Abstract: The key to improving total factor productivity (TFP) and achieving high-quality development of China's manufacturing industry lies in improving the allocation efficiency of various factors and boosting technological progress.This paper builds a heterogeneous firm model of monopolistic competition, which incorporates variable factor market distortions, fixed factor market distortions, and input in independent innovation. Based on the model, this paper theoretically studies not only the direct influence mechanism of factor misallocation and independent innovation on high-quality development of manufacturing industry, but also the indirect influence mechanism of factor misallocation on high-quality development of manufacturing industry arising from independent innovation input. The instrumental variable model is used to examine the direct and indirect mechanism by using firm-level panel data taken from Chinese listed companies from 2007 to 2019. The results indicate that there is a directly negative effect of capital misallocation and land misallocation on high-quality development of China's manufacturing industry. However, the direct effect of independent innovation input on high-quality development of China's manufacturing industry is positive. Moreover, capital misallocation is found to inhibit independent innovation input, which further has a negative impact on TFP growth. This paper clearly points out the source of high-quality development dilemma of China's manufacturing industry from the perspective of factors misallocation. The policy implication is very clear that carry out systemic reforms to promote the market-based allocation of production factors and raise capacity for independent innovation. Accordingly, we will further improve TFP and achieve high-quality development of China's manufacturing industry.