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This thesis contributes to the literature on state capacity by revisiting a key theme in this field, the making of a modern fiscal state. It focuses on the fiscal transitions of late Qing China and investigates why a withering central government led not to the collapse but to the remarkable transformation of China's fiscal regime during the late 19th century. This thesis primarily employs the new institutionalist framework and investigates how both pre-1850 socioeconomic conditions, such as population boom, and post-1850 political shocks, such as the Taiping Rebellion, ultimately altered and reshuffled the Qing fiscal regime. It examines how central and local government agents and relevant stakeholders reconsidered their endowments and constraints and thereby rationalized their behaviors during the groundbreaking transitions. This thesis constructs new datasets from the Late Qing Fiscal Reports and compiles many other datasets on late Qing indirect taxation, foreign borrowing, public spending, and local state-led industrialization; it also makes use of atlases on late Qing rebellions and wars. With both qualitative and quantitative evidence, this thesis emphasizes the role of local governments and concludes that the unprecedented local fiscal-military autonomy, granted by the precarious Qing central court in the early 1850s, served as the ultimate impetus for the bottom-up fiscal restructuring and expansion in this turbulent era. The self-serving local governments played a vital role because of their incentive and information advantage. Within several decades, a centralized, rigid and land-tax-based fiscal regime was transformed into a decentralized and dynamic one. Such a local-centered fiscal regime became increasingly responsive to socio-economic challenges and accountable to public goods provision and economic growth. This thesis aims to make several contributions to the literature. Firstly, it transcends the current fiscal-military state benchmark by analyzing the Qing China, a bureaucratic empire where its regime accountability, elite structure, and geopolitical condition differed greatly from those of a European nation state. Hence it demonstrates the significance of studying the 'fiscal Great Divergence'. Secondly, it provides more nuances regarding state capacity by identifying and distinguishing 'central capacity' and 'local capacity' and considering not only 'taxation capacity' but also 'expenditure capacity'. Thirdly, it reinterprets the paths and mechanisms of China's modernization and develops a coherent narrative for various bottom-up transitions driven by local governments. Finally, it offers general implications on how fiscal capacity triggered and facilitated industrial modernization, a central theme in the Great Divergence debate.