This study investigates the relationship between social capital and small business entrepreneurship in China. Unlike previous studies that focus solely on rural or urban residents, this paper pays more attention to the differences between them. According to our study, social capital has both positive and negative impacts on small business entrepreneurship. Based on the data drawn from China General Social Survey, we find that the impact of social capital differs significantly between rural and urban areas. In rural China, residents who have higher social capital tend to have entrepreneurial behaviors, while higher social capital leads to lower intention of small business entrepreneurship in urban China. Individuals whose parents have the experiences of small business tend to have small business entrepreneurial activities; individuals who are better educated tend to find regular jobs instead of having their own small business. The results suggest that small business entrepreneurship in rural China might be “entrepreneurship by necessity”.