This research focuses on policy diffusion of performance management in authoritarian China. A three-stage theory of diffusion is proposed by conducting a process that traces divergence and convergence in the diffusion of performance management in China. When a superior government only has a policy goal, the inferior governments, competing for innovation, will develop divergent policy instruments. When the superior government’s policy goal and policy content seem clear, local governments, competing for loyalty or bandwagoning, adjust their diverged policy instruments to converged ones conforming to the superior’s policy content. Finally, when the superior government issues a systematic set of policy goals, content, and instruments, it may use coercive power to promote diffusion. In the process, when the contents of diffusion are different, the superior government applies different levels of coercive power, and the mechanisms, characteristics, and outcomes of diffusion also differ. This research claims that in authoritarian China, the superior government, as a third party in the process of policy diffusion, will play a more sophisticated role than is currently expected in the policy diffusion literature.