Existing literature on audit industry specialization in Anglo-American countries often measures industry specialization using firms' market share in specific industries from market recognition perspective. This paper contributes to the audit industry specialization research by distinguishing between market recognition specialization and resource allocation specialization, and tests their different effects on audit fees in the Chinese audit market. The results support the hypotheses that market recognition specialization is likely to lead to higher audit fees in the whole audit market, resource allocation specialization is likely to lead to lower audit fees in 'top-ten' audit firms, and there is likely to be no effect of resource allocation specialization on audit fees in 'non-top-ten' audit firms. The findings have implications for the regulators both in China and globally in designing strategies to enhance the functioning of audit firms. Importantly, the findings suggest that economic, political and social contexts of a country cannot be ignored in examining audit industry specialization.