The major aims of this study were, firstly, to analyse the grazing-induced steppe degradation process and, secondly, to identify an efficient and sustainable grazing management system for the widely degraded Inner Mongolian typical steppe ecosystem. From 2005–2008 a grazing experiment was conducted to compare two grazing management systems, the Mixed System (MS) and the Traditional System (TS), along a gradient of seven grazing intensities, i.e. ungrazed (GI0), very-light (GI1), light (GI2), light-moderate (GI3), moderate (GI4), heavy (GI5), and very-heavy (GI6). Each grazing intensity treatment was considered a production unit comprising two adjacent plots, one for hay-making (single-cut system) and one for grazing. Hay-making and grazing alternated annually in the MS, while in the TS the same plots were used either for hay-making or for grazing. Effects of management system, grazing intensity, and year on end-of-season standing biomass (ESSB), aboveground net primary production (ANPP), relative difference in ANPP between 2005 and 2008 (ANPPDiff), relative growth rate (RGR), and sward characteristics (litter accumulation, soil coverage) were analysed. Litter accumulation of production units was affected by grazing intensity (P < 0.001) and decreased from GI0 to GI6 by 83%. Correspondingly, soil coverage decreased (P < 0.001) from GI0 to GI6 by 43%, indicating an increased vulnerability to soil erosion. We found varying compensatory growth responses to grazing intensity among years, probably because of temporal variability in precipitation. The ability of plants to partially compensate for grazing damage was enhanced in years of greater seasonal precipitation. The ANPP of production units was negatively affected by grazing intensity and decreased from GI0 to GI6 by 37, 30, and 55% in 2006 (P < 0.01), 2007 (P < 0.05), and 2008 (P < 0.001), respectively. The effect of management system × grazing intensity interaction on ANPP (P < 0.05) and ANPPDiff (P < 0.05) suggested greater grazing resilience of the MS as compared to the TS at GI3 to GI6.