Abstract: Different from the prevailing perspective that vertical coordination is harmful to community social capital, this paper puts forward the concepts of extension effect of community Party building of the Chinese Communist Party and residents’ self-disciplined coordination, to explain how the social capital is generated in Chinese urban communities, especially in newly-built commercial residential communities. We argue that when the party branches the role of vertical coordination, it has an extension effect as a potential social process, which leads to the emergence of “proper self-disciplined coordination mechanism”, and then generates the horizontal social network and social capital among residents. Results from 2015 Shanghai Community Survey (SCS) data found that residential communities with active party organizations will have relatively more voluntary groups and social clubs, including self-organized ones; in commercial residential communities, having an active party branch is also more likely to form self-organized voluntary groups and social clubs. These findings support the research hypotheses based on the above argument and show that the proposed extension effect and proper self-disciplined coordination mechanism of Chinese community Party building can explain the creation of social capital in the institutional environment in which vertical coordination plays a leading role.