ELECTRICITY REFORM STAGGERS ON: CHINA'S EMERGING ENERGY POLICY, PART 2

The Chinese government has finally approved an electricity reform agenda, the Suggestions for Deeper Power Reform for the Eleventh Five Year Plan (2006-10), confirming the reform path of deintegration and market competition outlined in 2002.

*This path is defined by the continued unbundling of generation from transmission, the acceleration of the development of a unified and open power market system, the strengthening of a regulatory framework, and a reduction of the government's role in business.

*A lack of detail and vague language, however, suggest that the latest reforms will continue to promote organizational changes but not significant market liberalization.

*The risks of such uncertainty to investors in the near to short term are high but may provide room for innovative companies to establish themselves in new niches created by the changing role of the government in the power markets.

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