This article presents a case study of Fushun Petrochemical Company (FPC), which is a large state-owned enterprise (SOE) in Liaoning province under the control of China National Petroleum Corporation. In the first part of the article we argue that China's approach to the reform of large-scale SOEs in upstream industries such as petroleum has a sound economic logic. In the second part we use the recent restructuring of FPC to illustrate China's approach to reforming the petrochemical sector. We draw on interviews with managers and local government officials to discuss both the difficulties that the enterprise faced prior to reform and the main measures that were implemented during restructuring to address these problems. While the restructuring process at FPC has just been completed, we argue that the outcome provides some support for China's decision to promote large SOEs in upstream industries.