Abstract: Public development environment is a major institutional issue of firm' development. Based on the World Bank 120 Chinese city survey data measuring the public development environment, this paper analyzes the impact of transformation of public development environment on patent activities of Chinese Firms. The results show that, with the influence of high level of public development environment, local firms show a higher level of patent output. The patent output of non-state firms shows a higher level sensitivity to the the public development environment. The influence of the public development environment becomes stronger when the affiliation level of firms is lower. Government may create an environment which is good for innovation by increasing public goods investment in education, encouraging techonological market development, fighting against corruption, attracting the foreign direct investment. This study shows that, the improving of public development environment plays an important role in the innovation-driven development strategy and transformation of China's economy.