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Shanghai power crunch hits Volkswagen, others

By Ben Blanchard

SHANGHAI, July 23 (Reuters) - China's commercial hub of Shanghai, grappling with a worsening power crunch, has ordered its two largest auto makers to shut production for more than a week, company executives said on Friday.

Volkswagen AG halted operations from last Friday for 10 days -- but said that would not affect overall output because it had ramped up production ahead of time to compensate.

Cross-town rival General Motors Corp. had shut its plant one day before, but said that was for annual maintenance.

The fact the city had cut power to two of its highest-profile multinationals underscores the extent of fears about a crisis worse than last summer's, when a scorching heatwave and resulting shortages pushed 1,000 firms to curtail output.

This year, 2,100 companies in Shanghai had already been asked to run at night, while 3,000 others will switch between day and evening operations, Shanghai Television reported.

The emergency measures come as adjacent Hangzhou, the capital of wealthy Zhejiang province, moved to high alert this week, ordering hundreds of plants to halt for up to four days a week.

"It's a rule. We have to cut power for 10 days," said Lu Jun, spokesman for Shanghai Volkswagen, the German firm's main manufacturing joint venture in China.

"It started last Friday. We've cut power and so have had to stop production. It's all over Shanghai."

"But we've already frontloaded our production, so it won't affect sales for the year."

Lu said Volkswagen's and GM's venture partner, Shanghai Automotive Industry Corp (SAIC), had done the same. But other energy-intensive factories, from Baosteel to ThyssenKrupp's venture, denied they were affected.

A government spokeswoman said she was unaware of any such citywide ruling.

GM executives said they stop production anyway for routine maintenance every year, and this year was no different.

"Shanghai GM is ... carrying out its annual routine manufacturing line maintenance and checkup between July 15 and 25," the company said in a statement.

WHO'S AFFECTED?

But it added: "This also accords with a request from the Shanghai Municipal Government to shift its hours of operation in order to help the municipality save energy."

Baoshan Iron and Steel Co. Ltd. (Baosteel), the country's largest steel firm, said it was relying entirely on in-house generators and was therefore unaffected.

Across China, a booming economy has stretched energy resources and officials expect a power deficit of some 40,000 megawatts this year -- enough to power 40 million homes.

In Beijing, officials imposed the capital's first brownout this year on Friday, a power disruption of 47 minutes in the afternoon that hit suburban areas, the official Xinhua News Agency cited the Beijing Municipal Power Supply Bureau as saying.

Years of under-investment in capacity and transmission -- partly a result of a grinding bureaucracy -- coupled with a ballooning middle-class snapping up home appliances, have left China facing its worst power crisis in decades.

In 2003, China's electricity consumption surged 15.4 percent over the previous year to 1.89 trillion kilowatt-hours, the highest on record over the past 25 years, Xinhua said.

Electricity usage in Shanghai surged to a weekly record 14.35 million kWh just last week.

Temperatures in the day in the eastern metropolis have been hitting 37 degrees Celsius (98.6 Fahrenheit) this week. The city could seed clouds to make rain as early as next week to cool searing temperatures, state media has reported.