How do democratic institutions function in authoritarian states? This study answers this question by examining the political institutions in rural China ¨C democratic elections of villagers committees and village oversight agencies. Using a nationwide survey on China¡¯s villager self-governance conducted in 2005 and in-depth case data collected in 2007 and 2008, this study finds that rural political institutions have significantly changed the political processes in China¡¯s countryside. The quality of village elections and the functioning of oversight agencies such as villager representative assemblies and financial supervision teams all have been crucial to affect the level of electoral participation and the quality of rural governance. The study shows that Chinese peasants are more active to vote as the village election methods feature more competitiveness and transparency. Moreover, higher quality of village elections and well-maintained village oversight structures have improved the quality of rural governance by holding village cadres more accountable to peasants¡¯ demands, as demonstrated in the higher level of peasant satisfaction with the performance of villagers committees in public services provision. The study also reveals that the effect of rural political institutions is a function of village economic conditions. The effect of village elections and oversight agencies in holding cadres accountable is significantly higher in villages that own substantial collective resources than in the ones that do not. This study challenges the traditional view in comparative politics that democratic institutions are established in authoritarian states for cosmetic purposes. It shows that, under economic pressure, political institutions matter in making democracy work in authoritarian regimes by encouraging political participation and generating better governance. It also suggests the necessity for the Chinese government to reinforce its efforts of standardizing village election rules and regulations and enforcing the establishment and maintenance of village oversight institutions.