Purpose – This paper aims to examine the institutional and social determinants, and consequences of social entrepreneurship with respect to China's rural enterprises. It also attempts to provide a conceptual framework concerning how rural Chinese enterprises act as social entrepreneurial institutions and contribute to both business development and social welfare of local communities. Design/methodology/approach – The conceptual framework is developed through a critical review of literature and an integration of multiple disciplinary studies, with a focus on the perspectives of institutional governance, managerial networks, and market orientation. Findings – The study identifies three framework layers for the development of China's rural enterprises, which are fundamentally driven by market preserving authoritarianism, local state corporatism, community culture, social entrepreneurship and market orientation. Practical implications – The proposed framework can help contribute to the theoretical development of strategic issues of social entrepreneurship in transitional economies. It may also provide insights about local state governance, ownership structures and market competition in China. Originality/value – As China's rural enterprises are widely regarded as a phenomenon related to the core nature of a “socialist market economy”, an ideology embraced since the beginning of Chinese social‐economic reforms, a study of institutional and entrepreneurial nature of this kind serves as a stepping stone for understanding the emerging phenomenon of the country's social entrepreneurship, which is characterized by open market mechanisms and socialist legacies.