ABSTRACT
The issue of centralization versus decentralization has been at the centre of economic reform in China. Reforming the power industry has also forced reallocation of authority among the central, provincial and local governments, and between the state and power enterprises. Decentralization started in the power industry in 1985 when the central government adopted a series of policies to lower the entry barriers to power generation. Redefining central-local relations was done through 'reallocating' authority to ensure adequate regional development with national coordination. Reduced investment in transmission and distribution networks had serious adverse effects on the power industry development as well as on energy consumption. One continuing challenge facing the power industry in China is the reduction of small-sized power generation units, most of which were constructed in the 1980s with encouragement from provincial and local governments. Devolving investment authority in China's power industry, however, has not rendered the central government completely powerless in dealing with provincial and local governments.
