This paper constructs a growth model that explains key features of China's economic transformation over the past three decades, including high output growth, sustained returns on capital investment, extensive reallocation within the manufacturing sector, falling labor share, and accumulation of a large foreign surplus. The model is based on asymmetric financial imperfections and heterogeneous productivity, where high-productivity firms, run by entrepreneurs, must rely on internal savings due to financial constraints. As these firms outperform low-productivity firms, they attract a growing share of employment, leading to a shift in domestic savings towards foreign assets, thereby generating a foreign surplus. The model is calibrated to account for China's growth experience from 1992 to 2007. Key predictions include an increase in the surplus with the share of entrepreneurial firms and a correlation between the net surplus and the employment share of private firms. The model also explains the accumulation of foreign reserves and the dynamics of sectoral reallocation, consistent with empirical evidence.This paper constructs a growth model that explains key features of China's economic transformation over the past three decades, including high output growth, sustained returns on capital investment, extensive reallocation within the manufacturing sector, falling labor share, and accumulation of a large foreign surplus. The model is based on asymmetric financial imperfections and heterogeneous productivity, where high-productivity firms, run by entrepreneurs, must rely on internal savings due to financial constraints. As these firms outperform low-productivity firms, they attract a growing share of employment, leading to a shift in domestic savings towards foreign assets, thereby generating a foreign surplus. The model is calibrated to account for China's growth experience from 1992 to 2007. Key predictions include an increase in the surplus with the share of entrepreneurial firms and a correlation between the net surplus and the employment share of private firms. The model also explains the accumulation of foreign reserves and the dynamics of sectoral reallocation, consistent with empirical evidence.