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Pearl River Delta

Guangdong Chief Cites Bars To Growth

Fiona Tam – Updated on Mar 26, 2008 – SCMP

Guangdong must clear eight obstacles to development before it can make further economic gains, Governor Huang Huahua told provincial officials at a government meeting on Monday.

The eight obstacles mainly relate to regional co-operation, construction of railway and electricity networks, insurance for rural residents, industrial upgrades and technological development.

Mr Huang gave the highest priority to deepening regional co-operation with Hong Kong and Macau. To speed up the economic integration, Guangdong is to build a seamless railway network in the Pearl River Delta region and establish a road and rail bridge to Hainan.

He said the government would also speed up the expansion of electricity and natural-gas networks in response to the province’s long-standing energy crisis.

The province faced its worst power crisis in three decades this year when bad weather damaged interprovincial transmission lines and pushed up demand.

Analysts say the rate at which the electricity network and power plants are being built in Guangdong lags well behind its economic growth.

To reduce the monthly electricity shortfall of 6.5 million kilowatts, Guangdong released regulations on Monday requiring all large-investment projects to go through energy-efficiency assessments before starting construction.

Mr Huang said the new regulation would focus on energy-intensive projects with annual coal consumption exceeding 3,000 tonnes or any factories covering more than 1 hectare.

Mainland media reported that the new policy was part of Guangdong’s efforts to reduce energy consumption and pollution stemming from its economic growth.

Giant Offshore Wind Farm Planned For Guangdong

Agence France-Presse in Beijing – Updated on Mar 04, 2008 – SCMP

The mainland would build its largest offshore wind farm in Guangdong, media reported on Tuesday, in a bid to alleviate looming power shortages.

The facility, covering a sea area of 240 square kilometres, includes a 1,250 megawatt wind farm, an 8,000 megawatt power plant and a dock construction project, the Xinhua news agency said.

The city of Lufeng, close to the farm’s planned location, and Guangdong Baolihua New Energy Stock last week signed an agreement on the project, according to earlier media reports, which gave no financial details.

A power crunch has plagued Guangdong, the country’s industrial powerhouse, for years, and this year shortages threaten to become the worst in three decades due to demand and also damage to transmission lines caused by prolonged cold weather.

Local government officials said the wind farm was expected to “relieve the energy pressure and optimise the energy structure” in the province, according to Xinhua.

Manufacturers Revert To Dirty Diesel Amid Electricity Crunch

Denise Tsang – Updated on Mar 03, 2008 – SCMP

Mainland snowstorms have caused the worst power crisis in Guangdong in 30 years, hitting tens of thousands of factories. And the worst is yet to come.

Hong Kong manufacturers across the border are racing to have more expensive and more polluting diesel-fired power generators installed or leased to prepare for consumption peaks in the summer.

They have little hope of seeing the power grids rebuilt anytime soon in Guangdong and nearby provinces of Guangxi, Guizhou, Hunan and Jiangxi, after State Grid Corp, the monopoly power distributor for 26 provinces, revealed a reconstruction cost of 39 billion yuan (HK$42.7 billion) two weeks ago.

Hong Kong Small and Medium Business Association chairman Danny Lau Tat-pong said the supply crunch had prompted power rationing of two to three days a week in the manufacturing hub of Dongguan as a provincial policy stipulated residential needs must be met first.

Reversing its importer role, Guangdong now exports electricity to blizzard-hit provinces in the west.

“Power shortage is one of the many problems we are facing,” he said. “The worst time has yet to come,” he said. Mr Lau, also managing director of metal and glass coating firm Kam Pin Industrial, said that to keep production on schedule, the company’s factory in Da Long, Dongguan, had been forced to use diesel-fired generators.

As a result, the factory’s electricity costs had surged by about 50 per cent, on top of extra costs on diesel.

“The yearly cost of renting a diesel generation unit and buying the fuel is equivalent to the price of three smaller diesel-fired units,” Mr Lau said. “Since we have to keep the furnace burning, we have no choice.”

Mr Lau said the cost per kilowatt hour of diesel-fired electricity stands at 1.8 yuan, compared with 1.2 yuan for electricity sourced from power plants in town.

Bondi Luk, whose factory in Shenzhen produces polystyrene lunch boxes for fast-food chain Maxim’s and public hospitals, said electricity supply was relatively stable in Longgang, despite power rationing once a week.

“Touch wood, we are relatively lucky for now, but the peak demand will arrive in the summer,” Mr Luk said.

Some green groups fear air pollution will worsen with the reintroduction of diesel generators banned a couple of years ago.

Delta Factories Face More Curbs On Production

Denise Tsang – SCMP – Jan 30, 2008

The Ministry of Commerce is set to unveil a new round of measures to discourage energy-gulping and polluting industries in the Pearl River Delta by placing restrictions on 1,000 types of products. The Federation of Hong Kong Industries said the restrictions would add to the troubles already being faced by tens of thousands of manufacturers across the border, including new labour laws, higher interest rates and a stronger yuan.

Under the plan, the government will soon slash or cancel value-added tax refunds on as many as 1,000 types of products, according to the trade body’s deputy chairman, Stanley Lau Chin-ho. That follows restrictions placed on about 590 types of products last month and about 2,600 in June.

Although not specified, the products are expected to be low-cost items that consume a lot of energy and are labour-intensive to make.

Beijing is attempting to discourage low-end manufacturing to cut pollution, save resources and get the country to climb the technology ladder.

“The new rule is expected to hit after the Lunar New Year,” Mr Lau said. “Pressure is mounting on manufacturers, who have been hit by one problem after another.”

Of the more than 90,000 export processing firms on the mainland, almost 70,000 are based in Guangdong and 57,500 are invested in by Hong Kong firms. They employ 9.6 million workers, according to National Bureau of Statistics data.

Restriction on these manufacturers combined with new taxation, a new labour law, higher lending costs and tighter pollution controls had led to the demise of more than 1,000 shoe manufacturers and 1,000 toy producers in the Pearl River Delta.

Simon Shi Kai-biu, president of the 1,000-member Hong Kong Small and Medium Business Association, said more than 10,000 Hong Kong-owned processing exporters were on the verge of collapse, particularly in the lead-up to the Lunar New Year.

Mr Shi said employers and workers must sign employment contracts by January 31, specifying benefits and obligations of both parties.

“This is a critical time for manufacturers,” he said. “They are being chased by suppliers and bankers to settle payments before the Lunar New Year while locked in disputes with workers over labour contracts.”

Workers were demanding employers settle compensation levels before signing labour contracts but many employers had refused to do so, said Eddie Lam, a Hong Kong-based shoe manufacturer.

“In many cases, employers and workers do not know who is right or wrong because no detailed interpretation of the law from the government is available yet,” Mr Lam said.

A poll of 400 foreign firms in Guangdong by the Hong Kong Professionals and Executives Association showed 70 per cent of businesses said the new law would force them to close operations or withdraw investment.

Blue-Sky Generators

CHRISTINE LOH – Jan 17, 2008

Is there a quick fix for the polluting emissions from the tens of thousands of factories in the Pearl River Delta that are contributing to the heavy, grey-yellow smog that too often blankets the whole region? Yes, there is. One source of emissions – the one that is hardest to deal with – is the factories that have to run private generators for electricity because they cannot get enough power from the grid. This is the case for most of the factories in the region; to avoid frequent “brownouts”, they buy their own generators to provide alternative power.

Factories are notified in advance of when they will not receive power from the grid, so they know when they will need to turn on their generators. There is an overall power supply shortage in the region. This can only be fixed when the supply structure of power generation and distribution is greatly expanded.

These private generators can be very large, and can cost millions of dollars. To work properly, they need to be regularly maintained and serviced.

Factory managers also have to source fuel for the generators. Research by Civic Exchange and the University of Science and Technology in 2006 found that the quality of that fuel varies greatly. In some cases, the diesel fuel purchased was of a very low quality and burning it resulted in a much higher level of pollution than if the fuel had been relatively clean. There were also cases where the fuel bought was contaminated with other types of fuel, and even water. It seems that people who sell fuel for generators often mix fuels, to lower costs.

Some factory managers complained that, by using low-quality fuel, they had to spend more time and money maintaining the generating equipment, which was not designed to run on such contaminated, low-grade fuel.

Thus, the use of poor-quality fuel is far from a good solution. Yet, managers have no other choice, since they need to provide supplementary power for their factories.

It is not easy to estimate the total air-pollution impact from all these factories in the Delta, but no one denies that it is large. The quick fix is, of course, to supply only cleaner fuel to run the tens of thousands of chugging generators. A cleaner fuel going in means less-polluting emissions coming out. This is not a long-term substitute for expanding and upgrading Guangdong’s power supply structure, but there is a reason to consider the quick fix in the coming two years.

In November next year, Hong Kong will host the East Asian Games and, in November 2010, Guangzhou will host the much bigger 16th Asian Games. Air pollution records over the past several years tell us that the month of November has seen very high levels of pollution throughout the entire Delta region.

We are currently witnessing the urgent efforts by authorities in Beijing to do everything possible to reduce air pollution for the summer Olympics in August. There is, in fact, no time for Hong Kong and Guangzhou to waste.

A clear lesson from Beijing is that the entire neighbourhood needs to pitch in. Just as Beijing needs the co-operation of many sectors from several provinces to reduce pollution, we, too, will need all the counties in the Delta region to contribute.

A quick short-term fix would be for cleaner fuels to be supplied to the region for an extended period before, and during, the two Games. Is it conceivable for ultra-low sulphur diesel to be supplied, so that the generators, and also vehicles, will all use a much cleaner fuel? If the answer is “yes”, what kind of emissions reduction could be expected, and how much would it all cost? Are there other ideas?

The Guangdong and Hong Kong authorities should get on with exploring ideas expeditiously, otherwise there could be embarrassing consequences. It will take time to organise the supply of cleaner fuel for the region. Much more needs to be done in the long term, but a quick fix for generators is the first step.

Christine Loh Kung-wai is chief executive of the think-tank Civic Exchange