External tourism development organizations are frequently utilized by the various levels of the Chinese government to develop tourism and boost local economies. However, this often occurs with limited community participation. We explore the role of institutional arrangements in how people within host communities are empowered and disempowered in such situations by looking into the experiences of Fenghuang Ancient Town and two Miao villages in Hunan Province, China. In-depth interviews, participant and non-participant observation, and document analysis were undertaken. Certain community members were empowered by tourism development, especially financially. However, top-down decision-making, local elite systems, cultural habits and responses to these challenges enabled power inequality. This inequality occurred between government, tourism developer and communities, and within the communities. Only through devolution of power can social impacts from tourism development be improved but, even then, local power imbalances may influence the equity of tourism-related outcomes.