This paper studies regional economic growth in China. Using firm-level data from the Chinese Industrial Census, we construct prefecture-level aggregate data for manufacturing. We document that China experienced a remarkable regional convergence in wages, TFP, productivity, and capital per worker in non-state manufacturing firms during the period 1995 to 2008. The main aim of the paper is to analyze the factors behind the initial dispersion and subsequent regional convergence in wages and TFP. To this end we propose a tractable version of the Hopenhayn (1992) model of firm heterogeneity and new firm creation, extended to incorporate three distortions: standard capital and output wedges, common for all firms in a prefecture, and a novel entry barrier. The general equilibrium model is solved analytically. It features endogenous aggregate TFP and allows us to measure the three wedges using data on aggregate allocations for wages, output, employment, and capital. Using the model as an accounting device, we then exploit the aggregate prefecture-level data to measure these distortions for each prefecture. We document that entry barriers are salient in accounting for the regional dispersion and subsequent convergence in China. In contrast, the capital and output wedges play only a limited role in explaining the empirical regional convergence. Finally, given the preponderance of the entry barriers in accounting for economic performance, we investigate the empirical drivers of these distortions. We find that the presence of state-owned firms give rise to larger entry barriers for non-state firms. Moreover, based on a Bartik instrumental variable approach exploiting the major 1997 SOE reform and the ensuing decline in the role of state-owned firms in many industries, we argue that the presence of state firms have had a causal effect on increasing the entry barriers for non-state firms. We provide a political economy model of distortions to motivate the empirical link between SOEs and entry barriers for non-state firms.