China’s rapid economic growth has led to a dramatic increase in electricity demand. This is one of the reasons why hydropower is now playing a major role in China’s energy sector strategy, turning Yunnan Province with its huge hydropower reserves into a crucial power supplier for the country’s booming eastern and southern coastal regions. However, Yunnan does not only have important mineral and water resources. The province is also home to a high number of ethnic minorities mainly living in poverty. While hydropower development has the potential to improve Yunnan’s low social-economic status and ameliorate the living conditions of the local population, the environmental damage and the large scale resettling processes that are caused by hydropower development projects severely impact the lives of local communities. In order to show how these dynamics play out in the process of hydropower development in Yunnan, this article examines the evolution of hydropower development in Southwest China through the lens of James Scott’s framework for explaining tragic consequences of large-scale development schemes. While the changes that have been taking place in China’s hydropower politics are evidence of the adaptive capacity of China’s authoritarian regime, large dams with severe social and environmental implications are still being planned and constructed in China today. These development projects used to be driven by China’s central political leaders, but nowadays, much of the decision-making power rests with local governments and hydropower companies, highlighting the fragmented state of China’s policy-making.