Although the scale and speed of China’s urban and economic transition is well acknowledged, a detailed account of the transformation of a single city’s development in this context is quite rare. This paper provides an insight into the recent dynamics of China’s capital city, Beijing. In the early 1980s, China’s transition process from a planned to a market economy started to deeply affect the urban economy of Beijing, so much so that the city is on its way to become one of the world’s leading cities. This article focuses on this development by looking at Beijing’s institutional context and its economic-spatial dynamics over the past 30 years. Economic Clusters (ECs) are also discussed because they have contributed significantly to Beijing’s rapid growth and change. The city’s development is however under increasing pressures of ecological deterioration, limited water resources, high living costs and uncertainties regarding the future urban policy orientation of the city region. These current challenges and responses in planning are assessed and discussed.