Abstract: The increasing peak-valley differences,air conditioners and renewable energy sources bring new challenges to the smart grid in China.Demand response（DR）is regarded as one of the most important solutions to the above problems.A new round of electricity market reform is being carried out in China,which provides a good opportunity for developing DR.Under this background,this paper analyzes the development of DR in different electricity market environments.A business model and a market framework of DR,which suit to China’s national conditions,are put forward.There are two stages:in the first stage,an ancillary service market which contains DR and is relatively separate with the energy market should be developed;in the second stage,an ancillary service market which contains DR and is collaboratively optimized with the electricity market should be developed.Moreover,product types,price clearing methods,assessment methods and settlement methods of DR are analyzed separately in the two stages.With the development of electricity market in China,DR will play more important role to the stability and economy of the power system.