This article examines the situation of institutional care in two Chinese cities. During China's market reforms, previous state welfare homes have encountered significant financial difficulties. At the same time, the demand for institutional care has been on the increase. In response, the Chinese government adjusted previous policies for institutional care in order to mobilise resources from the newly developing market economy. Guided by these new policies, state welfare homes in the two cities tried to solve the problems facing them in creative and entrepreneurial ways. Their efforts gradually changed their financial bases from total reliance on state resources to having more diversified resources. At the same time, new types of welfare homes began to emerge, which were funded by mixed resources from the government, the business society, local communities, and families or individuals. In fact, the coverage of institutional care in one of the two cities was greatly expanded with only very limited state investment.