Purpose -The aim of this paper is to highlight the importance of industrialization and its role in realizing technological innovation leading towards economic development. China has made a 15-year plan to develop an innovation driven economy, for which it requires a strong and a structured industrial base. An overview of China's industrial strategy has been provided, followed by the challenges and the possible measures needed to be taken in order to achieve its long-term goals. Design/methodology/approach -Phenomenology, exploratory research and inductive approach for analysing management of technological innovation, industrial clusters and economic development, and, China's innovation plan. Findings -China has emerged as the fastest developing economy and is currently in the transition stage from factor driven to investment driven. In order to stabilize and move towards the investment driven and then to the innovation-driven stage, China requires a strong industrial base. In order to do so, China needs to cope with the challenges of: a weak system of intellectual property management: lack of skilled and technical labour and adequate financial resources: slow pace in competence and competitiveness upgrading: a weak educational system: industrial pollution; and, lack of basic research. Originality/value -The paper serves as a guide to students and researchers by presenting a summary of global trends regarding technological innovation, industrial clusters, and China's industrial policies to develop an innovation driven economy.

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