Sources returning from a visit to China told Platts this week that government officials have quietly let major coal-fired power stations, steel mills and other heavy polluters know that a broad shut-down order will be passed down the line 30 days before the Olympics begin on August 8.

The policy could slow China's economic growth at a time when world oil markets are already viewing the supply-demand mix with skepticism. With GDP growth of 11.4% in 2007 -- China's fastest growth for 13 years -- the country generated an estimated 300,000 barrels per day (b/d) of new oil demand last year, about one-third of total world demand growth.

The International Energy Agency has forecast Chinese demand growth could come in at another 500,000 b/d this year, or a quarter of total world growth. But that forecast could be placed in danger by any unforeseen economic slow downs.

The Chinese industrial and power plants will likely be closed for the 30 days prior to the games and until the Olympics are completed on August 24.

Most shutdowns will happen in and near Beijing, and northern China's Shenyang City, the capacity city of Liaoning province and a co-host city for the Olympics.

The Beijing government is well-known to be determined that the country's famous pollution problems should not blemish the highest-profile event to be held in China since it fully rejoined the international community in the 1970s.

Industrial Closures Likely To Have Big Impact On Economy
The likely impact of the closures on China's economy is unpredictable, but it is likely to be quite substantial. Sources within China estimate that around 13 gigawatts (GW) of electricity production will be closed down -- almost half the size of Mexico's total production capacity.

Moreover, closures will also be seen at steel plants, with a total capacity of 6 million tons; cement plants, with a combined output of 50 million metric tons (mt); iron ore production facilities, with a total capacity of 14 million mt; and paper-making factories producing a combined 1 million mt, they said.

Oil-fired power stations, mainly located in the southern areas, were largely not affected, official from Guangzhou environmental protection bureau said.

But closing these industries for as much as 54 days in 2008 means large parts of Chinese industry will be closed for 15% of the year. China is expected maximize nuclear power production, gas-fired power stations and even oil-fired power generation, which will drive up LNG, gas and fuel oil consumption towards peak rates for a prolonged period of time.

But market watchers are wary of the impact that the closures will have on the overall economy, in a year when stable economic growth rates in China are broadly expected to offset slower US growth.

Closures Come As China Struggles With Historic Shortages
China can hardly afford to be without the electricity generation that will be shut. After swinging from shortfalls in generation in 2004 to surpluses in 2006, the country is now already running a massive electricity generation deficit.

In a statement carried by national news agency Xinhua, the country's State Electricity Regulatory Commission said in January that the gap between electricity demand and supply was already running at more than 69 GW in late January.

That is before Olympics-related closures in northern China. The country's powerful energy and commodities regulator, the National Development and Reform Commission, has put January shortfalls at closer to 42 GW -- still a massive amount that represents around 6% of Chinese generation capacity.

Shortages have been caused by hiccups in coal supplies, coal transportation, and also mismatches between the cost of feedstocks like coal and oil, which are running substantially higher than the value of electricity sold into China's government-controlled electricity markets.

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