Even as my plane was landing in Jinan, the capital of China's heavily industrialized Shandong province, I could see cranes. By the time I got to the city center I'd counted 76 more construction cranes along the way. There were probably more, but in the city proper the smog was so thick I couldn't see any farther than the sidewalk. When I visited, just a few weeks before last summer's Olympic extravaganza kicked off, Shandong had just been named to the Chinese EPA's "green blacklist" for its terrible air quality. In the taxi, it struck me that these invisible cranes are the real symbol of China's paradoxical growth—an explosion of wealth and productivity partly obscured by its own pollution. If gross domestic product continues to grow by just 7 percent a year, 85 percent of China will be new by 2030. That's a tremendous, nearly unimaginable quantity of steel and cement—and also energy and pollution.

Americans are smug about China's smog. But do we really deserve such self-satisfaction? After all, one-fifth of the energy China uses is directly exported to us in the form of goods. We get the deck chairs, the ceramic plumbing fixtures, and the vinyl fake Hermès handbags; China gets the smog. What's more, China has to go out shopping for all that extra oil and energy. U.S. pundits often say China is competing with the United States for energy supplies, but it's more accurate to call our relationship a competitive collaboration, an undefined relationship with much at stake for the economies, environments, and lifestyles of citizens of both countries.

We may not be able to ignore the smog, but we need to look past it to the cranes, where the armature of China's future is taking shape. I was in Shandong to visit an ambitious, China-sized experiment in reducing energy use—and yes, smog—that has grown out of a 20-year relationship between the Chinese government and the Lawrence Berkeley National Laboratory. The project has the ungainly name of the Top-1000 Energy-Consuming Enterprises Program, but it has a simple rationale: China's 1,000 largest companies devour a third of the country's total energy budget. Burning fuel costs money, creates smog-forming air pollutants, and releases greenhouse gases into the air. Get companies to voluntarily use energy more efficiently and you get a four-fer: lower energy consumption, more profitable companies, less pollution, and fewer carbon emissions.

The results, so far, are impressive. The program started in 2006, and if current trends continue, by 2010 it could keep 450 million tons of carbon dioxide out of the atmosphere. Even though China's emissions continue to rise, 450 million tons is a lot. Since 1997, the entire European Union has been laboring mightily to reach its 2012 Kyoto target of reducing its 1990 baseline emissions by 300 million tons.

Top-1000 also offers a peek beyond the stereotypes to see how China works today. The program has taken shape in an atmosphere of relative openness, with international collaboration, and in a mash-up of market and command economy that is full of tension, contradictions, and surprisingly, passion.

I observed all of this in action at a banquet to celebrate the second anniversary of the program. At a hotel in Shandong's seaside city Yantai, the tables were laden with quivering purple sea cucumber, abalone, braised pork, and more. The diners demonstrated that policies are no longer made by men in windowless gray rooms to the west of the Forbidden City: There were college professors, energy experts, local and national officials, a self-identified propaganda specialist, three scientists from LBNL, efficiency experts affiliated with the Communist party leadership, cement plant operators, industry trade groups, and Chinese representatives from the Bay Area–based Energy Foundation. All of them played important roles in shaping the Top-1000 Program.

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