China’s leaders have called for a transformation of the Chinese economic system into a knowledge-based economy. To increase total factor productivity for avoiding the middle-income trap subsequent to China’s tremendous growth in the last decades, the national government urges its local authorities to build innovation capacities throughout the country. More than that, the national government aims at transforming its innovation model characterised by state-control into an open innovation system, mobilising a multitude of private actors to engage in innovation independently and thus, efficiently. At the same time, China is characterised by huge regional disparities, so that (pre-)conditions for innovation capacity building differ strongly between its regions; it is far from clear how particularly China’s lagging regions will (be able to) answer China’s leaders’ call for making innovation the primary productive force of the national economy. To understand the interdependencies between innovation and regional disparities in China, this dissertation analyses conditions for and processes of local innovation capacity building, policy-making and –implementation in China. By comparing lagging ‘Western’ regions and advanced ‘Eastern’ regions, it works out that, first, for understanding regional innovation capacity building and its dynamics in China, it is necessary to extend concepts of regional innovation system research. As this research finds that despite the call for less government intervention, government control remains particularly high in lagging regions, innovation system concepts have to provide for a possibility to critically analyse the (changing) role(s) of the state in China’s economy. Second, it further shows that the inclusion of private actors into local innovation capacity building is strongly dependent on local resource endowment, which decisively shapes incentives. Innovation capacity building competes with a range of other, nationally conditioned incentives – such as fast, but not necessarily sustainable growth. The intended shift from the old state-controlled innovation model towards the independent, open regional innovation system is thus hampered by China’s political system-inherent incentives, especially in China’s lagging regions.