This study involving 120 Australian and Chinese teachers introduces a construct of teacher capacity to analyse how teachers help students connect arithmetic learning and emerging algebraic thinking. Four criteria formed the basis of our construct of teacher capacity: knowledge of mathematics, interpretation of the intentions of official curriculum documents, understanding of students' thinking, and design of teaching. While these key elements connect to what other researchers refer to as mathematical knowledge for teaching, several differences are made clear. Qualitative and quantitative analyses show that our construct was robust and effective in distinguishing between different levels of teacher capacity.