Corruption in the field of government law enforcement, which occurs more frequently in China, shows the characteristics of multiplicity and relevance. Local governments’ selective enforcement is not only related to officials’ rent-seeking behaviour, but also a method to balance the conflict between strict enforcement and sustaining economic growth. The conclusion based on long-term observation shows that, the non-benign interaction between governments and enterprises, caused by the local governments’ selective enforcement, brings two problems to the economic and social development: systematic corruption in the government at an invisible level, and illegal competition in the market at an explicit level. Systematic corruption, featured by multiplicity, institutional relevance and typical models, is mainly caused by the institutional environment of the political system, besides personal reasons of corrupt officials. Illegal competition refers to a status that competition in the market lacks of legalized infrastructure and protection for competitors’ legal rights. Under the condition of illegal competition, rules are not so clear or strictly obeyed, the arbitration will probably be unfair and inefficient when conflicts and controversies happen. This article focuses on the logic behind the non-benign interaction between governments and enterprises, and proposes four models to describe the mechanism and institutional reasons of systematic corruption, which are the win-win model, the risk model, the insurance model and the predatory model. The win-win model is based on the government performance assessment system, which takes economic performance as the main indicator. The risk model works when officials’ rent-seeking behaviour is beyond of constraints, and the power supervision is not efficient. The insurance model results from the insecurity of enterprises, which reflects the uncertainty and changing policies during the period of social transformation in China. The predatory model is related to the helpless of local governments in face of contradictions and tension brought by institutional transition. With the long-term influence of the non-benign interaction between governments and enterprises, based on the local governments’ selective enforcement and driven by the four models above, illegal competition forms in the market, which featured by regional segmentation in the market and vicious competition between different local governments at the macro level, and widespread illegal competition and enterprises’ non-institutionalized existence in the circumstances of law enforcement corruption at the micro level. Illegal competition leads to widespread bribery among enterprises, thus, resulting in multiple and relevant systematic corruption between different local governments and government departments. To aviodavoid systematic corruption and make the market competition under the rule of law, the scientificity of laws is needed, as well as a certain institutional environment. It is believed that sound institutions can change the situation of local governments’ selective enforcement, helping realize fair, transparent, and strict law enforcement, and create a healthy market competition environment.