In recent years, a model of ‘managed social innovation’ seems to be emerging in China where local governments take the lead in generating and implementing new citizen-oriented products, processes, and services; the central government has embraced such local innovative activities as part of its high profile ‘harmonious society’ strategy. The aim is to not only accommodate but also promote and craft civil society initiatives. However, questions remain as to why governments have actively engineered such social innovations and how and to what extent they can be successful in balancing potential conflicts between their own pursuits and those initiated by citizens. In this article, we examine a hybrid form of social innovation combining government engineering and citizen participation as the Chinese government's most recent strategy to cope with the rise of nonprofit organisations. Empirically, we focus on a case of social innovation, the government-sponsored venture philanthropy program in Shanghai. We argue that managed social innovation may create mixed results. It deviates from a genuine citizen-empowered process due to the imposed regulatory hurdles, and the lack of significant citizen-based inputs. On the other hand, it may still provide space and resources for new social ideas, strategies, and organisations. The Chinese government has demonstrated some success in managing these social innovations but faces dilemmas in managing government-nonprofit relations because of embedded institutional requirements.