used for irrigation, according to Xinhua. Its report, blaming the drought in part on the La Niña weather pattern, said the region's entire wheat crop had failed and that fire trucks were delivering water to villagers in the area.
Last year, dire government warnings of drought in May gave way to worries by July that torrential rains and flooding were putting the Three Gorges Dam to its biggest test since becoming fully operational in 2009. Just the same, this year's drought is a reminder of what experts say are long-term risks posed by China's big population and poor conservation, particularly in the parched north around Beijing.
There hasn't been a substantial drop-off in the growth of power generation fueling China's growth. Citigroup analyst Pierre Lau said in a report this week he has seen "moderate slowdown," which he attributed partly to coal-burning plants producing less electricity because of high coal prices that he said could lead to a hike in tariffs.
According to Mr. Lau's numbers, power production grew 12.6% in the first four months of this year compared 13.4% during the same period of 2010. In addition to power shortages in eight provinces, including Zhejiang near Shanghai, Mr. Lau cited "deceleration" in demand from big users like chemical and steel makers.
Lower water levels on the Yangtze River are also starting to disrupt tours of the region's rocky ledges around the famed Three Gorges, according to Blinda Bi, a tour operator in Chongqing. Last week, Ms. Bi said, "For some parts of the trip, we had to arrange bus trips because there was not enough water for large ships."—Yang Jie contributed to this article.
Write to James T. Areddy at email@example.com