China Raises Electricity Price: "Small Win" In The Market

After trying to find ways to surpass market forces, China decided to increase its value since June 1st.

The most direct reason is that there may be a 40000 trillion watt power gap across China this summer, which will be the worst electricity shortage in China since 2004.

In this situation, even if all the power stations in Sweden are connected to the Chinese power grid, it will not fill the gap of China's power supply.

When diagnosing the causes of the electricity shortage, the difference between the current and the 2004 can well illustrate the problem.

In 2004, power generation capacity failed to meet the growing demand.

Since then, power generation companies have invested heavily in building factories. In recent years, capacity is no longer a bottleneck.

The current problem is the market, or rather the government's unwilling to let the market play a role in the electricity industry.

Thermal power accounts for about 70% of China's electricity generation.

But the government has so little control over coal prices that it has only anxiously watched coal prices soar in recent two years.

Worried that once the real cost of coal is passed on to end-users, it will cause inflation to rise. The government has been forcing the power generation companies to bear most of the pressure of coal price rise, and gradually push up the price of electricity to squeeze the power generation enterprises.

China's power plants are subjected to "negative incentives": the more electricity they generate, the greater the losses.

So they reduce production to cope with this situation, even though demand is still growing rapidly.

In view of the sharp increase in electricity consumption in mid summer, China has ordered the reduction of power supply to some industrial users.

Through this price adjustment, the Chinese government tried to push the power industry back to balance slightly.

This has given the power companies a reason to reboot, clearing the way for the pfer of coal costs to end users.

Analysts estimate that the price adjustment or inflation rate will rise by about 0.05%.

This is a small victory for market forces, enough to warm the hearts of Chinese investors.

Under their support, the Shanghai stock market closed for the first time in nearly two weeks.

The Shanghai Composite Index rose 1.37% on Tuesday.

However, some analysts said that after the electricity price rises, coal producers will keep up with the rise in prices, thus bringing the electricity industry back to the starting point.

The Chinese government's war against supply and demand is still far from the end.