Abstract
Understanding the range of impacts of technological innovation and diffusion in a large carbon-intensive country like China is important for understanding the future trajectory of global carbon emissions. In this paper, we utilize a uniquely rich data set of Chinese firm characteristics and technological innovation activities to identify the key determinants of rising energy productivity within China's industrial sector. We find rising relative energy prices, research and development expenditures, and ownership reform in the enterprise sector, as well as shifts in China's industrial structure, are the principal drivers of China's declining energy intensity and use over the period 1997–1999. We also find large differences in factor-biases between technology produced internally and technology imported from abroad. Technology tends to reflect the resource scarcities of the country supplying the technology. Whether internal or imported, however, we find technology development to exhibit an energy-saving bias. We also find that the firm's in-house technology development activities are important for creating the absorptive capacity required for the successful diffusion of imported technology.