||The process of reform analysed in this paper illustrates the inherent weaknesses of the theoretical assumptions featured in the demand-led innovation theories and, in particular, as espoused by public choice theorists in their call for “government by the market”. While the new possibilities to profit from commercialized transfer of technology were initially greeted as a welcome opportunity to supplement stagnating sources of research funding—or to gain an individual benefit by scientists and engineers – the technology market soon appeared to loose its silver lining. Commercialization served to decentralize decision-making procedures for new technology development and appears to have increased the responsiveness of many research institutes to the needs of production enterprises, and in this respect, acted to reduce the requirements for government intervention. At the same time, however, commercialization reforms called for government initiatives in setting up, or regulating, new institutions which could facilitate commercial transactions in the technology market, such as providing a reliable intellectual property rights regime. The Chinese government appears to have been only moderately successful in creating and sustaining such institutional frameworks.