Central–local relations are a matter of great importance to developmentalists because they highlight an intriguing puzzle in public administration especially in large states: how policies decided at higher echelons of the formal system can possibly be implemented by the multitude of intermediary and local actors across the system. In the case of China—the most populous nation in the world, the contrast between the authoritarian façade of the Chinese regime and yet the proliferation of implementation gaps over many policy arenas adds additional complexity to the puzzle. This article reviews changes in central–local relations in the 60 years of history of People's Republic of China (PRC) as the outcome of four co-evolving processes, and clarifies the roles of each process: state building and national integration, development efficiency, career advancement and external influences. It points out the continuous pre-dominance of administrative decentralization from 1950s to present time, and the new emphasis on institutionalized power sharing in the context of new state-market boundaries since 1980s. In conclusion, the article suggests going beyond the traditional reliance on the compliance model to understand central–local interactions and the abundant implementation gaps in a context of central–local co-agency, thereby improving policy implementation. Copyright © 2010 John Wiley & Sons, Ltd.