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Power shortage, drought feared to hurt China's economy
News Date: 31st May 2011

China's electricity shortage and prolonged drought are feared to exert downward pressure on the growth of the world's second-largest economy, a report said Monday.

Starting in March this year, China's eastern and central provinces started to face power shortages, and the situation is expected to

worsen this summer when power demand is likely to grow 12 to 14 percent on-year.

Seoul-based Daishin Securities said the electricity shortfall will slow down the economic activities of Chinese manufacturing firms as

they may be forced to delay or halt their production.

"Industrial demand for electricity jumped in the first quarter of 2011 as most Chinese manufacturers refrained from using electricity in

the fourth quarter of last year in order to meet the carbon emission target set by the government," Sung Yeon-ju, a China analyst for

Daishin Securities, said in a report.

The amount of electricity used by Chinese manufacturers already hit 295.4 billion kilowatts per hour in March, the highest since July

2010, Daishin Securities said.

The imbalance between coal demand and supply, which fuels nearly 80 percent of power output in China, will also result in power shortages

as coal-fired power generators cannot afford to buy expensive coals and to provide electricity at the government-fixed price, the South Korean securities firm said.

The worst drought in 60 years across the central region will also weigh on the Chinese economy, Daishin Securities said.

"The amount of farm produce in that region is less than 10 percent of what was produced last year," said Sung.

Central China along the Yangtze River was severely hit by a drought that lasted about 200 days. The worst drought in decades affected more

than 1.3 million hectares of farmland across seven provinces, which serve as the country's major agricultural producers.

The brokerage firm said that the prolonged drought will likely fuel inflationary risks, forcing the Chinese government to tighten further

its monetary policies.

The Chinese government has been maintaining its tightening measures, putting its top policy priority on reining in runaway inflation.

The People's Bank of China, the central bank, earlier this month raised the deposit reserve requirement ratio for its major banks for the fifth time this year, following last month's interest rate hike.

Source: GNA

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