The democratic centralism is the basic organizational institution for China’s Communist Party and China’s governments.However,there are many theoretic and practical problems regarding Democratic Centralism.What is the essence of this institution and where the border between democracy and centralism is are still questionable.In fact,this issue is as same as the issue in the economics why the market and hierarchy exist at the same time.Thus,based on the transaction cost theory,the reason we explain the coexistence of the democracy and centralism is that the transaction cost for decision in the real world is not zero.So the border between them is at the point where the marginal costs of the two decision ways are equal.That means in practice,the selection between the two ways should be dependent on the comparative transaction costs. The democratic centralism is the basic organizational institution for China’s Communist Party and China’s governments. However, there are many theoretic and practical problems in Democratic Centralism. What is the essence of this institution and where the border between democracy and centralism is still questionable. fact, this issue is as same as the issue in the economics why the market and hierarchy exist at the same time. Thus, based on the transaction cost theory, the reason we explain the coexistence of the democracy and centralism is that the transaction cost for decision in the real world is not zero.So the border between them is at the point where the marginal costs of the two decision ways are equal.That means in practice, the selection between the two ways should be dependent on the comparative transaction costs.