China has adopted policy experimentation (PE) as a means of introducing and testing innovative policy options for reforms in higher education (HE). This paper explores how PE plays out in the HE sector, involving state actors and university actors in a dynamic interactive process and bringing about institutional changes. This paper proposes a theoretical categorisation to understand four types of PE that occurred in China's HE reforms, i.e. directive, authorised, exploratory and retrospectively authorised experiments. It discusses an empirically informed case study to illustrate the experiment process characterised by central-local interaction and intentionally ambiguous boundaries. The PE approach enables state-university interactions and power negotiations that create and maintain strategy space for consensus-building. The state, however, retains ultimate authority for legitimatising, selecting and expanding policy experiments. It is best understood as 'elite-enabled experimentation within existing political hierarchies'. This study provides a distinctive perspective for understanding and explaining the power dynamics embedded in China's HE reform process and more broadly the evolution of higher education governance.