The Chinese Communist Party (CCP) leadership’s recent approach to narrowing the widening urban-rural gap is set forth in the comprehensive development policy for rural China: “Constructing a New Socialist Countryside” (shehui zhuyi xinnongcun jianshe, CNSC). This policy was a core part of the 11th Five-Year Plan in 2006. Like all other central rural development programs, CNSC is ultimately implemented by county and township governments. Arising from the idea of the “developmental state”, this dissertation delineates how the state is involved in the political economy of institutional change at local levels. Further elaborating on Oi’s notion of “local state corporatism” and Heberer and Schubert’s “strategic group” approach that provide a set of concepts for analysis, this study applies and contributes to these theoretical and analytical frameworks by examining the roles of local officials, coal mine owners and villagers, as well as the agency problems and relationship between the local state and businesses. Employing a qualitative inquiry strategy and using in-depth interviews, field observations and extensive archival research of the comparative case studies in Fugu County, this dissertation examines how the local state used managerial strategies - “Local State Entrepreneurial-Developmentalism” - to change the ownership structure from private dominated to mixed ownership in order to reinstate gradually the state ownership of the private enterprises and to expand the tax base to promote the county-wide economy. Consequently, the institutional change in ownership structure reduced the total information and transaction costs and the bargaining power of private capital, on the one hand, and on the other hand, it reinforced the state-business symbiotic relationship and intensified agency problems. Furthermore, using the “strategic group” approach in the analysis, this study investigates how the county and town cadres established strategic cooperation to co-opt local coal mine owners/entrepreneurs into “constructing a new socialist countryside”. It argues that Corporate Social Responsibility (CSR) was used by the local officials as a political label to justify their efforts to establish new redistributive institutions. Formal and informal institutions closely interacted in the process of CNSC implementation, in other words, in the formation of strategic groups and in the process of extracting matching funds, redistribution and conflict mediation through pairing schemes. These empirical patterns of local entrepreneurial-developmental state and strategic groups contribute to clarifying how agencies structure within China as a developmental state.