The local government wants to encourage State-owned Enterprises (SOE) to invest more of their earnings back into research and development as part of a government-led push to spur innovation, a top official said at a press conference Thursday.

The Shanghai Municipal Government has set a target for local SOEs to increase their proportion of R&D investment to sales revenue - known as R&D intensity - to 3.5 percent by 2015, according to Zhou Ya, director of the Shanghai Municipal Development and Reform Commission.

The target is part of a broader goal to increase private and public spending on R&D from 3.1 percent to 3.3 percent of local GDP by 2015, according to the government plan released at the press conference.

The city spent 5.9 billion yuan ($926.81 million) on R&D in 2011, 70 percent of which came from enterprises. Although R&D spending in the city surged 24 percent in 2011, Shanghai's innovation power remains weak because SOEs lack motivation and private firms lack funding, Zhou said.

"Large companies in developed countries have R&D intensity rates of about 10 percent, but for local SOEs, the rate usually ranges between 1 percent and 2 percent, he said.

To encourage SOEs to spend more of their earnings on R&D, the Shanghai Municipal State-owned Assets Supervision and Administration Commission will earmark at least 30 percent of the dividends it collects from SOEs for innovation spending each year, Zhou said.

The local government is also working on a policy that will require the boards of local SOEs to base executives' annual performance more on innovation considerations, Zhou said.

"The key reason behind the SOEs' reluctance about innovation is that top executives, who make the final decisions, answer first to the government, which knows less than private firms about how to run companies in a market economy," said Zhang Jun, director of the China Center for Economic Studies at Fudan University.

The local government also wants to expand a stock incentive program that allows researchers who work for SOEs to earn stock-based rewards.

"Currently, SOE employees can receive rewards accounting for no more than 30 percent of their total income, but we will allow employees to negotiate  with the enterprises, so they might be able to receive a much higher reward if their contributions are significant," Zhou said.