The transition of China has changed almost all fields of China’s economy. An innovation-driven development pattern has settled upon as the target of China’s government. It is found that regional innovation systems play an essential role. Market-oriented institutional arrangements increase innovation performance. At the industrial level, there is an inverted-U relationship between market concentration and innovation output. As for the effect of ownership relationship, the impact of state ownership on innovation performance depends on a number of conditions. State control of firms has a negative impact on innovation output, in particular in China’s Northeast region and in mid- and high-tech sectors.