Market-based reforms in China'surban centralized heating sector are essential to addressingthe perpetual inefficiency of a sector built on welfarebased principles. The reform of heat pricing and billing isa crucial part of overall heat reform, since it willcommodity heat and thus create economic incentives toprovide and use heat much more efficiently. Heat pricing andbilling reform requires substantial changes in fourinterrelated areas: (i) transfer of heat paymentresponsibility from work units to consumers, a change frominvisible to visible heat subsidies and an improved targetedsubsidy system; (ii) determination of an economicallyefficient and equitable heat pricing system; (iii) promotionof heat metering, consumer control of heat consumption andconsumption based billing; and (iv) improvement of thesystem of heat price administration.