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Weathering a Storm in Southern China

By Jack M. Balkin

For me, weathering the snowstorm in Shanghai for the past two weeks has meant blowing out my aged fuses three times with excessive use of a wall-mounted heater. For many in Southern China, however, the freak storms have taken a much higher toll. Small cities went more than a week without electricity and, with the available rail lines occupied with emergency shipments of coal, hundreds of thousands of hopeful migrant workers crowded railway stations trying to get home for the annual Spring Festival.

The fall of certain cities into darkness, however, isn?t just a failure of infrastructure in the face of the unusual storm; it is the result of a web of energy laws and policies that have failed to integrate China?s energy network into a workable whole. China has been trying for months to ease the pinch of rising energy costs on its residents by implementing price caps and forcing power generators and oil refiners to run in the red. As a result, generators have been reluctant to keep stockpiles of coal on hand, leading to shortages when the storm hit.

China currently divides authority to regulate and manage the energy sector among a handful of government bodies: for example, the National Development and Reform Commission (NDRC) is responsible for research, planning and price setting while the Ministry of Land and Resources licenses the use of natural resources. Many of the departments in charge are understaffed and spend much of their time fighting for influence.

This kind of inefficiency, both in infrastructure and within the hierarchy of government ministries, is coming under fire throughout China. There have been complaints that infighting slows the implementation of new policies, and that local agencies have to wade through multiple directives from different ministries on the same topic. Local interests and State-owned companies make consistent implementation difficult, even when policies are clear.

For the past few months, rumors have been flying that China?s government would move to remedy the situation by creating three ?Super Ministries,? separated into transportation, energy and the environment and construction?sectors that all played a role in the energy and food shortages still ongoing in Guangdong and Hunan Provinces. A law that would have paved the way for such a ministry in energy, however, was recently delayed due to infighting among the ministries and commissions controlling the country?s energy sector. A draft of the law was initially released last December for public comment, with the hope it would be put before the annual National People?s Congress in March. Now the government is projecting the law will come to a vote a year from now, in 2009.

While the draft did not itself set up a new ministry to take charge of energy policy in its entirety, it was a move toward stripping the NDRC and other ministries of their current role in energy and creating a larger, consolidated ministry in an attempt to streamline policy-making. The draft also proposed to adjust the pricing policies of the central government, relying more heavily on the numbers provided by the international market. It called for the build up of energy and oil reserves and would have set up energy subsidies in rural areas of the country.

Other measures, such as combining the State Environmental Protection Agency with the Ministry of Construction may still be implemented after March 5th, when the NPC meets. When the interests of powerful existing ministries are at stake, however, such measures will be difficult to enact. ?Super Ministries? are also no guarantee of improvement. If provincial officers continue to be funded by local governments, enforcement will continue to be a problem. In the energy sector, a consolidated ministry may still not have full control over the large, State-owned oil and power companies, who currently report to the State-Owned Assets and Supervision Commission. It is difficult to say, also, if the larger ministries will not fall into some of the bad habits that the NDRC suffers from?turf wars and local protectionism may not be weeded out by size.

Full post as published by Balkinization on February 17, 2008 (boomark / email).