Houze Song leads off in this chapter with an examination of China’s northeast “rustbelt” to find out why it has fallen behind other regional economies. In examining Liaoning, Song zeroes in on the largest of the three northeastern provinces (the other two being Jilin and Heilongjiang). He uses the case of a failed automotive venture to illustrate broader dynamics that have stifled the local economy, a microcosm of the tangled relationship between state and market. Such longstanding distortions may be particularly prominent in the northeast rustbelt, but they are symptoms that can be found in various local economies across China. Therefore, Song argues that restructuring the Chinese economy will require not only surface adjustments but also fundamental institutional changes to reshape the competitive landscape.