Increasing electricity capacity is a major requirement for China's modernization. Yet one trend, the construction of very small (12 MW) coal-fired electric power stations, raises serious economic and environmental issues. These plants, built at the county level to supplement chronic power shortages, are far less efficient and far more polluting than larger coal plants being built at the provincial and national level. The paper examines the electric power industry in China. The paper reflects upon China's recent policies toward decentralization and the conflicts that are created between greater economic activity, rural development, and environmental quality. The paper searches for explanations to the continued construction of these small power facilities, the implications for the regional and world environment resulting from their operation, and both technical and political solutions to problems caused by their continued use.