This study examines the mechanism through which distrust constitutes and organizes unofficial payments for hospital care in urban China. Chan presents how the corporatization of hospital care in post-Mao China resulted in generalized distrust in hospitals and physicians. This distrust induced patients to revive a tradition of delivering hongbao (red packets containing money) to physicians, but imbued it with new meanings and new practices. She argues that patients or their family members offer hongbao not only to gain preferential treatment, but also to buy an obligation from the physicians of whom they generally distrust and to abate the insurmountable fear and anxieties. However, physicians also displayed generalized distrust in patients, and consequently they refrain from accepting hongbao offered by those without guanxi connection. Hongbao exchanges, thus, are highly associated with the use of guanxi, and their category has shifted from “bribery-oriented” to “gift-giving-oriented”. This case sheds light on how and under what conditions distrust could generate an illegal market and shape its pattern of operation.