practice of “market access for technology” had some success, it did not work that well either (Naughton 2007: 357).<sup>38</sup> Subsequently, the government opened more sectors to foreign direct investment (FDI) and provided a wide range of incentives to leading enterprises willing to invest in research and development. This strategy appears to have been more successful (Hu et al 2002, 2005).<sup>39</sup> The final element of China’s industrial and technology modernization policies focused on improving enterprise and industry level energy efficiency (Price et al 2008). Concern with energy efficiency in industry was a consequence of several perceived energy-related vulnerabilities.<sup>40</sup> For industry, the two biggest energy concerns related to coal use. Even though coal mining is well developed, China possesses a weak infrastructure for coal washing, shaping, transport and distribution, and for coal slurry (Wu and Storey 2007: 191). In addition, since current technology for coal use tends to be heavily polluting, China has faced growing problems between coal use and the environment.<sup>41</sup> In light of these concerns, beginning in the early 1980s, the government built energy efficiency into its command economy by establishing energy intensity standards for a large number of industrial subsectors and limiting the supply of energy to enterprises based on those standards (Sinton et al 1998: 821). Enterprises that failed to meet mandated energy intensity standards were closed, had their energy supplies cut-off, or faced significantly higher prices for energy used above the standard (Sinton et al 1998: 822). The “energy quota” management system was accompanied by significant enterprise investments in energy conservation<sup>42</sup> ; creation of a large number of energy conservation centers<sup>43</sup> charged with providing energy efficiency services to enterprises; and development of a credible energy statistics collection and reporting system that enabled central planners to track enterprise and industry performance relative to established energy intensity standards.

As the economy continued its shift from plan to market, however, this set of policies and institutions became less useful and many elements of it simply withered away. Consequently,

> 38 As Naughton (2007: 357) says, China tried implementing this policy be engaging in high stakes negotiations with several world technology leading MNCs. While China achieved some success with this strategy, notably with the Belgian Bell subsidiary of ITT, in the end this approach failed as it led to long protracted negotiations, delays in implementation, and subsequent disputes over compliance.

39 Hu et al (2005) find that FDI and enterprise own R&D expenditures exert positive impacts on enterprise productivity. They also demonstrate that an interactive term composed of FDI and own expenditures on R&D complement enterprise productivity.

40 Wu and Storey (2007:191-192) identify six vulnerabilities: a need to meet rapidly increasing energy requirements, a need for high quality clean energy, structural problems with individual energy supplies – particularly for coal, growing oil demand, a growing conflict between energy use and environmental protection, lack of a well managed regulatory framework for energy, and inefficient supply of energy to rural areas.

41 The two biggest environmental problems associated with coal use are acid rain and the effects of air pollutants on human health (Wu and Storey (2007: 192).

42 Between 1981 and 1985 energy conservation investments (ECIs) were about 10% of total energy supply investments, ECIs equaled 8% of total energy supply investments between 1986 and 1990 (Sinton, et al 1998: 818). 43 As Sinton et al (1998: 825) say, the sheer scale of China’s energy efficiency institutional capacity during this period was unique as the government created over 200 Energy Conservation Centers staffed with over 7000 technical personnel attached to line ministries and their counterparts in provinces and municipal governments. These Centers carried out policy research, engaged in project designs and feasibility studies and carried out energy audits. Over time the ECCs developed substantial hands on experiences with energy users (Sinton et al 1998: 825).

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