With its shift to a market economy gathering speed from the 1990s, the Chinese Government embarked on an agenda that brought neoliberal forces into almost all sectors including education. The policies underpinned China's spectacular economic growth, but in education have had consequences that arguably are problematic. Drawing on a mixed-methods study in Shanghai, this paper examines "micro-neoliberalism" in China's education system, i.e. privatization and marketization at the individual, family, and institutional levels, with focus on blurring boundaries between public schooling and private supplementary tutoring. Some dimensions of these processes resulted from deliberate macro-level policies to decentralize control of schooling, raise performance, and empower private education. Other dimensions arose from the market behavior of individuals, families, and institutions that countered government efforts to steer parental choice of schools and to reduce disparities between schools. Education policies are enacted not only in schools but also in the shadow sector which is commonly overlooked. This paper focuses on Shanghai but has implications for other parts of China; and since shadow education is expanding as a global phenomenon, it also has relevance to many other countries.