Electricity Shortage*

December 9, 2003

PAGE ONE

China Runs Low on Power

Companies Scramble to Handle

A Growing Electricity Shortage

By KIMBERLY SONG and KATHY CHEN

Staff Reporters of THE WALL STREET JOURNAL

China's high-speed economic engine could be running low on power -- literally. A national electricity shortage is crimping production and pushing up some industrial-goods prices.

It's not yet a crisis, at least for foreign investors, many of whom already have backup generators and enjoy priority allocation of power from local authorities, executives say. "Most of the temporary outages are scheduled brownouts where industrial users are warned in advance," said Jim Brock, an independent energy consultant in Beijing.

Still, the world's fastest-growing power market has a shortfall that one industry executive puts at 40 gigawatts. China, he calculates, currently has about 11% less electricity-generating capacity than it needs.

The world's second-largest consumer is in the midst of a massive industry restructuring that should alleviate some of its power problems. However, some of the changes, such as competition in power-generation and in price-setting, could complicate efforts to tackle current shortages. In the meantime, by aggressively rationing electricity and controlling demand to prevent spikes, China aims to avoid the kind of massive, costly blackout that affected millions of people in the northeastern U.S. and Canada in August.

Many companies in China are scrambling to protect themselves from a situation that analysts generally expect will get worse before it gets better. Sales of power generators are booming, says Cummins Engine Co., which recently sold three units to Citigroup in Shanghai.

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