Why are some countries such as China able to achieve high rates of economic growth despite having high levels of corruption? This paper presents an economic model of corruption, building on an industrial organization framework, that explains why government agents may be incentivized to invest in public goods that promote economic growth rather than consume all tax revenues personally as corruption. Specifically, greater centralization of rent extraction produces greater “headline corruption” at higher levels of government but also reduces total corruption while increasing incentives for investing in public goods that promote economic growth. China’s economic reforms of the 1980s established this key condition of sufficient centralization of rent extraction at the local level. In conjunction with other key conditions including encompassing interests, hard budget constraints, and a belief in one’s ability to influence economic outcomes, this created an environment in which Chinese government officials at the local level were personally incentivized to invest in public goods and promote economic growth.