A $300 billion rainbow economy is booming in the middle of China.

Kate Thomson (center) with friends outside the Underground, an LGBT-friendly bar she manages in Chengdu that hosts a weekly pride night. (PHOTOGRAPHER: KA XIAOXI FOR BLOOMBERG BUSINESSWEEK)

It’s 11 p.m. at AMO, an underground lesbian nightclub in Chengdu, and 17 women—in androgynous clothing, their hair closely cropped—line up at the front door to welcome party goers. Among them is Yang Yang, 25, who started working at AMO (Esperanto for “love”)…