Try as it might to outrun market forces, China’s decision to hike electricity prices from June 1 shows that even the mighty mandarins in Beijing cannot ignore basic laws of supply and demand. They finally flinched late on Monday, announcing a roughly 3 percent increase in power prices for non-residential users in a move to combat looming blackouts by stimulating more electricity production and discouraging consumption.

The immediate prompt was the threat of a nationwide 40 gigawatt power shortage this summer, China’s worst since 2004. To put this in perspective, all the power plants in Sweden could be hooked up to the Chinese grid, but there still would not be enough electricity to fill the hole.

In diagnosing the cause of the shortage, the difference with 2004 is, well, illuminating. Back then, there was not enough power production capacity to meet surging demand. Electric companies invested handsomely in new plants in the subsequent years, so capacity is no longer a constraint. Instead today, the problem is the market – more specifically, the government’s unwillingness to let market conditions prevail in the power sector.