Chinese Provinces and the Reform of the Electric Power Sector of China

The newly initiated reform in China's electric power sector aims at building a more efficient market, improving capacity utilization and boosting productivity growth. A more efficient power sector is crucial to China's green energy transition and climate change mitigation. Major reform objectives such as the building of cross-regional electricity market demonstrate a centralization tendency and the central government's determination to enhancing its grip over the macro-economy and key strategic sectors. However, it is the Chinese provincial authorities that virtually regulate electricity production and supply at their territories. Therefore, enough incentives need to be given to local governments in order to motivate them economically and politically. The establishment of political and economic partnership between provincial authorities and associated business enable them to contend and bargain with the central government. This centralization and decentralization paradox creates tensions in the reform process and major institutional obstacles to sectoral marketization. Conceptually, the framework of actor-centered institutionalism is adopted to analyze the institutional setting of the reform as well as the capabilities and preferences of major actors and their modes of interaction. Empirically, this article explains how the Chinese provinces manage accountability relations vis-à-vis the central government by studying the roles of provincial authorities play in developing the wholesale and retail electricity market. It is argued that the central government has to rely on provinces to reign over the market power exercised by industrial monopolies given the current market structure of Chinese power sector. The success of the central government's attempt to effectively tackle overcapacity problem and enhance sectoral efficiency depends on how central-local interactions is appropriately managed.