In the past decade, China has astonished the world with its speedy transformation into an innovation superpower. It is of interest to understand the strategies that have been implemented by the Chinese Government to achieve the great advancements that have been made in terms of innovative development in China. The objective of this paper is to examine the impact of tax-related incentives on the innovation performance of Chinese firms. Based on data from 9,531 firm-year observations of 2,359 firms between 2009 and 2013, we find that tax-related incentives have positive impacts on a firm’s spending on R&D, but negative impacts on a firm’s patenting performance. The finding may provide policy implications and insights for national leaders and enterprises with agendas that entail moving up the technology ladder.