Despite the worsening electricity shortage, the central government has warned of the potential overheating of investments in the power industry.

Premier Wen Jiabao recently instructed the State Development and Reform Commission, China's top economic planner, to study measures to strengthen the control over the rampant investment in building new power generators, sources said.

The request came at a time when local governments are stepping up efforts to lobby the central government for new plants to alleviate the current electricity crunch and cash in on surging demand.

Some areas, including power-pinched Zhejiang, Jiangsu, Guangdong and Hubei provinces, and even electricity-rich Shandong Province, started building new power plants before the central government gave them the green light.

According to officials from the SDRC, power plants with a combined generating capacity of more than 30,000 megawatts have either started construction or have purchased generating equipment without the necessary government approval.

The unapproved generators account for more than one fifth of the generating plants under construction.

"They (projects without approval) are considered illegal," reported China Business Newspaper, citing Hao Weiping, an official with the SDRC. "Once the market condition changes, they (will) have to suffer the losses."

Zhang Guobao, vice-minister of SDRC, said earlier that the aggregate capacity of all the new plants waiting for approval totalled 250 million kilowatts, or two-thirds of the existing capacity.

But it is impossible for the government to approve all the construction, otherwise it will almost certainly result in over-supply in a few years time, Zhang has said.

Behind the vibrant power plant construction drive is the widespread electricity supply shortfall.

The SDRC predicts that electricity consumption is to increase by 11 percent year-on-year to 2.1 trillion kilowatt hours this year. The generating capacity, however, is to increase by 9.6 percent year-on-year, or by 37,200 megawatts.

Some other experts are more pessimistic. They expect the electricity supply-demand gap this year to double to 30,000 megawatts, considering that consumption may increase by 12 percent or more.

SDRC officials said those unapproved projects can hardly ease the current electricity shortage as it takes three or four years to complete the construction of a power plant. Instead, it may lead to a market glut a few year later when most of them start operation at the same time.

The construction rally has also pushed up the prices of generating equipment which will increase production costs of the new plants, the officials said.

(China Daily March 5, 2004)