In Economic Reform and Institutional Innovation, the author identifies three building blocks that have contributed to China’s success: decentralization, an encompassing state, and volitional pragmatism. Decentralization provides dynamism to institutional innovation. An encompassing state ensures the survival and legalization of viable institutional innovations amidst the competition among different political groups. Volitional pragmatism enables the political entrepreneurs to hold a realistic attitude toward institutions while keeping an open mind to all future possibilities. The interplay between these three factors has shaped China’s reform trajectory. Along the path though, there have been constant interactions between local experiments and the central government’s ideological adjustments. This has created many mid-way institutions that do not fit into any existing institutional framework. However, it is the accumulation of these mid-way institutions that has stimulated China’s transition from a planned to a market economy.