The Wall Street Journal-20080206-Politics - Economics- China-s Storms Show Infrastructure Is Under Strain

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Politics & Economics: China's Storms Show Infrastructure Is Under Strain

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Transport and power disruptions caused by unusual winter storms across much of China's heartland are beginning to ease, but the scale of the problems showed how close the country's racing economy is to hitting its physical limits.

Economists say problems caused by the severe weather, which blanketed much of eastern, central and southern China with ice and snow in the past three weeks, appear increasingly unlikely to cause lasting economic damage. Electricity is slowly being restored, and road and rail links have been reopened.

The jolt delivered by the bad weather revealed how little slack there is in a Chinese economy dependent on just-in-time deliveries of coal and other commodities to fuel its rapid expansion. The economy grew 11.4% last year, its fastest rate since 1994. Economists say growth may slow somewhat this year as global demand slackens.

China has been hard-pressed to build the infrastructure and acquire the fuels necessary to sustain this galloping pace, despite enormous investments in highways, railroads, power stations and the electricity-transmission grid.

"Electricity consumption has been growing rapidly," Tan Rongyao, a spokesman for the State Electricity Regulatory Commission, said during a news conference in Beijing yesterday to discuss the weather disaster. "The shortage of power-generating coal has become enormously acute."

Gu Junyuan, chief engineer of the electricity commission, said total demand for electricity in China increased 20.2% annually between 2001 and 2007. Installed generating capacity, on the other hand, grew by about 18.5% a year over the period.

When snow and ice started falling in mid-January, high-tension wires and pylons were downed, leading to power outages. The bad weather also delayed shipments of coal to the generating stations that were still online, and electricity shortages spread.

Coal inventories at electric companies were already low -- the result, in part, of government price-control policies. Power producers must buy coal at international market prices, which have risen sharply, but the rates they can charge for electricity are capped, a situation that encourages them to limit output.

Another complication: Cold temperatures sharply boosted electricity demand, as Chinese households that still had power switched on electric heaters to stay warm.

Millions of households remain without power. The city of Chenzhou in Hunan, with 4.6 million people, has been blacked out for 12 days, with diesel generators supplying emergency power to the main hospital and some large markets.

Aluminum smelters and other metals companies that use large amounts of power are among the manufacturers that have felt the pinch most severely. China's largest copper producer by output, Jiangxi Copper Co., said its smelters have been operating at 60% to 70% of capacity since Feb. 2.

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Ellen Zhu in Shanghai contributed to this article.