Jan. 12 (Bloomberg) -- Power demand and output in China, the world's second-biggest consumer of energy, will continue to fall this year because of slower economic growth, said the State Electricity Regulatory Commission.

Power stations will operate at reduced rates, the Beijing- based commission said in a statement posted on its Web site today. ``Unsolved problems'' in coal and power pricing will add to operational difficulties, it said.

Economic growth in China has slowed for five consecutive quarters and its 9-percent third-quarter expansion was the weakest in five years. Power consumption is declining as companies in industries from metals to toys reduce production or close down after the global recession cut demand for exports.

``Affected by the changes in the international and domestic economies, China's electricity market has made a significant shift from supply shortage to sluggish demand since October,'' the commission said.

Power consumption fell 4 percent in October from a year earlier, the first decline since March 2005, and 9.6 percent in November, according to state data. The government has yet to release December figures.

``The changes in market conditions have brought about new challenges to ensure the industry's stability,'' the commission said in today's statement.

Shares Fall

Shares of China's biggest electricity producers, Huaneng Power International Inc. and Datang International Power Generation Co. declined in Hong Kong trading. Huaneng, the largest producer, dropped 3 percent to HK$4.93 while Datang International fell 6 percent to HK$3.61.

The country may face an energy oversupply within the next two years as the global crisis slows the economy, Wang Siqiang, a deputy director at the National Energy Administration, said on Dec. 12.

China Southern Power Grid Co., which transmits electricity in the five southern provinces, said power demand in the region may ``recover gradually'' in the second half, helped by the government's economic stimulus plan. Electricity demand growth will stay at a relatively low level this year, Southern Grid, the smaller of China's two power distributors, said in a statement on its Web site today.

Guangdong, the nation's manufacturing hub, may suffer power shortages when demand peaks in the summer, said the company. Southern Grid will deepen cooperation with Vietnam, Laos, Hong Kong and Macau to help meet a 5 percent annual power sales target, it said, without elaborating.

Price Curbs

China's power producers are also battling rising costs. The nation's government controls electricity prices to moderate their impact on inflation. The curbs have prevented power suppliers from passing on rising coal costs to consumers.

Huadian Power International Corp., a unit of China's fourth-biggest power generator, said on Jan. 9 it may have swung to a loss last year because of higher coal prices and lower demand. Huadian shares fell 1.7 percent to HK$1.75.

The nation's five biggest power producers led by China Huaneng Group lost 26.8 billion yuan ($3.9 billion) in the first 10 months of 2008 after raw material costs rose and a slowing economy curbed electricity demand, a company official Dec. 5. Coal prices at Qinhuangdao port, a Chinese benchmark, rose to a record of 1,080 yuan a metric ton in July.

The country's electricity use rose 5.2 percent to 3.43 billion megawatt-hours last year, down 9.6 percentage points from 2007, the Beijing-based China Electricity Council, which represents the nation's power producers said on Jan. 5.

To contact the reporter on this story: Wang Ying in Beijing at ywang30@bloomberg.net. Winnie Zhu in Shanghai at wzhu4@bloomberg.net;

Last Updated: January 12, 2009 04:22 EST