The Chinese government promulgated several policies to encourage academics to participate in applied projects. As collaboration with industry on applied projects consequently increased, previous research found that the external funders placed constraints on the applied projects in which the academics were involved. Academics have tried to find a negotiated space to balance the demands of external funding and academic concerns. Using a qualitative research method, this study interviewed 32 academic informants at one first-tier university and one second-tier university in Mainland China. Our study found that, first, funders had strong determination to control the applied research topic, agenda and outputs. Second, academics found it hard to incorporate academic considerations into the research agenda as the process of applied projects was under funders' tight control. They needed to spend time to persuade funders to lower their expectations and lessen the gap between their existing practices to ensure affordable risk. Third, the negotiated space involved individual agency, disciplinary characteristics, university reputation and exploitation of graduate students. The funder's practical needs compressed the negotiated space to a very limited size. Only academics who worked at reputed universities or those eager to try protecting limited research boundaries could earn more negotiated space.