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Foreign direct investment in china's power sector: trends, benefits and barriers

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  • Blackman, Allen
  • Wu, Xun

Abstract

In the early 1990s, hoping to reduce chronic electricity shortages and enhance the efficiency of Chinese power plants, China opened its doors to foreign direct investment (FDI) in electricity generation. Using data from an original survey of US private investors, official Chinese statistics, and other sources, we assess the volume and characteristics of FDI in China's power sector, its impact on energy efficiency, and the factors that limit this impact. Our five principal findings are as follows. First, the volume FDI in China's power sector will likely fall short of the government's 1995 - 2000 capacity expansion target by a substantial margin, most likely because of persistent institutional barriers to FDI. Second, to avoid the lengthy central government approval process for large plants and to minimize risk, early FDI tended to be in small-scale, gas- and oil-fired plants using imported equipment and located in coastal provinces. However, more recent FDI tends to be in larger coal-fired plants that use more Chinese equipment and tends to be located in the north as well as the east. Third, and perhaps most important, FDI is likely having a significant positive impact on energy efficiency. Almost a third of the 20 FDI plants in our survey sample use advanced efficiency-enhancing generating technologies, and a fifth are cogeneration plants. Fourth, the main factor that has hampered the contribution of FDI to energy efficiency is an institutional bias in favor of small-scale plants which are generally not as energy efficient as the large-scale plants. And finally, the most important barriers to FDI generally are uncertainty associated with the approval process of FDI projects, electricity sector regulation, and the risk of default on power purchase contracts.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 27 (1999)
Issue (Month): 12 (November)
Pages: 695-711

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Handle: RePEc:eee:enepol:v:27:y:1999:i:12:p:695-711

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  1. Shiwei, S. & Zhengyong, L. & Berrah, N. & Tenenbaum, B. & Jianping, Z., 1997. "China: Power Sector Regulation in a Socialist Market Economy," World Bank - Discussion Papers 361, World Bank.
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  4. Li, Binsheng & Dorian, James P, 1995. "Change in China's power sector," Energy Policy, Elsevier, vol. 23(7), pages 619-626, July.
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Cited by:
  1. Pandey, Rahul, 2002. "Energy policy modelling: agenda for developing countries," Energy Policy, Elsevier, vol. 30(2), pages 97-106, January.
  2. Hübler, Michael, 2011. "Technology diffusion under contraction and convergence: A CGE analysis of China," Energy Economics, Elsevier, vol. 33(1), pages 131-142, January.
  3. Ekholm, Tommi & Ghoddusi, Hamed & Krey, Volker & Riahi, Keywan, 2013. "The effect of financial constraints on energy-climate scenarios," Energy Policy, Elsevier, vol. 59(C), pages 562-572.
  4. Yanrui Wu, 2001. "Deregulation and Growth in China's Energy Sector," Economics Discussion / Working Papers 01-20, The University of Western Australia, Department of Economics.
  5. Bilgili, Faik & Tülüce, Nadide Sevil Halıcı & Doğan, İbrahim, 2012. "The determinants of FDI in Turkey: A Markov Regime-Switching approach," Economic Modelling, Elsevier, vol. 29(4), pages 1161-1169.
  6. Kahrl, Fredrich & Williams, Jim & Jianhua, Ding & Junfeng, Hu, 2011. "Challenges to China's transition to a low carbon electricity system," Energy Policy, Elsevier, vol. 39(7), pages 4032-4041, July.
  7. Pollitt, M., 2007. "Evaluating the evidence on electricity reform: Lessons for the South East Europe (SEE) market," Cambridge Working Papers in Economics 0756, Faculty of Economics, University of Cambridge.
  8. Hengyun Ma & Les Oxley & John Gibson, 2009. "China’s Energy Situation and Its Implications in the New Millennium," Working Papers 09_04, Motu Economic and Public Policy Research.
  9. Ma, Hengyun & Oxley, Les, 2010. "The integration of major fuel source markets in China: Evidence from panel cointegration tests," Energy Economics, Elsevier, vol. 32(5), pages 1139-1146, September.
  10. Ma, Hengyun & Oxley, Les & Gibson, John, 2009. "Gradual reforms and the emergence of energy market in China: Evidence from tests for convergence of energy prices," Energy Policy, Elsevier, vol. 37(11), pages 4834-4850, November.
  11. Gabriele, Alberto, 2004. "Policy alternatives in reforming energy utilities in developing countries," Energy Policy, Elsevier, vol. 32(11), pages 1319-1337, July.
  12. Alberto Gabriele, 2004. "Policy Alternatives In Reforming Power Utilities In Developing Countries: A Critical Survey," UNCTAD Discussion Papers 168, United Nations Conference on Trade and Development.
  13. Sonja Peterson, 2008. "Greenhouse gas mitigation in developing countries through technology transfer?: a survey of empirical evidence," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 13(3), pages 283-305, March.
  14. Michael Hübler, 2009. "Energy Saving Technology Diffusion via FDI and Trade: A CGE Model of China," Kiel Working Papers 1479, Kiel Institute for the World Economy.
  15. Del Bo, Chiara F., 2013. "FDI spillovers at different levels of industrial and spatial aggregation: Evidence from the electricity sector," Energy Policy, Elsevier, vol. 61(C), pages 1490-1502.
  16. Gnansounou, Edgard & Dong, Jun, 2004. "Opportunity for inter-regional integration of electricity markets: the case of Shandong and Shanghai in East China," Energy Policy, Elsevier, vol. 32(15), pages 1737-1751, October.
  17. Das, Anjana & Ahlgren, Erik O., 2010. "Implications of using clean technologies to power selected ASEAN countries," Energy Policy, Elsevier, vol. 38(4), pages 1851-1871, April.
  18. Wang, Bing, 2007. "An imbalanced development of coal and electricity industries in China," Energy Policy, Elsevier, vol. 35(10), pages 4959-4968, October.
  19. Perkins, Richard, 2005. "Electricity sector restructuring in India: an environmentally beneficial policy?," Energy Policy, Elsevier, vol. 33(4), pages 439-449, March.
  20. Martinot, Eric, 2001. "World bank energy projects in China: influences on environmental protection," Energy Policy, Elsevier, vol. 29(8), pages 581-594, June.
  21. Muhammad, Shahbaz & Samia, Nasreen & Talat, Afza, 2011. "Environmental consequences of economic growth and foreign direct investment: evidence from panel data analysis," MPRA Paper 32547, University Library of Munich, Germany, revised 03 Aug 2011.
  22. Cherni, Judith A. & Kentish, Joanna, 2007. "Renewable energy policy and electricity market reforms in China," Energy Policy, Elsevier, vol. 35(7), pages 3616-3629, July.

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