Abstract: Direct investment and tax preference are the major R&D funding ways taken by governments. But each of them has different characteristics which combine with different motives for government investment; meanwhile they have different action in the different phase, so they have their own innovative incentive paths. Taking Jiangsu manufacturing as the research sample, we find there exists large difference between the two policies due to their own innovative incentive path. Overall, direct investment is better than tax preference. The former has a positive effect on the three stages which are R&D input, the medium-output and the final-output, while the latter has an effect on the first stage. Therefore, It is necessary to moderate policy adjustments.