The inefficiencies of China's state-owned property policies form the central focus of this Article. In short, I argue that ill-defined property rights and transaction costs have hindered China's macroeconomic transition. My contentions diverge from prior scholarship, however, by explaining the overwhelming transaction costs through an analysis of the relative power of ministries within China's administrative hierarchy and the role of legalism in the People's Republic of China. Based upon this analysis, I suggest that the long-delayed State-Owned Assets Law now scheduled for passage in 2009 will only achieve the goals of diversification policy if accompanied by organic reforms within the Chinese government.