Carbon offsetting - what does it mean?

Issue 11 of Manchester Climate Fortnightly includes the story that parts of the Piccadilly Basin development have been awarded 'carbon neutral status.' While this is partly down to a BREEAM rating of 'excellent' for the energy efficiency of the buildings and eco-measures such as a 'living roof,' this seems to mainly be based on the development's purchase of carbon offsets.
Carbon offsets are still a highly controversial means of claiming environmental impact reductions for buildings, flying, driving, heating buildings and homes and other polluting activities.
The negative impacts of some offset projects, especially reforestation projects which have planted monocultures or inappropriate tree species on land from which indigenous people and peasants have been evicted, is well documented. The name 'Future Forests' was dropped by one of the industry's first big players after the associations became too negative - it's now the almost-ubiquitous 'Carbon Neutral Company.'
Some critics of offsets have wider objections, focusing not on the ills of specific projects but seeing the entire idea as dubious - an opportunity for us to continue living environmentally profligate lifestyles and make us feel better about massive overconsumption by buying our way out of guilt - not dissimilar to the 'indulgences' peddled by the Roman Catholic church during the Medieval period.
For those interested in offsets, though, the difficulty is in finding offset services which offer projects which don't abuse human rights, are environmentally sustainable in other ways, such as respecting biodiversity and water resources, and which support projects which are genuinely 'additional' - ie they wouldn't happen if those offset payments weren't coming in. For more discussion on this kind of issue, see the Carbon Offsets product report in Ethical Consumer magazine or the debate between Paul Monaghan of the Co-op Group and Dan Welch of Ethical Consumer in Enterprising magazine.
And this, to cut to the chase (yep, I'm finally getting there!), is what worries me about the Piccadilly Basin statement of 'carbon neutrality.' One of the offset investments it lists is the Sichuan Hydro Power Project in China. Now, I know nothing about this project specifically, and I haven't got time to go and investigate it at this moment. But I do know that Chinese hydropower projects have a diabolical environmental and human rights history. The notorious Three Gorges Dam, for instance, included the (in many cases forced) displacement of over a million people, the flooding of priceless archaeological heritage and huge environmental damage. Other Chinese massive hydropower projects have had similar impacts, if not on quite such a vast scale. And while China's huge population deserves all the comforts that the affluent West has awarded itself over the years, how much of the power from some of these projects is actually going to Chinese homes, and how much to an economy predicated to a substantial extent on manufacturing stuff for export to us, and to the rest of Europe and the USA, to feed our apparently inexhaustible appetite for things we don't need? And is this a suitable destination for funds which then allow developments in our own backyard to call themselves 'carbon neutral'?