Engineering-based innovation

Engineering-based innovation is part science，part art，and it almost always requires deep experience and learning.For developing economies that are trying to catch up with global competitors in engineering-based industries such as autos，highspeed rail，and wind turbines，gaining knowledge and experience is critical.China has had mixed success in engineering-based innovation.The best performers have been in markets where government has supported an infant industry by providing local demand，while also facilitating technology transfer agreements with foreign partners.This formula has been used most successfully in high-speed rail，where China now has 41 percent of the global market，as well as in wind power and communications equipment.Learning and innovation have been slower in automotive manufacturing，where exploding demand and strong profits from joint ventures have limited the need for state-owned enterprises to learn and innovate.Chinese automakers have relied on platforms contributed by their global partners or designs that they have commissioned from outside design firms to get products to market more rapidly.As a result，even though China has become the world's largest car market，Chinese companies have only an 8 percent share of global revenue.

Chinese companies that have succeeded in engineering-based innovation have acquired the knowledge they need in a variety of ways.In wind power，for example，the government's Wind Power Concession Project，launched in 2003，sparked a massive investment in wind generation and a rapid transfer of knowledge to Chinese players.The plan required 50 percent local content，which led foreign suppliers to establish joint-venture plants in China.This helped spread knowledge.In high-speed rail，the Ministry of Railways launched a 3 billion RMB（＄470million 5）program in 2008 to develop a new generation of high-speed trains.The Chinese high-speed rail initiative has driven 86 percent of global growth in the market since 2008，while technology transfers from overseas partners have helped Chinese companies build the knowledge to innovate on their own.The CRH380，the first locomotive designed by the Chinese industry，has a top speed of 380 km／hour.

Telecom equipment maker Huawei set out to systematically acquire“end-to-end”engineering knowledge when it realized that its foreign partners were not likely to share cutting-edge technology.Through a painful trial-and-error process，Huawei began creating increasingly sophisticated designs of its own；it spends 12percent of revenue on R＆D and operates 19 innovation centers around the world with joint-venture partners.

In the next ten years，Chinese players are likely to catch up in other forms of engineering-based innovation.The government has identified several industries for policy support，including nuclear power，medical equipment，and electric vehicles.Based on recent history，the success of government interventions will depend on two core elements—creating local market demand and ensuring that Chinese companies gain knowledge they need to innovate on their own.Of the targeted industries，nuclear power has progressed furthest on the learning curve，thanks to an ambitious government plan to build 58 gigawatts of capacity by 2020to help meet the goal of getting 30 percent of energy from renewable sources by 2030.Construction of the Hualong One，China's Generation III reactor design，is underway and export agreements have already been signed.

Progress is also being made in medical equipment.A new crop of players，such as Mindray and United Imaging，are making inroads against foreign suppliers in categories such as CT scanners and MRI machines，thanks in part to government subsidies of hospital purchases of Chinese-made equipment.Both are strengthening R＆D capabilities，and both are pushing into overseas markets.Mindray spends 10 percent of its revenue on R＆D and makes 55 percent of its sales outside of China.

Other industries have not had similar opportunities to gain engineering know-how.Commercial aircraft are massively complex—even global leaders are challenged to manage the millions of components that go into a plane—and China's nascent industry has fallen behind schedule in delivering its first commercial passenger jets.In electric vehicles，the government has invested 37 billion RMB（＄6billion）in research，subsidies，and recharging infrastructure，but electric hybrids and fully electric vehicles（plug-ins）still represent a far smaller share of auto sales in China than in advanced economies.Barriers include high tariffs on imports and buyer subsidies that apply only to cars produced in China—limiting competition and learning.