The Chinese government is trying to combat the pollution problem: Its passed regulations on everything from catalytic converters to Styrofoam lunch containers, and across the country aggressive reforestation projects are underway, but in most cities, including Hangzhou, change has been slow.

Drive 50 miles outside of Hangzhou and the air quality improves dramaticallyŠand that's not just because you're in the countryside.

Shen Shunchu is the assistant director of the sprawling Moganshan reservoir and hydro-electric power plant. It not only generates electricity but provides drinking water for surrounding villages and towns.

(sound from inside power plant)

Inside, the plant is surprisingly small. A single room houses the facility's lone turbine, and the operations -- largely automated -- are monitored from a small adjoining control room. Shen Chuqing is in charge of engineering at the power plant and says the simple-looking operation is actually a state of the art small hydro facility. It was completely overhauled last year.

(Shen speaking in Chinese)

Shen says with the new equipment they've almost doubled electricity production, and now only need half the staff. They expect to pay back the cost of the new equipment within a few years, and whatever's left will go into maintaining the small nature reserve surrounding the reservoir. The new equipment was provided by the East Asian Regional Center for Small Hydro Power, a government-run agency back in Hangzhou that promotes small hydro projects in China

The center is part of a new trend here: investing in clean power. The government recently poured an estimated $7 billion into the research and construction of small hydro projects. Those project now provide nearly a hundred million Chinese villagers with electricity.

Developing clean power sources is an urgent priority for China. Its impressive economic growth has relied almost entirely on dirty power like coal and wood, and the cost has been quality of life. The director of the Hangzhou Center Liu Yong , says everything from lung disease to increased flooding can be blamed on deforestation and air pollution, and that small hydro is a cheap, clean alternative.

Liu: We need power to keep growing the economy. In the countryside, if they don't have hydro power they have to rely on burning coal or trees, because they need power. But with electricity they can both protect the environment and have cheap dependable power.

But clean power for China is not only a Chinese concern. The US department of Energy has been trying to help the Chinese government move over to sustainable energy, including small hydro. US department of Energy researcher Debra Lew helped host a recent conference on renewable energy in Shanghai. Lew says China is especially well-suited to small hydro. It's home to three of the world's longest rivers, and much of China's history has been spent trying to contain those rivers. With its low start-up costs, many here say small hydro not only provides much-needed energy, but also holds out hope of finally harnessing the rivers' power.

Law: Small hydro is actually one of the huge success stories of China. China's been, they're very successful in lots of renewable energy programs...but especially in small hydro, probably more so than in any other country...they've got quite a bit of capacity to design, build, install, operate and maintain small hydro, and they export it to other countries.

Critics say China's success with small hydro is deceptive and future plans unrealistic. They claim the Chinese government isn't pursuing hydro power in a renewable fashion, instead it's concentrating on huge money-draining projects like the Three Gorges Dam. That dam will be the world's largest when it's completed in 2008 -- but over a million people will be displaced in the process and hundreds of villages flooded by the dam's reservoir.

Doris Shen is the China coordinator for the California-based International Rivers Network. she says Three Gorges is eating up funds that would be better used on small hydro projects like the one near Hangzhou.

Shen: When you look at the numbers, you see that microhydro is definitely the way to go, but what you see is a trend of more money going to large hydro and the question is "Why is this happening? Why are uneconomic programs being pushed forward?"

(Sound from the street in Hangzhou)

At the Center for Small Hydro in Hangzhou, director Liu Yong agrees with at least some of the criticism. Though his center is state-run, Liu is suprisingly frank when it comes to assessing the "large hydro" projects so popular with state planners.

And the real beneficiaries of expanded hydro projects -- critics say -- are neither Chinese burearucrats nor Chinese consumers. Again, Doris Shen of the International Rivers Network.

Shen: The era of large dam building in the US is now over, it's dead. But the industries are still around, pushing these projects and seeking market in countries like China.

Shen says the Chinese government's mistaken policies are visible in a proposed dam project in Sichuan province, where a 2000 year old irrigation system that continues to provide water for one of the country's most fertile plains is slated to be replaced by a new and very large dam.

But there are encouraging signs for small hydro. At the Moganshan small hydro plant near Hangzhou, the staff hosts yet another visit by a group interested in reproducing such power stations across China. The central government is giving them a boost. The latest five year plan includes funding for 400 new small hydro projects.

And with only a fifth of the country's potential small hydro developed, there's still plenty of room for growth.

For The World, this is Odilon Couzin in Beijing.