In this paper the urban process in the face of China's transition to a market economy is examined from the perspective of political economy. Before economic reform, China operated a centrally planned economy. Production activities were organized on the basis of sectoral departments of the central government, and the reproduction of labour was carried out through self-contained development. The dominance of the state stemmed from its role in resource allocation. Economic reform, launched in 1978, introduced market mechanisms to urban processes in China. Through fiscal, housing, and land reforms decisionmaking was decentralized. Under so-called ‘comprehensive development’, municipalities are now required to organize urban development. The state has lost its dominant status in budgetary investment. Self-raised, extrabudgetary funds increased rapidly. Work units still extract surplus value efficiently but have had to become the major purchasers in housing markets because workers in the public sector cannot afford housing. The persistence of state ownership in the mode of production makes it unlikely that market forces will play a leading role in urban development in China.
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