In this paper, we use city-level datasets of social assistance programmes over 280 cities between year 2003 and 2011 to verify the existence of the crowding out between social assistance programmes and unemployment insurance in China. In other words, the expansion of social assistance programmes is associated with a reduction in the enrolment of unemployment insurance. With verifying the existence of the crowding out, this article argues that the crowding out is a result of an ineffective coordination across government departments. In the process of ‘dual decentralization,’ in which the central government has delegated welfare provision responsibility to local governments, the misalignment of incentive and institutions between central and local governments explains the ineffective coordination. Different from many studies in the literature, this paper presents an adverse consequence of China's bureaucratic incentive system in social policy implementation. Also, while the conceptual framework ‘fragmented authoritarianism’ has highlighted the policy ineffectiveness in the economic policy area, this paper contributes to this literature by illustrating the policy ineffectiveness in the social policy areas.