Passage 2 Tight electricity supply is constraining China’s economic growth--a situation likely to persist for three to four years until new capacity comes online. The energy shortfall has not yet severely hampered U.S. business operations in China, but this remains a distinct possibility. Shortages have now spread to two-thirds of China’s provinces, affecting Beijing, Shanghai, Guangzhou, and other first-tier cities. Plants in China’s manufacturing heartland, the Pearl River Basin and East China now experience frequent mandatory shutdowns. Zhejiang and Jiangsu Provinces have imposed electricity rationing. Many plants have installed costly back-up diesel generators. Shanghai’s demand for electricity outstrips supply by two to four million kilowatts. The tight supply is causing price increases at the front end of the manufacturing supply chain. High energy costs are a competitive disadvantage for China in the world marketplace. Quality, quantity, and security of supply also are essential for China’s continued economic growth. Present restrictions on the direct sale of electricity, oil, and gas to industrial users promote inefficiency and non-competitiveness. Much of the current concern with the "overheating" of China’s economy has been driven by the fear that the energy supply is not keeping up with the development of major energy-consuming industries. China’s rapid economic growth, especially in the construction and manufacturing sectors, is behind the electricity shortage. China’s energy industry has doubled in absolute terms during the last ten years, but such growth has been insufficient to meet demand. It takes five to seven years to design, construct, and commission a major thermal power plant, seven to ten years to explore and develop an oilfield, and five years to develop a coalmine. All require extremely large capital investment. Despite the fact that China has the world’s second largest coal reserves and worldwide coal and coke prices are at eight-year highs, supply has not been able to keep up with demand. Efforts to raise electricity production in the near term have been hampered by deficient railroad capacity, which has prevented coal from reaching power stations. While coal price cycles usually do not coincide with oil prices, current high prices in both commodities have supply straining to meet demand. While China only imported 0.6 percent of world oil supplies in 1995, it now imports 3 percent of the world’s oil. China, like the United States, is becoming increasingly vulnerable to disruptions in the world’s supply of oil.