their equipment suppliers<sup>59</sup> they acquired three manufacturing workshops thereby enhancing their investment capabilities. Over time engineers at the TCIDRI mastered complete configuration of new Chinese NSP rotary kiln production lines and as the demand for cement expanded, the TCIDRI began producing hundreds of new NSP production lines per year. As part this process design engineers enhanced their investment capabilities by reducing the investment cost of new NSP production lines from roughly 1,200 yuan per ton of cement to roughly 500 yuan per ton of cement.<sup>60</sup> And they enhanced their production capabilities by learning how to adapt their designs to Chinese conditions.<sup>61</sup> Following administrative reforms that eliminated central line ministries and reduced government support for ministries’ national research institutes, engineers at the Nanjing Cement Industry Design and Research Institute and the Chengdu Cement Industry Design and Research Institute founded a quasi-public, quasi private cement engineering enterprise, Sinoma International (SI) in 2001. SI went on to become a publicly traded enterprise “owned” by the State Owned Assets Supervision and Administration Commission. In 2005 the TCIDRI joined SI and the combined enterprise dominated the Chinese market for new rotary kiln cement production lines—capturing between 80% and 90% of this market each year. SI also built its global linkage capabilities by capturing a significant share of the non-Chinese international market for new rotary kiln cement production lines.<sup>62</sup>

# **3. Technological Learning in Pulp and Paper**<sup>**63**</sup>

Our case study of Yueyang Paper Co., LTD<sup>64</sup> in Hunan Province showed how the enterprise’s investments in long-run technological learning—in acquiring the know-how and know-why in new investment capabilities<sup>65</sup> , new production capabilities<sup>66</sup> , and new linkage capabilities<sup>67</sup> —enabled the enterprise to make substantial improvements in energy efficiency .

> 59Some of the equipment they purchased did not work to specification. Other pieces of equipment were not delivered on time. Several suppliers charged exorbitant prices.

> 60 Among other things, they reduced investment costs by reducing automation and replacing it with well trained but low cost labor (Interview at Sinoma International, January 2011).

> 61 For example, when the government bought technology licenses for pre-calciners, they burned heavy oil, but given the rising cost of heavy oil in China, Chinese cement enterprises wanted to substitute coal for heavy oil. This required the engineers at the design institutes to completely redesign pre-calciners so they could burn coal. 62 By 2010 SI was reputed to have captured 36% of the non-Chinese global market for new cement plants, with 70% of its revenue coming from export sales (Interview at SI, January 2011).

> 63 What follows draws on Rock and Song (2011: 20-28).

64 Unless otherwise noted, what follows is based on interviews at Yueyang Paper Co. in April 2011 and/or follow-up answers to additional questions.

65 New investment capabilities include learning how to carry out investment feasibility studies, deciding which particular technologies to acquire, and deciding on the means to acquire those technologies (via direct foreign investment, licensing agreements, or turnkey projects) (Rock and Angel 2005: 129-130).

66 New production capabilities include the capability to improve operation of a new production line, to optimize the operation of the new line, including raw material control, production scheduling, quality control, trouble shooting, and adaptation of production processes to changing conditions, as well as the ability to repair equipment as needed (Lall 1992: 171).

67 New linkage abilities include the ability to transmit new information, skills, and technology and receive information, skills and technology from component and raw material suppliers, subcontractors, and technology institutes (Lall 1992: 171).

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