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BEIJING, Jul 12, 2005 -- SinoCast China Financial Watch
While China is being proud of the annual foreign direct investment of USD 50 billion, the once hot-pursuit electric power industry sees a round of withdrawals of investments. The media reported that a good number of international electric power giants are about to leave China, including American Electric Power, Sithe Energies, Alstom, and Siemens. Peak Pacific is one of the earliest foreign companies making investments in China, and about 40 of the companies entering the market together with Peak Pacific have withdrawn their capitals, said Robert Anderson, chief executive officer of Peak Pacific. Peak Pacific is a foreign funded electric power company ranked number five in China, and its investors include Alliant Energy and the World Bank. By the end of 2004, the company had made investments in seven companies supplying heat and electricity jointly, with the total installed capacity being 400,000 kilowatt and the total investment CNY 2 billion. At the very beginning, the seven subsidiaries were really lucrative. However, four of them suffered losses in 2004, and the other three saw little profits. As a whole, Peak Pacific will lose money this year. As a matter of fact, Peak Pacific is only an example, and operations of the other foreign companies in the Chinese electric power industry are not good as well. Siemens admitted early this year it had sold a 40% stake in Hebei Hanfeng Power Electric Power Plant together with HAW, a subsidiary of Sweden-based Vattenfall. American Electric Power sold a 70% stake in Henan Nanyang Pushan Electric Power Plant in March 2004. Sithe Energies transferred a 40% stake in Wenzhou Telulai Power Generating Co., Ltd. in March 2003, and then sold stakes in the other three power plants successively. In addition, France-based Alstom withdraw its 40% stake in the Project B of Guangxi Laibin Power Plant. In fact, foreign energy giants' withdrawal from the Chinese market began several years ago. Foreign capitals accounted for 12.2% of the fixed-assets investment in the electric power industry in 1990, but the proportion dropped to 7.5% in 2002, according to Hu Zhaoguang, a director at China's State Power Economic Research Center. Han Xiaoping, chief executive officer of China5e.com, said that the actual decline was much bigger than the figure. In early 1990s, the fast-growing China was one of the countries in the world facing the serious shortage of energies. To relieve the strain of energies, the Chinese government formulated a series of new polices opening the Chinese electric power industry to foreign direct investments in a big way. These preferential policies attracted a legion of international giants making investments in China. Because of the strong demand in the Chinese electric power market, the central and local governments carried out the policy of "three guarantees", namely guaranteeing electric voltages, electric prices, and returns, promising a 15% to 20% fixed return rate. Some insiders remarked that the guarantee of the fixed return rate was rare in anywhere of the world. This means that as long as foreign companies invested certain amount of capitals, they would obtain as high as 20% returns. However, china's reform of the electric power system in 2002 changed the situation, and electric power plants had to compete with each other to get their electricity transmitted. This made the preferential polices of guaranteeing electric voltages, prices, and returns in the early 1990s a mere scrap of paper. With the gradual cancellation of the policies, returns on foreign investments declined obviously. Without handsome returns, foreign companies withdraw their investments naturally. (USD 1 = CNY 8.27)
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