This chapter analyzes the progress that Chinese universities and public research institutes have made in the fields of research and education as well as the factors that hinder the growth of knowledge transfer from universities and public research institutes to firms in China. The chapter describes how the role of universities and public research institutes in China has evolved in recent decades with the transition to a market economy. It reviews the laws and policies governing knowledge transfer activities in China. It examines the various channels of knowledge transfer that universities and public research institutes in China use to transfer technology such as making new knowledge publicly available at no cost and through cooperative arrangements, including contract research and collaboration, licensing, and establishing spinoff enterprises. The chapter concludes that while Chinese universities and public research institutes have been dramatically transformed in order to meet government policy goals of producing cutting-edge scientific and technological developments to support economic and social advancement since the 1980s, there are challenges in the areas of limited licensing opportunities for leading technologies, lack of long-term financial support, ambiguous corporate governance and regulations, and underdeveloped intermediary agencies resulting in high transaction costs that remain to be addressed.