This thesis explores the puzzling subnational variation of policymaking for the online ride-hailing industry (ORS) in China. Chengdu and Jinan are two similar cities on many economic and political levels. They are both capital cities of their provinces, new first-tier cities in terms of their economic size and both have a large population. Yet, they adopted significantly different ORS policies. This thesis asks why two similar cities in China have diverging policy outcomes. Using a method of difference (MOD) strategy to compare these two similar cases with diverging outcomes, the thesis evaluates three potential explanations. They are as follows: (1) historical legacies and political communities, (2) the cadre evaluation system (CES), and (3) government-business relationships. Using a historical institutionalism theoretical framework with comparative capitalism and economic sociology roots, this thesis finds that a mixture of CES incentives and government business relationship patterns has had a determining impact on diverging outcomes in Jinan and Chengdu. There have been two phases of ORS policymaking in China until now. In phase 1, Chengdu had a laxer ORS policy than Jinan. A comparison of historical legacies and political communities tells us that Chengdu has been a more market-oriented city than Jinan. More importantly, Jinan’s government had a more intimate relationship with local taxi agencies, which proved to be the major cause of subnational differences. In phase 2, Chengdu’s ORS policy was found to be more stringent than Jinan’s. In this case, the significant variable leading to Chengdu’s tightened policy was the target-setting of the cadre evaluation system (CES). The CES specifically required Chengdu’s government to ban non-green vehicles from the ORS market while Jinan did not encounter the same requirement. Moreover, Jinan can exclude non-green vehicles from its environmental protection plan while Chengdu cannot. This thesis observes a structural distortion caused by the CES. Throughout the two phases of ORS policymaking, both governments play a consistently dominant role. However, the government-business relationship remains flexible. If the relationship is viewed as an institution, it is composed of informal procedures, conventions, and orders where actors accommodate each other. The largest privately-owned ORS enterprise, Didi, has declared that their preferences are taken into consideration by the government. Some questions remain as to how the government processes those preferences and how much importance it attaches to them, but this illustrates the mutual accommodation of the government and an enterprise within an informal institution. By some unwritten but conventional procedures, they coordinate with each other. This thesis furthers the study of the government-business relationship in China. It not only unearths the institutional factors of subnational variation for ORS policymaking, but also verifies the presence of institutional flexibility in China. This thesis is an important addition to the literature on government-business ties in China because it does beyond the study of rent-seeking to evaluate the multifaceted ways in which the Chinese government can build relationships with enterprises.