MARKET WATCH

MARKET WATCH

OPINION

Tiered Electricity Pricing System

The latest mechanism for China’s electricity price reform has been determined. The tiered electricity pricing system will be enacted in the first half of 2012 and will maintain the electricity price for 80 percent of households and give a certain electricity quota for free to low-income groups, said Peng Sen, Vice Chairman of the National Development and Reform Commission (NDRC).

The tiered electricity pricing system is a widely acknowledged and reasonable one that has been applied in many developed countries. For instance, the United States, where the power market is fully competitive, adopts differentiated prices in summer and winter on the basis of a tiered pricing system for electricity use. Each month, numerous grid companies will give every household their electricity bills, including fixed expenses—such as basic expenses, fuel surcharges,sales tax and state income tax—and variable expenses determined by the household’s monthly electricity consumption.

Those bills offer evidence for the government to strictly supervise the practices of grid companies. Therefore, on the basis of open and transparent statistics in the power sector,the government should take many factors into consideration when adopting the tiered pricing system and make corresponding adjustments according to residents’ actual electricity consumption.

The good news is certain flexibility is given to local governments. But local governments should be warned of the “trust crisis”that has happened during resource price adjustments in the past.

It’s rumored that whenever there is a public hearing on water prices, a price hike will follow. The reason for residents’ distrust is that industrial information and statistics are not transparent and residents feel they don’t have a say in the decision-making process.

Local governments have speci fi c data on how each tier is determined. Successful implementation of the tiered electricity pricing system depends on whether residents know clearly how the level for each tier is decided and whether all consumption data are open and transparent.

Other decisions, such as merged electricity meters, per-capita consumption quota and punitive charges for overuse, should be made after soliciting public opinion.

The tiered pricing system has only involved household users of the marketoriented reform of China’s electricity system.Household electricity consumption only accounts for 12 percent of the total. To restrain consumption of industrial users and accelerate energy conservation and emission reduction in the power sector, the government should fully introduce a market mechanism in all links in the sector.

Right now, due to rising costs, power plants are reluctant to produce electricity and deliberately create “power shortages,” resulting in a huge waste of resources.

The State Grid, which transmits electricity, has been enjoying high pro fi ts due to its monopoly in the sector.

These barriers, caused by administrative intervention, have hampered the free fl ow of price information in the market, resulting in an inef fi cient allocation of power resources.

Therefore, in order to clarify the pricing system in the power sector, the government should step back as a referee of the market to realize price negotiations between power companies and consumers.

Then consumers’ concerns, such as intransparent consumption data and unreasonable standards of the tiers, will be readily solved.

THE MARKETS

Housing Prices Fall

Prices of new homes in Beijing fell 20.7 percent year on year in the fi rst quarter of 2012,with property developers offering more generous discounts to stimulate sales against the backdrop of continuous tightening policies.

The average price of new homes in Beijing was 12,326 yuan ($1,956) per square meter in the first quarter, compared with 14,147 yuan ($2,245) at the beginning of 2011 and 13,173 yuan ($2,091) at the end of 2011, according to the Beijing Real Estate Association.

Transaction volume also shrank with apartment sales (excluding affordable homes)falling 14.2 percent year on year during the fi rst quarter, the lowest level since 2007, said Chen Zhiwu, secretary general of the association.

In order to attract potential buyers’ interest, real estate developers have offered certain incentives. During the Beijing Spring Real Estate Expo (April 8-11), a barometer for the city’s real estate sector, developers offered discounts ranging from 2 percent to 6 percent,with some as high as 8 percent.

Suning Expands

Suning Appliance Co., China’s largest home appliance retailer by market value, plans to open 426 new chain stores worldwide this year, said the company in its fi nancial report for 2011.

Among the 426 new stores, eight will be located in Hong Kong and two in Japan. The household appliance giant will also expand into 39 prefecture-level cities on the Chinese mainland.

Net pro fi ts of the Nanjing-based company rose 20.16 percent year on year to reach 4.82 billion yuan ($766 million). It opened 373 new chain stores last year.

The retailer’s revenue rose 24.35 percent from the previous year to 93.89 billion yuan($14.9 billion).