Review of Industrial Organization 24: 73–93, 2004.
© 2004 Kluwer Academic Publishers. Printed in the Netherlands.
Efﬁciency and Productivity of China’s Thermal
and ALICE SHIU
School of Accounting and Finance, Faculty of Business, The Hong Kong Polytechnic University,
Hung Hom, Kowloon, Hong Kong Special Administrative Region, China
Abstract. In China, the State Power Corporation (SPC) dominated the electric power sector. Our
results from the data envelopment analysis (DEA) approach show that the total factor productivity
(TFP) growth between 1995 and 2000 is 2.1 percent per year on average. Technological change
accounts for almost all the TFP growth. Municipalities and coastal provinces have achieved higher
technical efﬁciency and TFP growth during the period under study. Fuel efﬁciency and capacity
utilization rate are signiﬁcant factors affecting technical efﬁciency of power generation. Provinces
and autonomous regions not dominated by SPC have achieved higher levels of technical efﬁciency.
Key words: China’s power sector, DEA approach, technical efﬁciency.
Since 1949, the electric power industry in China has been under state ownership
and control. The generation, transmission and distribution of electric power in dif-
ferent areas were vertically integrated and owned by the central government. In the
1980s and 1990s, after China adopted an open-door economic policy, structural
reforms, market incentives, and decentralization policies were introduced to attract
investment into the power sector. Local governments and power enterprises co-
operated with foreign investors to form independent power producers (IPPs). Since
then, generating capacity in China has been expanding rapidly. The Chinese gov-
ernment has also introduced a number of policies to reform the power enterprises
and to restructure the power industry.
Today China is the world’s second largest producer of electric power, both in
terms of installed capacity and actual generation. Despite its growing importance,
empirical studies on the productivity of China’s power sector are lacking, mainly
due to insufﬁcient data about factor inputs used in the power sector. In recent
years, both the Chinese authorities and independent research institutes have begun
to publish more statistical information about the production and performance of
the power sector over time, and across different regions in China. With more in-
formation available, the way is opened for the efﬁciency analysis of China’s power
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