China has set for itself two formidable strategic goals: doubling 2000 GDP by 2010 and reducing energy intensity by 20% over the next five years. The next steps in power sector reforms should help to achieve these objectives.

Following careful analysis, the International Energy Agency offers the following key messages:

■ The development of fully competitive power markets should remain the long-term goal. In the progression toward this goal, near-term priorities should be:

To strengthen the institutional and governance framework.

To review actions for tackling coal pollution.

To develop and implement specific reforms for more cost-reflective, efficient pricing and investment, providing incentives for investment in energy efficiency and strengthening the grid and generation.

■ Near-term priorities should also include actions to lay a stronger foundation for the evolution of competitive markets across the country, and a first set of measures to stimulate basic competitive trading across China’s regions.

■ China needs to review and reaffirm its strategy for power sector reform, and to ensure that there are strong mechanisms for implementation of further reforms.

■ Greater transparency is the key that will help to unblock further reform progress across all fronts. This includes improving data collection and analysis on the power sector so as to improve understanding of supply and demand developments.

■ China has the opportunity to leapfrog other reformed jurisdictions by integrating, from the start, energy efficiency and environmental goals into its regulatory framework for competitive power markets.