Developing countries often face challenges with stagnation or setbacks in electricity marketization reforms. Therefore, it is essential to examine the underlying causes of these obstacles and consider potential solutions. This chapter reviews the progress and dilemmas of the Chinese electricity marketization reform, focusing specifically on trends in resource misallocation in the Chinese thermal power sector. Despite stalled marketization reforms, findings reveal that resource allocation has improved, indicating that China has implemented effective alternative policies. Furthermore, we assessed the impact of an alternative policy, power generation rights trading, on resource allocation in the thermal power industry. The empirical analysis reveals that power generation rights trading significantly reduces resource misallocation in thermal power plants, primarily by mitigating output distortion. The policy’s effect is particularly pronounced in regions with higher supply independence and lower reliance on thermal power, and it is likely to have long-term effects. These findings provide new perspectives and strategies for promoting electricity marketization reform in developing countries.