Abstract: The relationship between technological innovations and business cycles in China’s transition economy is checked. First, existing relevant literature is reviewed to justify the existence of such relationship; second, statistical data is used to show the characteristics of China’s business cycles; third, both GDP and patents data are adopted to explain the relationship between innovations and business cycles on the basis of the literature; fourth, the special transition economy of China is taken as a powerful contextual factor and its effects are studied. It is concluded that technological innovation is the very fundamental cause of business cycles, but institutional innovation is an important conditional factor. Therefore, the recommandations that push forward technological innovation strongly, and make institutions keep pace with are made.