Controversial for its impact on
the environment and local residents, the Three Gorges Dam should actually deliver
substantial economic benefits to the impoverished regions of central and western
China.
Ten years in the making, China's massive Three Gorges Dam
finally opened for business in June when engineers closed the dam's sluice gates and
raised water levels in the newly created reser-voir to an average of 135 metres, While the
rising waters have brought with them a flood of media interest, the spot-light has so far
mostly focused on the project's environmental and social impact. Relatively little attention
has been paid to important commercial implications that are expected to follow as the
dam is finally pressed into service.
The most obvious consequence of the opening
of the dam is the sub-stantial improvement to navigation in upstream parts of the Yangtze.
Today, the river above the dam is an averoge of 40 per cent deeper and twice as wide,
while the often treach-crous cuircut only half as fast. This means that for larger ships can
now complete the 660km stretch between the dam and Chongqing, in the heartland of
China's remote and relatively undeveloped west. According to figures published by the
Three Gorges Project Development Corpora-tion, the creation of the reservoir now makes
Chongqing accessible to 10,000-tonne barges up from 1,500 tonnes) and increases one-
way navigation capacity through the dam from I 0m to 50m tonnes a year. Ultimately, it will
cut shipping costs for the route by a projected 35 per cent.
Whether this will make a
significant dif-ference to the regional economy remains to be seen, hut that is certainly the
govern-ment's intention. Encouraged by tax incen-tives, growing numbers of investors are
now making their way upriver as they eye the cost advantages of China's interior,
especially in labour-intensise industries. This has caused significant new growth in
western provinces, with GDP rising some II per cent year-on-year in the first three months
of 2003 – the highest rate since China initiated its 'Go West' campaign three years
ago.
New arrivals include Ford Motor, which opened its first Chinese
manufacturing joint venttire at the end of last year with Changan
Auto Group in
Chongqing. In making this move, almost all investors are relying on improved
communication links to provide efficient transport of raw materials and fin-ished products to
and from their newly-built factories.
According to a recent report from Lon-
don-based consultants Drewry Shipping, cargo throughput on Yangtze poits has grown
strongly over the last two years, with opera-tors now deploying larger vessels to an
increasing number of destinations. While up to 90 per cent of this traffic takes place along
the lower river between Shanghai and Nan-jing, there is also greater activity to upstream
ports, including Chongqing, which has shown recent annual growth of about 30 per cent.
That said, this is no greater than the phenomenal national average for Chinese port growth,
and also comes off a low base. At under 10m tonnes a year, Chongqing's port throughput
is less than 3 per cent of total cargo carried on China's mid- and upper -Yangtze in 2001
and remains tiny compared with that of China's major coastal ports
For the future,
the main focus of an offi-cial plan published by the Ministry of Com-merce is to create a
series of freight and distribution hubs at selected Yangtze ports with large economic
eatebment areas, including Chongqing, Wuhan and Nanjing. These will serve as regional
transfer centres that connect to local rail and road networks, forming an integrated
multimodal transport system for containerised shipments. In particular, the port of Nanjing
which can already accom-modate 25,000-tonne vessels, now operates as a hub for
international services with fur-ther transhipinent options to upstream ports. Nanjing
handles approximately 500,000 teu containers annually – a figure expected to more than
treble over the next eight to 10 years. according to Drewry.
That, at least, is the idea.
In reality, there are a number of fundamental obstacles to the rapid development of new
upstream transport links notwithstanding government ambitions and improved navigation
on the rivet'. Infra-structure remains inadequate, despite official efforts to spur fixed-asset
investment. In addition, bureaucracy is almost impenetrable throughout China's far-flung
regions. In particu-lar, Bruce Murray, resident representa-live for the Asian Development
Bank in China, cites regional trade barriers that frustrate access for inter-provin-cial
trucking operations. together with antiquated customs procedures that require the
completion of complex and unnecessary paperwork. Foreign shippers also face regulatory
obstacles to expanding their operations into China's interior.
While many foreign
shipping coin-panics welcome the chance to develop inland shipping hubs for
containerised cargo, in practice they have met with limited suc-cess. According to Drewry,
the vast m4jority of China's containerised freight currently travels no more than 320km
inland, while rail container services still account for only 10 per cent of total freight moved by
rail. And on the Yangtze itself', no more than 5 per cent of containerised barge traffic
destined for international markets originates outside the immediate vicinity of major
ports.
The reason for this is primarily based on cost – older breakbulk shipping
facilities are cheaper than local container services. On top of this, the lack of facilities to
process and deliver container freight, combined with the absence of IT infrastructure to
track contain-er shipments and a general ignorance of the advantages offered by container
shipping has slowed uptake of containerised services.
The bottom line is that
these obstacles to the creation of modern distribution services have led to incremental
expenses that still outweigh the cost advantages manufacturers glean from moving
operations further inland. While this situation is changing slowly, in the meantime it slows
the expansion of new investment in inland areas and acts as a drag on the growth of
shipping links on the upstream Yangtze. The dam will help to reduce these expenses, but it
promises to be a drawn-out process.
The other major commercial function the
dam is intended to address is power genera-tion – it will ultimately serve as both China's
biggest power plant and as the centrepiece for Beijing's plan to create a national power
distribution grid.
On July 10, the first of dam's twenty-six 700MW turbines was
pressed into service, followed by a second one week later. At least two more turbines,
which are the largest in the world, are expected to be brought online by the end of the year.
Once fully operational in 2009, the installed base of generators will provide annual output of
84,7m MWh of electricity as much as 5.5 per cent of China's current
total.
Worsening power shortages
Fortunately for the dam project
company, the inauguration of the first generator comes against a backdrop of worsening
power shortages across the country. This is a far cry from the situation six years ago when
China was awash in excess power, and many feared the enormous he's generating
capacity offered by the dam's facilities would make it a white elephant. Since last year,
though, a combination of poor central planning and growing demand from China's
booming industrial base has led to a dramatic turn-around in electricity
consumption.
A recent repoit published by China's National Power Network
Corporation stated that a 10 per cent rise in demand has led to a generating capacity
shortfall of 10,000MW across 16 prosinees, a figure expected to rise to 15,000MW in 2004.
As a result, blackouts have e become common in many parts of the country. According to
HSBC Securities' Hong Kong-based analyst Ivan Lee, the shortfall will not end any time
soon, with increasing at 8.5-9 per cent for the remainder of this year, and averaging at least
7 per cent over the next five years. Although authorities are rushing to bring new capacity
online, he says "the increase will be gradual and over the next one or two years supply will
not match demand, although this will be a problem only at times of peak demand and in
fast-growing areas",
Increasing demand is only one factor like-ly to ensure that the
dam's generators will continue to find a ready market for their power. Another is that the
government is likely to keep pricing competitive, even if that means incurring low or no
return on con-struction costs. Although the price of the dam's power has yet to be fixed by
the State Council, the State Power Grid Corpora-tion has reportedly proposed a generation
price of YnO.25 per kWh, together with an average transmission fee ofYn0.07 per kWh. This
compares favourably with average on-grid tariffs for China's urban areas of YnO.3 1-0.4 per
kWh.
The dam is not simply a power generator, however. It also plays a pivotal role
as the centre of a still developing distribution network that will shunt electricity around the
country from where there is surplus to wher-ever it may be needed as seasonal and
commercial requirements dictate. This includes sending excess hydropower and thermal
power reserves from the west to China's industrial centres in the east, says Lee. For now,
the most important destinations are Guangdong, Shanghai and eastern
provinces.
The most important point, however, is that this supply can be delivered
flexibly. Indeed, the distribution plan has already been altered from the original plan in order
to meet current requirements. Ultimately, this should help to ensure that electricity is used
more efficiently across the country.
