China's economy today is a hybrid capitalism. The private or nonstate sector is the primary driver of economic growth: the most profitable, the most innovative and the major employer that has delivered the stellar growth of recent decades. Yet state sector firms remain important, especially in sectors vital to the interests of the party-state. They are the largest firms in many sectors of the economy and the biggest are included on the Fortune Global 500. But their contribution to employment has vastly diminished, their inefficiency holds back potential growth, and their lacklustre innovative capacity puts at risks China's aspirations has to become an advanced economy. Despite these deficiencies the state sector is privileged; their leaders are at the centre of the party-state, both corporate titans and powerful party officials, who profoundly influence the country's industrial policy.

Explanation for these contradictions rest in the dominance of the Communist Party of China (CPC) over business and economic life. Although the state abandoned economic planning in the 1980s and stepped back from day-to-day involvement in the economy, in what Barry Naughton (1995) called “growing out of the plan”, still everywhere the party-state's hand is at work in shaping the economy and the business opportunities of firms and individuals. And that hand has strengthened. Under Xi Jinping, the General Secretary of the CPC, the appetite for reform has waned during the 2010s and support for the state sector increased, or as the Chinese would put it: “the state advances, the private sector retreats (guo jin min tui)”. Few countries highlight as clearly as China the tension between the role of the state and that of the market in economic development. For this reason, the chapter begins with an overview of the organization of the government administration and the CPC.

This contemporary business configuration described above is not a simple story of a dual economy. Both state sector and private firms are tied together in complex webs of social networks based on personal and particularistic relationships that are a central trait of Chinese societies and indeed of most of Asia.