Abstract:Under the double incentives of system of tax distribution and promotion tournament, China’s local governments increase the subsidy for the firms year by year. We use the data of over 1.8 million big scale enterprises during 2000—2007 to test the impact of governmental subsidies on production efficiency of the firms by using fixed effects model, the results indicate that government subsidies in general improve firms’ efficiency and the impact can last more than 3 years, that the regional efficiency differences of the subsidies is significant, the influence on west region is most, then the middle and then eastern region, and that the actual effect of thesubsidies depends on industrial characteristics of the firms and the subsidies can only impact 22 industries among 40 ones. Thus, the subsidy policy is positive, meanwhile, the governments should sufficiently consider regional and industrial differences to make the subsidies play more important role when the governments implement the subsidy policy.