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Existing literature has explored how different firm behaviours and strategies in different institutional contexts result in variegation in network structures. Based on those studies, this paper first examines how networks have been shaped by China's institutional transition in general and the process of marketisation in particular. Furthermore, we stress that the rise of networks in China's film industry has in return boosted the development of private firms and subsequently pushed forward the process of marketisation in this industry. Empirical results show that private firms have benefitted more from the complementarity between direct knowledge spillovers via inter‐firm networks and indirect knowledge spillovers via inter‐city networks, while state‐owned enterprises are incapable of coping with the competition effects stemming from inter‐city networks and fail to benefit from trans‐local knowledge spillovers in networks. Our main contribution is thus to direct attention to the interaction between network dynamics and institutional transition, which remains underexplored in the current literature. [ABSTRACT FROM AUTHOR]