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A State Development and Reform Commission notice to rein in the construction of power stations was recently reissued by the State Council.
It came despite the nation still suffering from chronic electricity shortages, showing the government clearly thinks curbing excessive investment in the energy sector is a matter of urgency.
As accelerated economic expansion has fuelled strong growth in energy demand in recent years, the number of blackouts around the country has soared rapidly too.
While the central government tightened credit supply to cool a torrid economy, local governments have been building new power plants.
It was reported that the generation capacity of new power stations approved by the government was 60 million kilowatts in 2004 -- but the actual capacity of projects under construction amounted to 180 million kw.
Such over investment in the sector appears a knee-jerk reaction to the increasing number of power cuts in most parts of the country.
They threaten economic growth and people's living standards.
The central government's warning against excessive investment is badly needed.
On the one hand, the massive construction of power plants could result in huge environmental costs.
The State Environmental Protection Administration has received 200 environmental impact reports related to power plant projects in the first 11 months of last year.
The projects will combine to create an unbearable burden for our environment.
Conversely, such rapid investment creates risks of oversupply in the near future.
Memories are still fresh when players in the energy sector were forced to undercut each other during a deflationary period several years ago.
As the country's macroeconomic controls are starting to yield results, discussion is focused on the looming oversupply of electricity in the coming couple of years.
Unfortunately, investors have been blinded by the domestic energy market's present profit margins.
However, policy-makers can not afford to be idle if they are to avoid another massive energy oversupply in the future.
Many people have attributed the current electricity shortages to related departmental delays in lifting a three-year ban on the construction of plants, when the country started growing rapidly two years ago.
Given the vital importance of the industry to China's fast-growing economy, it is high time to rethink the energy policies.
We should look for ideas, and certainly answers, from the past to form a development strategy to ensure stable power supply for the nation's long-term growth.
As it stands today, over investment in the sector has to be stopped so a destructive boom-bust circle does not repeat itself.
Nevertheless, in the long run, as the formerly planned economy steadily moves towards market-based orientation, bold reforms are needed so investors can respond promptly to signals within the power sector.
(China Daily January 6, 2005)
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