Power shortages are adding to investor concerns about the outlook for China’s growth. The main problem is that the government has not allowed regulated electricity prices to increase in line with the price of coal. Many power plants are consequently operating at loss and are limiting supply. Unlike in 2004 and 2005, lack of generating capacity does not seem to be a major issue. As a result, if shortages threaten to destabilise the economy, the government can step in with subsidies for power producers to restore supply.
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