In this paper, we explore the complexities in the relation between the state and capitalist development in China and India. In both countries some form of weak capitalism had developed for many decades long before liberation/independence. After the latter point China, of course, installed a socialist economy both in industry and (after mid-1950s) agriculture, and the private sector was minimal and operated in minute scale and under the shadows. India, for the first four decades after independence, had a much larger private sector, but many of the key and strategic industries were in the public sector, sometimes co-existing with the private sector in the same industry (e.g., steel) and in other cases not (e.g., power plant equipment or airlines). The Indian informal sector (including both farms and household enterprises outside agriculture), much larger than that in China, has been mostly private owned; even now, it employs nearly 94% of the labor force and contributes about 45% of non-farm output. But many of these tiny enterprises, while often family owned, cannot be quite described as capitalist business; if market prices are imputed for the inputs they use (like family labor) their business income is often negative and persistently so. Those — like Prestowitz (2005) — who envisage the phenomenon of “billions of new capitalists” in China and India and draw its momentous implications for the current global economy, do not realize that hundreds of millions of poor people in either country are currently scrounging a living from tiny family enterprises of extremely low productivity. They do not have the kind of access to credit, marketing, and infrastructure or the basic skills and education and risk-bearing capacity that can make a capitalist enterprise possible. They are there because the capitalist parts of the economy (under state or private auspices) cannot absorb them. In the last two decades the private corporate sector has thrived in India, even though in the formal sector state-owned companies still account for about 40% of the total sales. The informal sector, though still quite large, has developed output and supplier links with the formal sector, and the communication revolution has strengthened those links. But a recent study by Alfaro and Chari (2009) on Indian corporate data over 1988–2007 show that in spite of a great deal of new entry, particularly in the service sector, the dominance of The Singapore Economic Review, Vol. 55, No. 2 (2010) 243–251 © World Scientific Publishing Company DOI: 10.1142/S0217590810003699