China is known today as the ‘world’s factory’ in recognition of its unrivalled production capacity, established over the past 30 years. Production capacity alone, however, does not lead to technological capability in developing countries. The policies that buttressed China’s rapid growth of production capacity do not necessarily support the efficient development of technological capabilities. Through a retrospective study of the power equipment industry, we explore the organisational mechanisms and governmental impacts that led to the current differences between two groups of domestic firms, namely the capacity-oriented firms founded under the ‘trading market for technology’ (TMFT) policy, and the capability-oriented firms that had less direct governmental support.
Keywords: catching-up, institution, technological capability, production capacity