BEIJING, China, Nov. 6, 2000—China is about to embark on a major reform of the electric power industry aiming to break the state monopoly and encourage competition among producers and distributors.

The reforms call for dissolving the State Power Corp. and reorganizing it into three sections: a department of electricity under the State Economic and Trade Commission, which will serve as the government regulatory body; an association for the power sector; and a state grid company.

Meanwhile, the government will also set up about 10 power companies and allow them to acquire assets of local power plants. Each of the 10 companies will be allowed to own up 25% of the power generating capacity in each province.

Later the government says it will allow state or private sectors to establish electricity trading houses to engage in buying and selling electricity. The reform will separate the power production and power distribution.

China’s stated intention eventually is to create a unified national power grid, and to have a modern power market in which plants sell power to the grid at market-determined rates. Under existing rules, China’s state-owned power bureaus act as monopolies since they serve as both generators and distributors.

The reforms are expected to create opportunities for foreign investors because the Chinese government will also encourage outside investors to acquire electric generating plants. China is currently investing 800 billion yuan to upgrade its power industry.

Power generation in the first 9 months of the year rose 10.1% from a year earlier to 972.7 billion kw-hr. The country’s total generating capacity is expected to reach 314 million kw by the end of the year.

Earlier, China imposed a moratorium on new power plant construction that was scheduled to remain in effect for 2 years, and 3 years for new coal-fired plants to cope with an overcapacity situation in the country.

In the short term, oversupply and uncertainty is likely to reduce foreign investment in China’s power sector, say analysts with the US Energy Information Administration (EIA). In the longer term, though, growth in electricity consumption is projected at 5.7%/year through 2020.

If a real competitive market for electric power develops as planned, the EIA says the Chinese market may once again become attractive to foreign investment. At present, foreign direct investment is allowed only in power generation, but loan financing has been obtained for some power transmission projects.