Industry faces rising power cost

Updated: 2011-05-31 09:14

By Lan Lan, Du Juan and Chen Jia (China Daily)

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Industry faces rising power cost

Fifteen regions targeted by move amid growing fears over inflation

BEIJING - Electricity prices for industrial use will be raised on Wednesday in 15 regions to combat power shortages, amid concerns over increasing manufacturing costs and a slowdown in production.

The National Development and Reform Commission (NDRC), the nation's top economic planner, announced that prices will rise by an average 0.0167 yuan (0.25 cents) per kilowatt-hour in the first retail power price rise since 2009.

The electricity price for residents remains unchanged, the NDRC said.

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The decision was not an easy one as inflation is a major concern of the government and the monthly consumer price index (CPI), the main gauge of inflation, exceeded 5 percent twice this year already, Liu Shujie, director of the Economic Research Institute under the NDRC, said.

Though the government is tackling inflation, energy prices continue to rise. The government raised retail fuel prices last month, for the second time this year.

More than 20 provincial regions have experienced power cuts this year due to electricity shortages.

The nation experienced a shortage of 18 million kilowatts by May 10.

The State Grid Corp of China said last week that the country might see the worst electricity supply shortfall in history.

Xu Hongcai, an economist at the China Center for International Economic Exchanges, said that the NDRC's move to raise electricity prices will further increase production costs, especially for small and medium-sized enterprises (SMEs).

"Higher electricity prices, together with soaring raw material and labor costs, will worsen the business environment for SMEs," Xu said.

He said that the producer price index (PPI) is likely to go up in the short term because of increasing production costs. That may see the CPI hit new highs.

"Some of the SMEs may reduce production or even go bankrupt," Xu said.

The 15 regions include coal-rich Shanxi province in the north and Hainan province in the south, as well as Qinghai, Gansu, Jiangxi, Shandong, Anhui, Henan, Hubei, Guizhou, Sichuan and Hebei provinces and Chongqing municipality.

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