How China's Energy Reforms Will Raise Costs but Spur Investment

TAIPEI, Taiwan (TheStreet) -- China's latest effort to let market forces determine energy rates is expected to raise costs for manufacturers but be a boon for foreign companies that provide power generation.

Beijing began lifting government price controls on electricity prices and power transmission on April 30, the state-controlled Xinhua News Agency said. The move is part of a series of energy-price reforms rolled out in 2013.

Operators of coal-fired power generators and operators of the electricity grid will now be free to charge as much as customers are willing to pay.

"They're talking about energy price reform as a key area of reform that's taking root this year, and they're typically serious," said Tim Condon, head of Asia research at ING Financial Markets in Singapore. "There's definitely a pickup in energy pricing reform."

China used 4 billion short tons of coal in 2011 and ranks as both the world's top energy producer and consumer, the U.S. Energy Information Administration said last year.

The country had been known as a global factory until 2011 when the Communist leadership stepped up a retooling of the economy that favors consumption and nonmanufacturing investment.

Oil and gas have taken a lead in free-market pricing reforms to date, analysts say, leaving electricity as the next major target.

Sino-foreign power generation ventures are rare today, but China eventually will make them easier to set up, the U.S. EIA forecasts. The country wants to improve efficiency and find new investors in its grids, it says.

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