On the question of state-market relations, the neoclassical economic view regards a minimal state as essential for economic growth. The statist view in political economy studies, on the other hand, stresses the active role of the state in promoting economic development. Both views tend to treat "state" and "market" as opposing forces: A developmental state is associated with industrial planning and active interventionist measures to "govern the market", whereas market-conforming liberalization is usually seen as a sign of the state's retreat in the face of globalized market forces. My study of economic reforms in China, however, indicates that a state may pursue market-conforming liberalization to advance its developmental goals. This dissertation seeks to account for the logic behind the apparent anomaly of state-market relations in the course of China's economic reform through examining the reform processes of key economic sectors. The study pays special attention to the historical and institutional contexts where reforms took place and evolved and uses institutional change and the ensuing socioeconomic dynamics to explain the course and outcome of the reforms. It argues that administrative decentralization in China changed the Chinese state's internal structure and in turn adversely affected the central state's autonomy and policy enforcement capacity. To regain state authority and control, central policy makers resorted to market-conforming liberalization. Rather than the state intervening in the market or the state giving way to market forces, this process entails the Chinese state's effort to re-create a developmental state through the creation of a liberal market.