But having completed the paperwork, picked up the keys and eased silently into Shanghai's chaotic traffic, the first-time electric car driver in the city quickly notices that nobody else appears to be driving one. In fact, there are at most 500 electric cars in Shanghai out of a total of about one million passenger vehicles, according to Zhang Dawei, the founder of EV Buy, a Shanghai company that sources and services electric cars for individuals and corporate users.

In fairness, electric cars have met consumer resistance everywhere, not just in China. Carmakers around the world have struggled to improve battery technology. Still, Shanghai's dismal failure to popularize electric vehicles, despite a national auto policy to go electric--and generous subsidies for consumers--speaks to the immense challenges that China's leaders face in rolling out an ambitious program of economic overhauls approved at a Communist Party meeting this month. Those policies are intended to encourage innovation that leads to higher-quality and more sustainable growth driven by consumption--precisely the logic behind China's drive to build an electric car industry.

More than a decade ago, state industrial planners seized upon electric cars as the answer to a set of industrial, environmental and national-security dilemmas. Developing electric cars, the planners thought, would enable China to leapfrog the world's leading manufacturers of combustion engine vehicles, who China otherwise could never hope to challenge. It would also reduce China's rapidly growing dependence on imported oil, which leaves the world's second-largest economy vulnerable to destabilizing supply shocks. And it would mitigate chronic pollution in Chinese cities.

In the West, many assumed that these policy imperatives, combined with China's vaunted prowess at rolling out transport infrastructure--as well as government ownership of the country's big carmakers--would assure the success of the national push for electric vehicles. China, it was widely thought, had the chance to lead the world in an emerging technology, while pioneering a more sustainable urban growth model. Even Warren Buffett took a stake in Shenzhen-based battery and electric carmaker BYD in 2008.

But China's electric car strategy hasn't worked out. Why?

First, state planners badly miscalculated consumer demand. The wealthy elite have little interest in buying an electric car to flaunt their concern for the environment: For them, a car is still the prized marker of wealth and social status. The less well off, particularly first-time car buyers, who constitute the vast majority of car buyers in China, aspire to the thrill and freedom of the road--and a limited driving range is a turn-off.

On the supply side, state carmakers dropped the ball, says Greg Anderson, a U.S.-based auto industry consultant and the author of the book 'Designated Drivers: How China Plans to Dominate the Global Auto Industry.' The incentive for state auto firms isn't to innovate, but 'to get as big as possible, as fast as possible, and make as much money as possible,' he says. That's best achieved by milking their existing joint ventures with foreign auto makers rather than sinking resources into new technologies.

State carmakers all paid lip service to the government's electric car strategy by coming up with working models, says Mr. Anderson. But they failed to deliver breakthroughs in core technologies, including batteries and battery management systems. So today, while hundreds of combustion engine car models compete in the world's largest car market, there are only a handful of electric vehicles in production for consumers to choose from.

For its part, the government failed to deliver the infrastructure. According to China's current five-year plan--a holdover strategy from the Stalinist economy--there are supposed to be more than 400,000 charging piles nationwide by 2015. But in today's Shanghai, a city of 24 million people, only 1,000-2,000 have so far been installed, says Mr. Zhang of EV Buy--far off the pace required to help China achieve its goals.

Bureaucratic infighting partly explains the inertia in developing the industry. For example, State Grid Corp, the near-monopoly grid operator, has been pushing to own the battery market by promoting a national battery swapping system for car owners, says Axel Krieger, a principal in the Beijing office of McKinsey & Co. That arrangement would give it a large part of the industrial value chain, but is resisted by car manufacturers, who want to use their own batteries.

In addition, local governments have been promoting their own technical standards as a protectionist measure to support local car makers. It's hard to drive an electric car from one city to another when plugs aren't compatible. 'Every local warlord defends their own standards and technologies,' says Mr. Krieger.

Finally, foreign auto makers have been scared away by government attempts to force them to hand over their intellectual property in electric vehicles in exchange for market access.

The upshot of all this is that China is hopelessly behind on its target for electric car ownership. The five-year plan calls for 500,000 battery-electric and plug-in electric vehicles by 2015, and five million by 2020. But last year, Chinese consumers bought only 11,375 electric cars and 1,416 plug ins, according to the China Association of Automobile Manufacturers. That's despite subsidies that go as high as $20,000 per car.

The Chinese government's new strategy appears to be to promote plug-in hybrids as an interim technology before fully electric cars kick in. That appears to be a pragmatic response to the collapse of a key policy initiative. But it's a lesson in the potholes that President Xi Jinping faces on his long road to creating an innovative economy.