The remarkable success of China's economic reform is built on a solid political foundation. That success has been made possible by a considerable degree of credible commitment to markets achieved through institutional reforms that we have called "federalism Chinese style." Because these reforms are endowed with a degree of political durability, they provide a significant amount of protection to the market from unwanted political intrusions. Political decentralization, in turn, has provided individuals and local governments with the incentives to pursue economic prosperity.