The purpose of this study is to solve the main problems in distribution networks, including increased line loss and reduced power supply quality caused by insufficient capacitive reactive power. To reduce the capacity, voltage, and current stress of an active module of a compensation device and improve the cost performance of the device, an improved hybrid reactive power compensation system based on a fixed capacitor (FC) and a static synchronous compensator (STATCOM) is proposed. The topological structure and basic operating principle of the proposed reactive power compensation system are introduced. In addition, from the perspectives of output voltage, current, power, loss of the active part, and system compensation cost, the performances of the proposed reactive compensator and the inductively coupled STATCOM (L-STATCOM) are compared and analyzed. Furthermore, the key parameters of the proposed system are designed, and the joint optimization control strategy of the FC and STATCOM is studied.The correctness and effectiveness of the proposed topology structure and control method are verified by simulations.