This paper uses a panel that contains data for Chinas 29 provinces covering the 36year period 1978—2013, and examines the mediation or compensation relationship between trade openness, population size and local government size. The estimates indicate openness is significant positive association with local government size, population size is ambiguous association with local government size, and population size is significant positive association with openness. Moreover, estimation of several instrumental variables strategies provides an overwhelming support for a positive causality from openness to local government size. Therefore, the increase in openness leads to an increase in Chinas local government size through compensation transmission, and it seems unlikely that positive association between openness and local government size arises due to the mediating role of population size. With the establishment of “One Belt and One Road”, the local government size needs to further expand properly in the Chinese peoples livelihood field.