From 1992, China began to focus its economic reforms on building a socialist market economy. China's constitution has been revised several times in order to meet the rapid changes in economic reform by including the concepts of rule-of-law, human rights, private property rights and a socialist market economy. Considerable effort has been put into the building of a market economy including privatising state enterprises, transforming government functions and reforming the legal system. Market pricing systems and the forces of competition are gradually emerging in China. However, the market mechanism is still in a preliminary stage of development with the government continuously controlling and interfering in many aspects of economic activity. This article attempts to address the problem of administrative monopoly in China through a case study of taxi monopoly in Beijing. The case reflects the conflict between building a market economy and working within the constraints of the old institutions. The article also attempts to provide answers to several questions such as the need for the taxi service to be under administrative control. Should the taxi service be controlled by administrative means at all? When should the government intervene in the market operation for the sake of public interests? In this case study, why has the government failed to rectify the situation when it is aware of the damages its intervention has caused to the interests of taxi drivers, consumers and the state? Is such government interference legal or just in the first place? Is it necessary to focus on administrative monopoly in order to foster market rules and competition? This study reveals that the biggest obstacle to building a market economy in contemporary China is administrative monopoly or government interference with market operation. Only when administrative monopoly is eliminated will anti-monopoly actions against other monopolistic behaviour be meaningful and justified. A management model for resolving the Beijing taxi monopoly is proposed.