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Why does China have a thriving private sector? This paper argues that conglomeration serves as an informal institutional arrangement through which resources can be reallocated within conglomerate even in the absence of factor markets. Using firm registration data that covers all the 17 million firms in the economic universe of China, we document the following facts: (1) two hundred thousand state-owned firms are at the center of the universe in terms of the firm-to-firm ownership network, about two million private firms are connected to the state-owned firms and these connected firms account for two thirds of the registered capital in China; (2) hundreds of conglomerates are identified and the explosion of the universe was mainly driven by the expansion of incumbent conglomerates; (3) firm access to resources is highly correlated with its distance to the center of the conglomerate. We then develop a model of conglomerate formation, where connecting to a conglomerate helps to overcome financial constraints or entry barriers. The model generates the firm size and TFP distributions as well as conglomerate size distribution, which we use to compare with the data in structural estimation. The estimated model can also reproduce many dynamic patterns in the data, especially the booming private sector since 2000 and its connectedness with the state sector.