This paper adopts the state capitalist approach to explain the development of labor politics, particularly changes in union capacities, since the reform period. In China, state capitalism not only entails the persistence of state intervention in labor markets, but also state fragmentation and the importance of informal institutions. Since the 1990s, the Chinese state’s promotion of state-owned enterprises has created barriers for private enterprises. To achieve profits, private enterprises colluded with local governments to bypass formal institutions and regulations.