COST ELEMENTS IN PRODUCING ELECTRIC POWER, NINGPO

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP82-00047R000400230002-9
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 3
• Document Creation Date: December 23, 2016
• Document Release Date: April 22, 2013
• Sequence Number: 2
• Publication Date: March 12, 1954
• Content Type: REPORT

Declassified in Part - Sanitized Copy Approved for Release @ 50-Yr 2014/11/04: CIA-RDP82-00047R000400230002-9
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COUNTRY
SUBJECT
PLACE
ACQUIRED
DATE
50X1 ACQUIRED BY SOURCE
UTE OF INFORMATION
CLASSIFICATION CONFIDEETIAL
CENTRAL INTELLIGENCE AGENCY REPORT
INFORMATION REPORT
China
Cost Elements in Producing Electric
Power, NIngpo
TNII DOCUMENT CONTAINS iwrosm AAAAA srrscrims TAO NATIONAL osssort
Al THE UNITED AAAAAAA IITNIN TKO MEANINOOFTITLE IS, SECTIONS 793
AND 714, OF TNI U.S. COOS, Al AMENDED. ITS TNANIMISSION OR REVS.
NATION OF ITS CONTENTS TO OR RECEIPT SY AN UNAUTHORISED AAAAAA II
PRONI TTTTT SY LAW. ?NI REPRODUCTION or THIS room is ARON' 0000 O.
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CD NO.
DATE DISTR. March 1954
NO. OF PAGES 3 50X1
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NO. OF ENCLS.
(LISTED BELOW)
SUPPLEMENT TO
REPORT NO,
THIS IS UNEVALUATED INFORMATION
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SOURCE
le
I must point out that even if actual currency figures were available, they
would not be of great value for analytio purposes because during the period
between the end of World War II and the advent of the Communist, the Chinese
dollar was steadily and rapidly depreciating, and it would be nearly impossible
to convert amounts in Chinese dollars into any stable ourrenoy at a realistic
exchange rate* A payment made 123:January would have to be oonverted at a
different rate from one made in June or in December. Further because of
the currency depreciation a violent inflation of domestic prices 000urred.
Thus payments for local products or for wages also increased steadily. 'What
it acmes to is that local currency amounts do not afford a reliable yard
stick to measure values. Since the Communists took control in 1949, their
currency theoretically has remained fairly stable but signs of an actual
depreciation are appearing and suggest that the theoretical stability has
been maintained largely by the prohibition of private foreign trades official
exohange quotations mean little or nothing if no one is permitted to bay or
sell. For this reason I would hesitate to take present costs in Jen Min Piao
(Communist currency) converted into US$ at the offioial rate as valid.
2. In general the rates charged consumers by the power and light oompanies in
the smaller cities of China, or at least of the lower Yangtze valley, tended
to be much the same in one city as in another, These rates were somewhat
higher than the rates charged in Shanghai, which was a very much larger market
especially for industrial conaumptione The spread between Shanghai rates
and the outport rates was gradually deoreasing however* Because of the
rapid depreciation of the currency, all of the companies were forced to
apply constantly for rate increases, and such applications finally became
routine every three months* Some of the companies were in better financial
ORR� v
CODE:
CLASSIFICATION C�171DENTIAL
DISTRIBUTION
Declassified in Part - Sanitized Copy Approved for Release @ 50-Yr 2014/11/04: CIA-RDP82-00047R000400230002-9
Declassified in Part - Sanitized Copy Approved for Release @ 50-Yr 2014/11/04: CIA-RDP82-00047R000400230002-9
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,o2o
oondition than others and did not really need the same rate increases
but as a matter of policy they joined the weaker companies in the demands
of the latter. The stronger companies then made some concessions to
their own consumers without making formal rate changes.
3. The costs of the several companies expressed in peroentages of gross
revenue for wages, cost of administration, and depreciation did not vary
greatly between one small oompany and another* For reason. which are
explained below there was a great difference in the cost of fuel and
lubricants between. different companies and as fuel and lubricants constituted
the major operating cost, what profits or what losses a company made depended
almost entirely on what it paid for fuel and lubricants.
441
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6. The Yung Tao Oompanygs ooneumption was divided roughly 36% domestie consumption,
65% industrial consumption and 10% munioipal consumption (street lighting and
municipal buildings). The industrial consumption was a higher 'moment in
Ningpo than in most of the other small cities. In the latter, domestic and
50X1 industrial consumption were probably about even. Large industrial oonsumers
were granted discounts or were Charged a sliding soil., the Charges decreasing
as the consumption rose.
43. All of the companies operated onitael oil. I have
heard that the Yung Tao Co's plant has -7 bloat converted to ooal but 50X1
I cannot vouch for the feat. The Tung Yee -6.4s, Feting in a good finanoial
condition, made a practice of (a) oontracting with one of the major US oil
companies for all of ita fuel and lubricanb requirements for a year (or
sometimes for two years) forwards (b) it then bought US$ forward to pay
for the fuel and lubricants as delivered, By so doing it fixed the price
of its fuel end lubricants in local morrenoy at the exchange rate ourrent
at date of contracting. Because of the rapid depreciation of the Chinese
dollar during l946-49 this policy paid handsomely. In fact the oompany's
profits were in reality exchange profits rather than operating profits.
By this method the Yung Tao Co held its fuel and lubrioant costs to approx-
imately 70% ef its gross revenue. The weaker companies which did not have
the cash to settle exchange forward were forced to buy their fuel and lubricants
month to month, The result, in many oases was that the cost of fuel and
lubricants exceeded the total gross revenue, because while rate increases
were granted, it to�k from three to six months to get the increases approved
and put into effect. The revenue,therefore, was being collected on 50X1
basis of costs six months earlier, and the costs meanwhile had mounted with
the change in exchange.
7. Administrative costs and labor together required approximately 15% of the
gross revenue,
80 Depreciation was at varying rates for buildings and for different �lasses
of equipment. Depreoiation rates were set by government authority and were
the same for all cipeniee. Depreciation required approximately 5% of the
gross revenue.
9, Formal taxes were light, the only formal tax
collected was the business tax of 1LQ5 of the vet profits paid by all
oommeroial and industrial enterprises. *wooer, in addition to formal
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Declassified in Part - Sanitized Copy Approved for Release @ 50-Yr 2014/11/04: CIA-RDP82-00047R000400230002-9
Declassified in Part - Sanitized Copy Approved for Release @ 50-Yr 2014/11/04: CIA-RDP82-00047R000400230002-9
CONFIDENTIAL
.5.
taxes publio utility oompanies were expected to contribute liberally to
local welfare funda. Further while the authorities were supposed to pay
for current supplied for municipal use, in fact they never did so. In
the case of the Yung Tao 0o, as already noted, munioipal consumption'
amounted to about 10% of the total.
10. " During the period 194649 many of the oompanies mit de no profits at all
because of their inability to increase their tariffs sufficiently promptly
to meet their mounting costs. Other companies, like the Yung Tao 0o, which
covered fuel and lubricant costs by forward exohange purchases, made satis-
factory profits. Prior to the outbreak of the fighting with Japan zrear
the Yung Tao Co had paid dividends of as much as 20%. During the post-
war pre-Communi et period Z7946-4g7 the Yung Tao Co as a matter of policy
reduced its dividend payments to eight or ten percent and used the remain-
ing profits to increase its oapitalization. This was done in anticipation
of the possible nationalization of public utilities. A physical valuation
of the Yung Tao plant made in 1946 showed assets of between US#3 and #5
million as against a much smaller capitalisation, about U8#8000000 if I
remember correctly. In event of nationalisation, the government would
probably propose to repay the capital investment to share holders rather
than the physical value of the assets and it was, therefore, imperative to
bring the capitalisation more nearly in line with the physical values.
11. I have no information on the Tunz Tao Cogs operations 'ince the Communists
came into control, but I have heard a report that
the company has paid a dividend. This seems extraordinary but may be correct.
-end-
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Declassified in Part - Sanitized Copy Approved for Release @ 50-Yr 2014/11/04: CIA-RDP82-00047R000400230002-9