In China, many ongoing problems in the electricity sector can be traced back to the old ‘centrally planned’ economy. Since the start of liberalization in the 1980s, the clash between a liberalized economy (excluding a few so-called strategic industries) and a centrally controlled electricity industry has gradually become more and more apparent. The Chinese electricity industry is in need of constructive restructuring. In the absence of a universal agreement on optimal industry design, the Chinese government should have a firm and clear understanding of the implications of electricity restructuring for long-term social welfare. Otherwise the electricity industry might, again, be locked into an inferior industry design which would be very costly to change.