Chinese industrial sector energy-efficiency policy has gone through a number ofdistinct phases since the founding of the People's Republic in 1949. An initial period ofenergy supply growth in the 1950s, 1960s, and 1970s was followed by implementation ofsignificant energy efficiency programs in the 1980s. Many of these programs weredismantled in the 1990s during the continuing move towards a market-based economy. In aneffort to once again strengthen energy efficiency, the Chinese government passed the EnergyConservation Law in 1997 which provides broad guidance for the establishment of energyefficiency policies. Article 20 of the Energy Conservation Law requires substantialimprovement in industrial energy efficiency in the key energy-consuming industrial facilitiesin China. This portion of the Law declares that "the State will enhance energy conservationmanagement in key energy-consuming entities." In 1997, the industrial sector consumednearly 30 EJ, or 76% of China's primary energy. Even though primary energy consumptionhas dropped dramatically in recent years, due mostly to a decline in coal consumption, theChinese government is still actively developing an overall policy for energy efficiency in theindustrial sector modeled after policies in a number of industrialized countries. This paperwill describe recent Chinese government activities to develop industrial sector energy-efficiency targets as a "market-based" mechanism for improving the energy efficiency of keyindustrial facilities.