Abstract: Compared to the theoretical enthusiasm on vertical disintegration, an increasing number of Chandlerian integrated enterprises emerged in China’s industrial upgrading. This paper attempts to reveal the reasons behind such phenomenon. Based on theoretical argument on three issues, we developed an integrated framework to understand the contemporary vertical integration with the help historical perspective and theoretical logics. Two cases of lead firms in product innovation and manufacturing upgrading are given as evidence. The very reason for their vertical integration is the specific industrial system and innovation system in China, which determines the irreplaceable role of those Schumpeterian incumbents in industrial upgrading. The final part of the paper gives relevant policy implications.