Asian Amperes: Chinese Electric Power

By Cudahy, Richard D. | Energy Law Journal, January 1, 2008 | Go to article overview

Asian Amperes: Chinese Electric Power


Cudahy, Richard D., Energy Law Journal


Synopsis:

The development of the electric power industry in China and of its regulatory milieu follows in many respects the pattern established in the United States and in most of the rest of the world. But while the emergence of competition in lieu of direct regulatory intervention is ideologically in harmony with capitalism in the United States, it may be less consistent with Chinese "market" socialism. In addition, environmental requirements in China to be effective must be merged to the degree possible with economic regulation. It may be easier to impose environmental requirements in a system featuring direct regulatory intervention than in one relying primarily on market competition. In related regulatory areas, there has been heavy emphasis on the need to make prices reflective of costs, but in this respect, theory may make demands that practice cannot fulfill.

I. INTRODUCTION

I am the co-author of the current edition of The Nutshell of Energy Law1-a condensed text summarizing the key tenets of the law of energy in the United States. In that capacity, I received a request from a law firm in Beijing to authorize a Chinese Edition of the Nutshell and to write a preface for this new Chinese Edition. I took a stab at the preface and in that connection started to explore recent developments in electric power in China and the prospects for further legal and regulatory arrangements there. Particularly, I wanted to find out how closely China was attempting to pattern its system after the one that was developing in the United States, which, of course, was an important topic covered in our Nutshell. From there, I explored the consistencies and inconsistencies in applying a Western system in China.

II. THE IDEOLOGY OF CHINESE ELECTRIC POWER DEVELOPMENT

A. Ideological Matches and Mismatches

China, I thought, would be a particularly interesting subject for this kind of study. China purports to have a socialist economy (rhetorically modified into a "socialist market economy")2; and we all know how capitalist (market) features and practices have come to dominate it in recent years. Growth in China has been driven by private enterprises, owned both domestically and by foreigners, building and operating for profit all manner of manufacturing and other facilities, so that the rate of economic growth has been phenomenal (and the capitalist features highly evident).3 I thought these developments would provide an intriguing background for the approach China proposed to take in building and regulating its electric power industry. Typically and traditionally in capitalist economies electric power providers-whether privately or publicly ownedhave been regulated on a basis calling for a great deal of direct governmental intervention. In fact, for this reason, these industries are referred to as "regulated industries." Thus, electric power has not, at least until recently, been typical of capitalist institutions generally and its management has not exemplified in important ways capitalist principles, and, specifically, has not relied on competition to control price and output. In large part, these tendencies have reflected the view of electricity as a natural monopoly, intrinsically inhospitable to competition.

But recently, these aspects have been sharply modified as competition has been promoted in a way which has made the electric power industry more closely resemble the rest of the capitalist economy. It has been my view that these moves toward deregulation and competition in the electric power industry have been motivated in considerable part by ideological considerations-by the desire to remove governmental fiat from the operation of the electric power industry and to substitute the workings of the market. Ideologically, this makes perfect sense in the context of the United States. But how does it suit China, which at least in theory is still a socialist state?

My interest in China focused on how it, coming from a socialist past and with a purportedly socialist perspective, would react to developments in electric power that seemed to be moving the United States and the world electric economy away from what might be seen as similar to a socialist approach toward something closer to the principles of capitalism. …

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