Maybe China is innovative, but regarding Xiaomi, i'm not so sure they have a unique production model, or rather they are willing to sustain low profits, or are even be subsidized by China - because controlling people's phones is a really valuable thing.
Or maybe everyone just loves their products, because of their closely linked sales and manufacture process? And their careful use of flash sales and then incremental releases of the same product lets them profit from dropping bill-of-material prices over time so their overall margin is the same as the industry average, even though they sell high-end phones at close to zero margin.
Xiaomi believes that in markets where consumer preferences are hard to predict and change rapidly, “flash sales” can help determine which products are likely to be big hits, driving future production.
A big contributor to its profitability is its introduction of new products through online pre-order “flash” sales, which is usually a highly anticipated event in the community. At the phone’s introduction, Xiaomi sets a limit to the number of pre-orders possible, which will often sell out in the first hour or even within minutes. After it has taken its initial set of orders, Xiaomi will then work with Foxconn, its ODM, to build phones. This allows the company to receive advance payment from customers while incurring extremely low inventory costs because products are shipped from Foxconn directly to customers. Xiaomi also has very minimal sales and marketing costs because most advertising is done through its social networks.
and
Xiaomi, on the other hand, at launch, sets the consumer price close to the BOM cost, which ensures price competitiveness. At point 2, BOM cost has already declined, Xiaomi limits the availability of devices, and selected device batches are manufactured at the lower BOM cost. At point 3, mass deliveries start when gross margin is high enough, and volume accelerates as BOM cost decreases. At point 4, when consumer price becomes less competitive, they launch an “S” version of the product by upgrading selected components (e.g. engine) and launch at an even lower price. However, at this point, the BOM price has decreased. Overall, the longer product life gives a better lifetime margin.’
I dunno - I can think of lots of criticisms of China but this isn't one.