The story sounds frighteningly familiar. Forty years ago, upstart companies from a rising Japan pushed western competitors to the wall. Now entrepreneurs from a rising China seem poised to do the same.

Chinese smartphone maker Xiaomi, for one, seems fit to have chief executives quaking in their loafers. The Beijing start-up burst on to the stage to compete with Apple and Samsung in one of the hottest industries of the decade; Lei Jun, its founder, is frequently mentioned in the same breath as Steve Jobs. Yet, for all its advances, Chinese industry remains a distant competitor — as the story of Xiaomi shows. China’s miracle growth of the past three decades has been based to a great degree on low costs. Factories sprouted up to take advantage of labour that was plentiful and cheap, boosting exports and generating jobs. Now, wages are rising and growth is sputtering . If China is to catch up with the world’s most advanced economies, it needs to do more than assemble products from technology developed elsewhere.

Xiaomi looks like the sort of smart, entrepreneurial outfit that could invent products that delight consumers, rather than merely putting the nuts and bolts together. Since its founding in 2010, it has become China’s best-selling smartphone maker. Clever marketing and deft use of social media has conjured an aura of exclusivity around its phones, recruiting an army of fervent believers.