China's power shortage is getting worse, surpassing the crisis in the summer of 2004 when nationwide shortages of electricity reached over 40 gigawatts, causing many industrial plants, including textile operations, to install their own generators and power plants. The current deficiency in electricity is now reaching record levels and appears to be a much larger crisis that will likely impact more plants and operations. Thirteen provinces are now being affected by a severe electricity shortage. By January 23, 2008, the demand for electricity had outstripped supply by 70 gigawatts; and currently, the shortage is at the equivalent of the United Kingdom's total generating capacity.

The problem is not electricity-producing capacity as it was in 2004; instead, it appears to be linked to two elements. The first is a severe shortage of coal. Over 70 percent of all power in China comes from coal plants; and due to surging demand, the country has now become a net importer of coal. In 2007, coal imports jumped 33 percent with net imports of 2 million tons; and in 2008, imports are expected to reach 15 to 18 million tons. The price of coal has surged as a result. In addition, there are reports of problems with transportation logistics. The government is now reporting a shortage of coal. The State Grid, which produces 70 percent of all electricity, reports a coal supply of 17.7 tons, which is down 40 percent from a year ago and equates to only 8 days of use. As of January 23, 2008, the Central Power Grid had coal stocks of only 5.57 million tons, which are half its normal stock levels. China's recent snowstorms have impacted coal stocks, as road transport has been disrupted.

The second factor impacting the power shortage is the lack of a coordinated free market. The domestic price of coal is freely set by supply/demand of the market; however, the government sets electricity prices. Many of the new power plants are privately-owned; thus, the rise in coal prices and the government's refusal to raise electricity costs has led to power plants shutting down capacity in order to control losses. Many power plants have been running at a loss with current coal prices. The government has been reluctant to allow electricity costs to increase because of its desire to control inflation.

The impacted provinces include the textile-producing provinces of Hunan, Hubei and Guangdong, along with ten other provinces. These conditions will likely impact overall industrial output if the situation persists.