National Strategy and Industrial Governance Shift: Transformation of the Power Transmission and Distribution Industry in China

During the past decades, there has been a shift in the governance structure of the power transmission and distribution (PTD) industry from a market-oriented scheme to vertical integration. Such a shift in industrial governance was driven by the change in national strategy from “market in exchange for technology” to “independent innovation”. Under this new policy paradigm, the ultra-high voltage (UHV) transmission technology was perceived as strategically important for the country. The State Grid Corporation of China (SGCC), whose control over the industry was initially reduced in the reform, leveraged the paradigm shift in the state policy and strengthened its position in the industry by redefining the main and auxiliary services. The State Grid successfully brought back all UHV industry-related services, such as power design, equipment manufacturing, power grid construction and capital operation, into its main business category, which could be exempted from market competition according to state regulation. Eventually, the State Grid was able to establish strong vertical integration in the whole sector.