Abstract: Research on long-term and short-term dynamic interaction among government subsidies, innovation quantity and innovation quality, based on the panel data of listed private manufacturing enterprises in China with PVAR model, so as to reveal the incentive effect and allocation rationality of government innovation subsidies for private manufacturing enterprises in China. The results show that the government subsidies can promote the innovation quantity and quality in the lag period of 1-4years, and the promotion effect on the innovation quantity is more significant, indicating that the subsidies continue to stimulate the progress of enterprises’ innovation "quantity" and "quality", but there is short-sighted innovation behavior of "valuing quantity over quality" in enterprises. In turn, the quantity and quality of innovation also promote the subsequent investment intensity of government subsidies in the lag period of 2-4 years and 1-4 years respectively, and the promotion effect of innovation quality is faster and more significant, indicating that the government pays more attention to the feedback of innovation quality. Further research shows that market competition positively affects the interactive relationship between government subsidies and technological innovation of enterprises, and optimizes the two-way feedback chain of "subsidy input——technological innovation output——subsequent subsidy input", indicating that market competition promotes the efficient use and rational allocation of government subsidies. The research conclusion of this paper can provide reference for the top-level design of government subsidy policy and the technological innovation decision-making of private manufacturing enterprises.