The continued success of rapid economic growth in the People’s Republic of China – and the accompanying economic reforms – will depend in no small measure on the continued growth of the electricity sector. With the aim of improving the commercial and technical performance of the sector, the Chinese government has undertaken a series of reforms in the electricity sector. These include the now standard reform strategy of separating the assets and operations of generation from those of transmission and distribution. This chapter describes the challenges, both politically and economically, of implementing this strategy. The aim of this chapter is to examine the progress of reforms and to evaluate the outlook for continuing the reform of China’s power sector in light of developments in energy markets in recent years, both within China and around the world. The chapter concludes that given the current situation in China, the introduction of widespread competition in generation runs a number of risks and that competitive markets should only be introduced gradually. It further suggests that a period of several years could be used constructively to build up the institutional framework for later competition, and a range of instruments other than competitive markets could be employed to address urgent priorities relating to system security, security of supply, sector efficiency and the environment.