Despite the lack of electoral accountability, China has built an expanding welfare system that is set to include most citizens. Why does China defy the conventional prediction of an exclusive autocratic welfare state? This paper looks at the critical time when China first established its social security system in the 1990s and argues that the state adopts a “demand-driven strategy” where the redistribution effort varies with the expected collective action of economic losers. Analyzing an original granular county-level dataset of China’s laid-off workers and social security taxation, the paper finds that a group of newly-emerged economic losers, precipitated by state policy, drives the local states’ efforts to redistribute. In particular, the number of laid-off state-owned enterprise workers explains 46% of the variations in social security collection among non-state-owned enterprises. Instrumental variable estimation, with legacy state-owned enterprises established in historical contingencies as the instrument for laid-off workers, shows consistent results. Further analysis on mechanisms demonstrates that layoffs lead to an increase in SOE protests, which in turn foster greater redistribution.