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

Such resourcefulness is apparent in industrial sectors, too.

"German and American engineers can never design like Indian and Chinese engineers can design," said David Lee, a China-based partner with Boston Consulting Group, who specializes in sourcing and industrial goods.

"Because those engineers are exposed to the standard components in China, they are fully aware of how to design something that can go to a low-cost market or a low-price point market."

That's a key advantage in emerging markets, where customers are usually more cost conscious.

"In China's domestic market, you see a lot of people who are tinkering and localizing," said Segal. "These companies not only do well in the local market, but also have a leg up in developing markets, since those are more similar to the Chinese market than the U.S. market."

That's how TechFaith sees it. The company is looking to expand overseas, particularly in Latin America, where it sells its GSM and CDM mobile phones and other gadgets. Jay Ji, the company's senior vice president, argues that the company has an advantage over foreign mobile providers such as Samsung Electronics , Nokia , and Motorola Mobility .

"They are more expensive than us," says Ji, who adds that TechFaith can more readily customise its phones, a skill honed in China's cutthroat mobile phone market.

"For U.S. companies the cost of customization is very high - you can't always have an order that is more than a million units. But we can do it easily."

Some western companies have taken notice.

One is GM , which has worked with its Chinese partner SAIC Motor to produce simpler, cheaper car models for the Chinese market to help it compete with homegrown rivals.

That includes the Chevy Sail, which sells for as little as $8,640 in China and has been a hit with local consumers. The partners plan to export the cars to Latin America.


China may have a leg up in incremental innovation, but some experts worry that Beijing's state-led innovation push could actually set back the cause.

A central worry are the policies foreign businesses contend require them to transfer technology to Chinese companies to gain access to the government procurement market. Such rules could eventually drive away some of the foreign partners Chinese companies need, said Breznitz.

"The real risk from China's policies is that they will make multinationals nervous and make them hedge and build supply networks outside of China. Do that for five years and it will diminish China's power," he said.

"In China you have a system that is already extremely good at incremental innovation, that has allowed the economy to grow rapidly, has created jobs and is sustainable. And in that system (such policies) create a lot of noise and fear."

A broader concern is that the Chinese government's current focus on the state-owned sector steers capital away from the country's entrepreneurs. State-controlled firms dominate many industries - for example, banking, telecoms - and account for an increasingly big slice of the economy.

They also receive most of the bank loans.

As Beijing tries to cool lending to hold down inflation, the big banks have responded by funnelling more of their capital to less risky state firms.

Smaller enterprises, starved of capital, often turn instead to "underground" banks, which charge about five times the official lending rate. Liao Li, a professor at Tsinghua university, said China needs to develop better ways of directing money to the brightest ideas. The launch in 2009 of the country's Nasdaq-style enterprise board was a step in the right direction, he said, but even the government's push to spur development of the "strategic" industries could benefit from a more market-oriented approach.

"For very early-stage industries like electric vehicles some government support is necessary," said Liao. "But the most effective way is to use market mechanisms that will give a return to investors for taking the risk of investing early on."

But a more basic question is this: Is China ready for an innovation push?

After all, many companies in China are doing just fine churning out existing products faster and cheaper than others - they may have no real need to innovate.

"For most Chinese companies the aim is to provide 80 per cent of global best quality but at 50 per cent of the cost," said Kroeber. "If you can make money doing that - and many do - you really have no incentive to invest in high-risk innovation."

Back at the headquarters of Guangdong East Power, such concerns seem distant. Having struck success with power systems, He Simo is driving the company into new fields, including green energy systems such as solar power, opening up potentially new markets, markets far bigger than that for power supply systems.

"We try all the time and we implement things quickly and keep things simple," said He. "I don't think there's anything I can't do."

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