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Can China's billions spur the next big idea? Add to ...

If innovation is about dreaming up the next big idea, then the black box devised by Guangdong East Power probably doesn't qualify.

The two-metre tall stack is a power supply system, a machine designed to ensure a smooth, uninterrupted flow of electricity to computer servers and medical equipment.

The design isn't entirely original. The company's engineers, working in stark white laboratories at the heart of China's Pearl River Delta, spent three years pulling apart rivals' products and imitating them.

But they made some important design changes, producing a machine that is more energy efficient and slimmer, allowing users to squeeze it into smaller spaces. And it sells for 30-40 per cent less than comparable products from Western competitors.

The strategy is the brainchild of He Simo, an amiable former soldier who started the company in 1989 with just 3000 yuan in capital, and once resorted to selling his own blood and bicycle to make ends meet.

Through imitation, tinkering and steady improvement, Guangdong East Power is now one of China's leading producers of power supply systems and increasingly a competitor for the global market leaders, Schneider Electric's APC and Emerson .

"The company I most admire is Apple," said He, sitting in an office off of the factory's humming production line. "God's hand sometimes gives them an idea and they come up with a completely new product. I don't think we are anywhere near that stage yet. But I always say a product is never perfect - it can always be improved."

Innovation is an obsession for China's central planners, who have showered billions on state-owned businesses and research institutes in an effort to make the country a creator of - rather than a mere user and copier of - intellectual property.

It's an effort that has had western multinationals up in arms, fearful that the policies favour local companies and force foreign companies to transfer their best technologies to China.

The government is seeking major breakthroughs - scientific discoveries and new technologies that will set the standard for companies around the world. The effort hasn't been a success.

"You can't really point to an individual firm or area where the Chinese are currently leading," said Adam Segal, a senior fellow with the Council on Foreign Relations, and author of a book on innovation in Asia.

"Some people point to nanotechnology and some say nuclear. Otherwise, it's hard to figure out if there's going to be any breakthrough in China. I just don't see it on the horizon."

But seen another way, innovation is thriving in China. Thousands of companies in China's lively and unruly private sector have built money-making businesses on their ability to take existing technology and products and make them better and cheaper.

"Chinese companies have been doing wonderfully by being on the cusp of the latest available technologies developed elsewhere and then being able to work on it," said Dan Breznitz, a professor at the Georgia Institute of Technology.

"It's a strategy that's basically against the central government's push. But those innovation capabilities are probably going to maintain Chinese growth for the next 15 years."

That is, added Breznitz, if the Chinese government's thirst for big, state-directed projects doesn't undermine its privately owned companies.


In 2006, China's Ministry of Industry and Information Technology came up with an answer to what it saw as a vexing problem: the millions of dollars in licensing fees Chinese companies would have to pay to foreign patent holders as the country rolled out its 3G network.

The solution was to mandate the use of a homegrown standard, TD-SCDMA, which Chinese engineers had developed jointly with Siemens.

The technology, developed with government money, had shortcomings. TD-SCDMA was slower than W-CDMA, the 3G standard developed in Japan. It was less stable. And it took a very long time to roll out. The trials finished two years later than planned.

China's three state-owned carriers complained about the delay and at having to adopt a standard incompatible with the technologies being produced by the world's major handset makers.

Beijing eventually relented, allowing China Telecom and China Unicom to have standard 3G licenses but required the biggest, China Mobile , to use TD-SCDMA. By the time it was implemented, the global telecoms industry was already looking ahead to 4G.

The effort wasn't completely fruitless, says James McGregor, a senior counsellor with consulting firm APCO Worldwide. While the 3G standard developed by China was probably 60 per cent as good as the existing standard, Chinese engineers are applying what they learnt to their work on the 4G standard.

But the project fell far short of its goals.

"The government's intentions are good in trying to create innovation," said McGregor. "But its policies are just driven to getting state enterprises to build big industrial machines and borrow technology from around the world to do it."

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