China Eases Limits on Foreign Capital in Power Grid Construction
Lin Chunting
/SOURCE : Yicai
China Eases Limits on Foreign Capital in Power Grid Construction

(Yicai Global) July 5 -- China is relaxing rules for foreign investors in the country's power grid construction sector so that their joint ventures will no longer require majority holdings from local companies.

The National Development and Reform Commission, China's top macroeconomic planner, recently released an updated negative list for foreign investment removing restrictions on Chinese majority shareholdings for overseas capital in the construction and operation of power grid infrastructure.

"Removing the equity ratio limit of foreign investment in power grids is a major move for China to expand the opening of the infrastructure construction field," Li Junfeng, a member of China's National Energy Advisory Council, told Yicai Global.

If foreign-controlled power grid enterprises are present in the country, competition between Chinese and foreign power grid companies will increase, said Zeng Ming, director of a research center at North China Electric Power University. This will help promote reforms of the internal management system of state-owned power grid enterprises, and the government's industry management policies may also change.

Removing the restrictions on the foreign equity ratio will help to expand investment and financing channels for power grid construction, while also increasing the transparency of investment returns or investment costs for power grid enterprises, Li said.

The move will also aid the establishment of a reasonable transmission and distribution price. From a long-term perspective, it can achieve the efficient use of state-owned assets, Li added.

"The biggest difficulty facing foreign investors is how to enter," Li said, adding that with the presence of behemoths such as the State Grid and China Southern Power Grid, finding the right entry point and gradually expanding investment scales will be the first issue for foreign capital to solve.

Li believes that there are three possible ways for foreign enterprises participation in the Chinese power grid market. They could join hands with local state-owned enterprises or large private firms to build local distribution networks, construct inter-regional transmission channels or independently make investments in the construction of distributed micro-networks.

It is widely believed in the industry that distribution network projects represent a market worth hundreds of billions of yuan.

Foreign capital has already successfully joined forces with Chinese companies to enter the local power market. For example, Liangjiang Changxing Electric Power and Energias de Portugal have already worked together in the supply of market-oriented retail power, distribution network construction as well as distributed energy in China.

More similar cooperation projects are expected in the future. Foreign participation in the construction and operation of China's power grid will not affect China's energy security, a number of industry insiders told Yicai Global, adding that it will actually bring benefits.

Editor: William Clegg

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Keywords: Government Policy , Foreign Investment