Summary. Using a 1996 national survey of housing in China and a multilevel modelling technique, we examine housing tenure choice in transitional urban China where households have been granted limited freedom of choice in the housing market since the housing reforms of 1988. We nd that both market mechanisms and institutional forces affect households' tenure choice in urban China. While some socioeconomic factors such as age, household size, household income and housing price have similar effects on tenure choice as in the West, others such as the number of workers and marital status have rather different effects. In addition, factors characterising institutional relationships among the state, work units and households, such as hukou, job rank and work unit rank, still play important roles in tenure choice.Since the 1980s, most socialist economies have been in a process of transition and studies of transitional economies have become major topics in economics, geography, sociology and political science. Compared with the 'shock therapy' in eastern European countries and the USSR, the transition in China has been gradual and evolutionary (McMillan and Naughton, 1996). As part of the transition to a market economy, housing reform in urban China was launched nationwide in 1988. It aims to introduce market mechanisms to a heavily subsidised housing system and to transform housing from a welfare good to a commodity. To ensure a smooth transition, a dual system with 'new policies for the new housing stock, old methods for the old housing stock' (xin fang xin zhi du, lao fang lao bai fa) has been central to housing policies (State Council, 1998). While a housing market is emerging, the socialist forces in the housing system-such as the housing subsidies by work units-persist. It is this side-by-side combination of market mechanisms and institutional forces that creates the transitional nature of China's current housing system and sets a unique context within which households make tenure choices.Urban households in China, who had few housing choices but to wait for subsidised rental housing (also 'public housing', gong fang) in the socialist era, now have choices regarding both housing type and