This chapter examines why China introduced the practice of contracting out social services. Supporters of state outsourcing of public services believe that this can enhance incentives, drive down service delivery costs, improve quality and involve non-government sectors that are more effective and efficient. Further exploration of these arguments, however, reveals that China might not be able to obtain these positive outcomes because of a limited number of non-governmental organisations and specialist agencies. Therefore, the reasons why the Chinese government implemented the contracting out of public services requires further investigation. This chapter argues that China’s contracting welfare policy has mixed with its public sector’s reform policy. After reconstructing its state-owned enterprises (SOEs), the Chinese government has been attempting to reform its public institutions in order to make them independent and more efficient. The contracting out welfare approach has become a convenient method for the Chinese government to facilitate the separation of the public institutions from the public sector and help them to continue their welfare activities with the support of government’s contracts. Thus, in addition to reducing costs and improving the quality of services, China’s contracting out of welfare services needs to be explained in the context of its public sector reform. The final section of this chapter briefly highlights the main concerns of this edited volume.