| The road to Chinese industrilizational transition has been experiencing ups and downs in terms of technical change and fiscal incentives during the past 60 years. After analyzing and summarizing the experience of this historical period, the relationship among the endogenous technical change, fiscal system which supports the technology advancement and the optimized strategy of fiscal incentives comes into surface and the best approach to implement the optimized strategy of fiscal incentives is also found which will serve as a guidance to further improve the stimulating system of the scientific research institution so as to boost the fiscal incentives performance which supports the technology advancement in the next period.Usually, technical change is non-neutral and without the government interference, it will be affected by the industrial structure, technical structure and per capita under the impact of the elasticity of substitution between the production factors in the aspect of endogenous direction. It will showcase either prefer capital or labor with the same capital-intensive type. Meanwhile, it will represent either prefer high skilled labor or low skilled labor with the same labor-intensive type. This paper analyzes the evolving tendency of the endogenous direction of technical change of the 60 years of the PRC. By empirical analysis of elasticity of substitution between the production factors, the results show that in the planned economic period, the elasticity is 1.4; during the transitional period to the market economy, the elasticity is 0.1; in the early phase of the market economy, the elasticity is 0.4. From these empirical data, we find that the endogenous direction of technical change in the opening up and reform period is fundamentally different from that of the planned economic period. Comparing the data of the same period with the US, the endogenous direction of technical change in the planned economic period is the same, that is in favor of the capital and the high skilled labors. However, after the opening up and reforming, the endogeny direction of the technology advancement is totally different from the US. The transitional period to the market economy prefers the labor force and low skilled labor, while the US is in favor of capital and high skilled labor. There is quite a big difference in the market economic period for China has no essential change in the endogenous direction of technical change, while the US accelerates its speed to favor capital and high skilled labor which means that China shall adjust measures to its conditions and be practical and realistic no matter in the design of public finance system, the choice of the optimized financial stimulus strategy or the arrangement of the incentives mechanismof the scientific research institution from the finance, because these are different from the US.Owing to the fact that the endogenous direction of technical change differs, the government of the underdeveloped countries shall definitely choose a certain of the optimized fiscal incentives strategy from the perspective of maximizing its long-term social welfare in the open market economy. It will either support the endogenous direction or support the other direction of technology advancement. Actually, the optimized fiscal incentives strategy is a special function manifested in the aspect of technology advancement by which the government utilized to meet the social public need brought by the international competition and division of labor.In order to exercise its function, the government shall first deal with the material base which requires formulating relevant governmental income polices. However, the same income policies will create different policy preference among all kinds of micro economical entities. The fiscal system shall be regarded as a long-term system arrangement to coordinate the conflict of policy preference among the micro economical entities. There are four way to coordinate the conflicts:first to utilize the property feature of ownership by the people, second to use special social public needs, third to exploit social public needs and fourth to make use of the property feature of ownership by the people and special social public needs. The different approach is the key to make a difference between the developing countries like China and the western developed countries in terms of public properties. Meanwhile, it is also the key point to tell the different fiscal system of different phases of one country. Correspondingly, national fiscal system displays "timing asymmetry" and "identity asymmetry" feature in the aspect of technology advancement.This paper has constructed a theoretical framework bitween technical change and fiscal incentive on the basis of the endogenous growth theory concerning about the research achievements of directed technical change and the new political economics on game playing method of institutional changes. This theoretical framework includes the following three parts.The first part concentrates on the relationship among the endogenous direction of the technical change, the fiscal system which supports the technology development and the optimized fiscal incentives strategy. The results showed that, there is a kind of internal conflict among these three, which demonstrate the characteristic of quasi-Mundell-incompatible-trinity. It means that the policy goals of these three cannot be achieved at the same time. In order to realize the specific optimized fiscal incentives strategy, one shall pay attention to the commitment features of the technology advancement and heed to the specific endogenous direction of technical change purposely.The second part deals with the best approach to implement the optimized strategy of fiscal incentives. Because there is no overlapping between endogenous direction and the optimized fiscal incentives strategy of the technology advancement, there are four approaches to realize the optimized financial stimulus strategy, they are:compensating macro-innovation, compensating innovation cost, compensating innovation benefits and compensating specific technology innovation. This research showed that in the planned economic period, national financial system displays "timing asymmetry" feature in the aspect of technology advancement and the compensate innovation cost is the best approach. During the transitional period to the market economy, the feature also changes from "timing asymmetry" to "identity asymmetry" and the compensate innovation benefit is the best approach. In the early phase of the market economy, the Chinese public financial system shows the commitment feature of 'identity asymmetry", therefore, compensating specific technology innovation is the best approach. While, during the mature market economy period, the national public financial system of the developed countries display the two commitment features, namely "timing-asymmetry" and "identity-asymmetry", therefore, compensating macro-innovation is the best approach.The third part determines the arrangement principles of the incentives mechanism of the scientific research institution. Owing to the fact that there are technical gaps between developing and developed countries, the enterprise innovation cost is the key to affect the technology advancement rather than the innovation benefits, the key to the fiscal incentives strategy of technology advancement is on the corporate innovation cost which deals with the stimulus arrangement on scientific research institution, state-owned enterprises in particular. The incentives mechanism of the scientific research institution from the finance contains two aspects and four mechanisms:direct and indirect supporting mechanism in the aspect of positive support which focus on increasing the effective efforts to the scientific research institution; direct and indirect restraining system in the aspect of negative constraint which focus on controlling moral hazard of the scientific research institution. The research showed that the direct supporting mechanism manifests as legal positive growth, zero growth and legal negative growth of the financial allocation. The legal positive mechanism has "Crowding Out" Effect to the market system and the legal negative growth has "Complementing" Effect. The legal zero growth mechanism has no influence on the market mechanism. Basing on the different implementation approach of the optimized fiscal incentives strategy, the indirect support mechanism is divided into technology emerging process, technology innovation task and impartiality management mechanism in the aspect of management on the scientific research institution from the finance. The supporting mechanism on the state-owned enterprises from the finance shall take not only the long-term effects of the direct support system into consideration, but also the internal constraint of indirect support mechanism from the different implementation approach of the optimized fiscal incentives strategy and the compatibility between direct and indirect support mechanisms. The restraining mechanism is manifested into three ways, they are beforehand consultation with the experts, effective supervision afterwards and government competition in-between. The direct constraining mechanism utilizes the former two approaches with the corresponding mechanism as technical division management and industrial sector management. The indirect restrain mechanism corresponds with the third approach, in which "Every Article" Management is manifested as the competition among different departments within one government, and "Every Chunk" Management is manifested as the competition among different governments.There are compatibility problems between the direct and indirect constraining mechanisms which require the optimized approach to decide.Currently, our nation is implementing the "building an innovation-oriented national strategies" and it is commonly recognized that the scientific research performance is not quite well and high. The reason behind this is that the arrangement to the incentives mechanismof the state-owned scientific research institution from the finance is basically fixed since the opening up and reform. For instance, the positive growth mechanism of the financial allocation employed on the basic research-oriented and public service-oriented scientific research institutions last about 20 years which will completely crowding out the market mechanism to push up the market price annually with the financial allocation. Especially, as the reform of the develop-oriented scientific research institution completes, it will objectively cause barrier in the union of industry-study-research which ruptures the chain of the technology advancement. In the transitional period from the planned economy to the market economy, there are large-scale technology introduction and industry restructuring which requires the technology department in charge of scientific research institution to make good use of the technological experts. While, in the planned economic period, the industry structure is becoming mature, the independent innovation becomes the center of technology advancement, the cost or the price shall be utilized to enhance financial effective supervision by industry department. However, in the transitional period, the constraint mechanism of the technology department is still in use which will increase the soft budget constraint on the financial stimulus strategy and dropping its performance. Usually, the gradual approach has a trap during the gradual process. The fixed arrangement of the incentives mechanism to the state-owned scientific research institutions from the finance objectively reflects that there is misunderstanding in the cognitional aspect from our nation's choice of the optimized financial incentives mechanism and its best implementation approach to support the technology advancement. The theme of today's transition is industrialization and the core is technology advancement. The realization of China's technology advancement not only affects its citizen's welfare, but also has impact to the next and next generations. During this period, we do not need only courage, boldness and perseverance, but also insight to the relationship between technical change and fiscal incentives.
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