This paper examines the relationship between culture and the economy,investigating the role of clan in Chinas unprecedented development of the private sector.Although with no well-developed financial and legal systems,China witnesses a boom of private sector,which contributes to most of its economic growth during the past three decades.Using inter-census population survey and economic census data,I find that the clan culture is positively associated with the likelihood of entrepreneurship and the share of economy in the private sector.Exploring possible mechanisms,I find that the clan culture help privately owned enterprises to overcome financing constraints and escape from local governments"grabbing hand".In addition,the clan culture is significantly related to a set of individual values,which are arguably relevant for private business.Finally,I find that the role of clan culture reduces as formal institutions develop.The results overall demonstrate that the culture,as informal institutions,substitutes for formal institutions and signficantly influences the performance of an economy(JEL classifications:J21,Ol0.