China will allow foreign companies to invest in the construction and operation of the country's power grid for the first time, the country's top economic planner said.

The National Development and Reform Commission (NDRC) said power grids have now been listed on the 'new guidance catalogue' as acceptable targets for foreign investment.

China now only has two state-owned grid operators - China State Grid and China Southern Power Grid - after the reform of China's electricity sector in 2002, which led to the separation of the industry into independent power producers and grid companies beginning in 2002.

However, the reform of China's power industry is being held back by inadequate grid infrastructure, according to a recent research report by Fitch Ratings.

Significant financial and political support is needed to improve the power distribution system, which is "the biggest challenge for the Chinese power industry," the report said.

Nui Li, an energy expert at the State Information Center, said that the move by the NDRC was made to speed up the construction of power grids on the mainland, which have been unable to keep up with the pace of new generators coming online.

This has led to power supply shortages in some areas, Li said. However, he emphasized that although foreign firms would be allowed to invest in power grid construction, mainland companies would keep the controlling interest as power supply is a matter of national "economic security".

Many of the large new plants have been built in western regions, but the failure to connect the new capacity to the major consumer markets in the east is another reason for the supply imbalances, Fitch added.

State media reported that that China's "big five" state-owned power generators have incurred losses of 4.84 bln yuan in the northwest region since the end of last year due to the problem.