In recent years, the development mode of China’s animation industry changed from “offshoring” to “innovation”. China’s domestic animation has since achieved rapid advancement in the creation of original characters, animation production and sales, development of cartoon-related products, cultivation of the animation market and industrial upgrading. This article investigates the upgrading progress of China’s animation industry. To transform the country’s economic growth model and strengthen ideological control, the Chinese government promoted culture industrialisation, including animation. There has been a shift in the function of animation from edutainment to a balanced mix of edutainment and commercial success. On the one hand, the Chinese government regards animation as an important part of the knowledge-intensive cultural and creative industries, and lends its support for a breakthrough in transforming the economic growth model. On the other hand, the government insists on domestic animation to fulfil its indoctrination function to promote mainstream culture, as well as on implementing a slew of policies to reinforce domestic culture dominance in the society such as the “differentiated” broadcasting policy, incentive policy on production, flexible review and management policy, and market development and regulatory policy aimed at building the industrial chain. All of these policies form the substance of the transformation and upgrading of China’s domestic animation industry.