While intergenerational transmission of entrepreneurship is a well-known regularity, we hypothesize that in a transition economy where the state retains an important role, those whose parents are government workers may also be more likely to become business owners. We test the hypothesis in China and show that (1) on average, both entrepreneurs and government workers have a higher likelihood of having children who own incorporated businesses and (2) In provinces where government involvement is higher, the likelihood that children of government workers (entrepreneurs) own incorporated businesses is significantly higher (lower). Our study demonstrates that the local economic business environment shapes the influence of parental background on business ownership.