The transition of China has changed almost all fields of China’s economy. However, due to demographic changes and rising labor costs, the high growth phase of China is almost coming to an end. An innovation-driven development pattern has settled upon as the target of China’s government. The core question of the work is: Which factors of innovation systems, market structure and state ownership influence the innovation performance of China? With respect to the innovation performance of provinces, we find 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. More precisely, 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 whereas under other circumstances it does either not matter or can even exert a positive influence.