This isn't a case of regulation or no regulation-- most of the worst polluters in China are state-owned enterprises. Just cutting off national and local government subsidies for industry would do a great deal to stop the pollution.
Small changes in incentives have large effects:
http://www.npr.org/blogs/money/2010/09/09/129757852/pop-quiz...
Getting rid of the agricultural price supports in the US would probably help the runoff situation in the Gulf of Mexico, too.
Tell me, what do you think the next step will be after they shutdown?
People need that energy after all - it's not like people will just shrug and go "oh well, no heat for me".
You will actually end up making things worse, under the guise of making things better. Just like a little knowledge is a dangerous thing, an analysis in isolation is worse than useless - it can actually cause you to promote actions that result in the diametric opposite of what you want.
You have good company: http://news.ycombinator.com/item?id=5051285 did the same as you and was rightly skewered for it.
Pollution controls cost money, and some energy. They will only be installed if customers (or customers via the government) demand it.
I pulled the 10% number out of thin air, so I'm kinda curious how you decided that was thermal efficiency.
Who is this "they" that goes for a more complete burn? Power plant operators will go for the cheapest unit that works reasonably.
Average coal power plant in the US has ~32-33% thermal efficiency with plenty in the sub 30% range. The best singe cycle coal power plant has 42% thermal efficiency so saying there is a 10% difference is a good ballpark a for thermal efficiency. X thermal energy times (0.3 + .1) is ~30% more than X thermal energy times 0.3.
PS: I do find it hard to be clear when doing lots of efficiency calculations using %'s.