China's transition from a planned economy to a market economy has been producing a market-based government. Outsourcing in service delivery has been increasingly adopted as a major public management innovation. This paper provides an overview of the development of outsourcing in China by analyzing the changing service delivery environments in China and generalizing the major developments and characteristics of outsourcing. An analytical framework for capacity development is proposed to examine the management practices of Chinese governments on outsourcing. A case of competitive outsourcing of social services in Shanghai is studied as China's avantgarde local innovation. The author argues that public-private collaboration in service delivery has become an irreversible trend in China, with important commonalities and differences from its western counterpart. It is critically important for Chinese governments to develop managing capacities to achieve success in harnessing this “buy” option.