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New Financial Watch: Understanding the Current Grid Monopoly Issue.
Wang Xiaoguang points out that currently, only a few power grid companies, such as China Southern Power Grid and the State Grid, are involved in inter-regional interests. The monopoly characteristics of the grid are very strong. If the grid were to be privatized, it could lead to various problems driven by profit motives, which would ultimately reduce efficiency.
The core of power system reform lies in opening up two key areas: power generation bidding and tiered electricity pricing, rather than privatizing the intermediate grid sector, which is clearly not feasible. Electricity reform involves more than just the power system—it also includes other interests within the broader system.
New Financial Watch: How do you evaluate the Linyi (Linghai) electric reform model?
Wang Xiaoguang explains that previous reforms focused more on liberalizing private or foreign capital in power generation. However, the power grid, as a public service, should provide reliable services only if it maintains high social credibility. Whether private capital can own the grid remains debatable.
According to Wang, the mechanism and governance structure of the Linyi model are fundamentally flawed. The board of directors should decide on investments, operations, and management. In an ideal scenario, the chairman should be appointed by the state or managed by a state-owned financial institution. In reality, state-owned power grid companies hold 70% of the shares, while private capital holds 30%. However, decision-making power should remain with the state, not with the private shareholders.
Unfortunately, the current situation in Linyi is completely reversed. The 30% private shareholders control the system, indicating a confused governance structure that is not real reform. This so-called experiment has failed, and piloting it represents a misguided approach.
Under the "Linyi Model," private capital invests in a monopolistic public power grid with the goal of making profits. However, they have limited ability to control electricity prices. When their interests conflict, they may disrupt the normal market order, leading to power cuts and forced price hikes. Therefore, the grid is not suitable for privatization.
New Financial Watch: Which sectors are appropriate for private capital to enter?
Wang Xiaoguang states that allowing private capital into certain industries is a positive step that offers more development opportunities. However, there must be a clear list of what industries are most suitable. Industries that are non-competitive, monopolistic, or natural monopolies—such as public utilities—are not suitable for private involvement.
On the other hand, resource-based industries like automobiles, banking, coal, and oil and gas should encourage private investment. The power grid, however, has characteristics of a public good and is a natural monopoly. Its operators largely serve the public interest. While public goods can theoretically be operated privately or through third-party management, this requires strict regulation and oversight.
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