On January 27, 2021, the China Program at Shorenstein APARC hosted Professor Hau L. Lee, The Thoma Professor of Operations, Information & Technology at the Stanford Graduate School of Business for the virtual program “The Pandemic, U.S-China Tensions and Redesigning the Global Supply Chain.” Professor Jean Oi, William Haas Professor of Chinese Politics and director of the APARC China Program, moderated the event.

Professor Lee focused on an important question that has only become more pressing due to the COVID-19 pandemic: How, if at all, should businesses redesign their supply chains? Since the beginning of the pandemic, explains Lee, there has been an increase in calls for “redundancy” in supply chains in order to protect them from the problems they faced early in the pandemic, when China was first hit by shut downs and slowed productivity. Advice has been varied, ranging from the “China Plus One” strategy in which businesses simply add a secondary production location, to completely domesticating supply chains.

Lee warns, however, of the perils of overreaction. There are numerous risks that come along with a fully domestic supply chain, not least the danger of “having all of your eggs in one basket.” Instead, says Lee, businesses should move cautiously and, instead of fully divesting from China, should use the country intelligently. 

Professor Lee’s “In and Out Design” encourages businesses to work from the inside out, securing and strengthening their supply chains by starting at home. Companies must first build “internal supply chain excellence,” after which they can move on to making sure their strategic partners are equally strong and can work to their advantage. Eventually, companies can move on to strengthening the extended value chain and, ultimately, their entire ecosystem. Using strategies like dual response, leveraging “lubricants,” and bolstering capacity-building capabilities, businesses can create a more stable future. 

The session concluded with a fruitful Q&A between Professor Lee and the audience, moderated by Professor Oi.

A video recording of this program is available upon request. Please contact Callista Wells, China Program Coordinator at cvwells@stanford.edu with any inquiries.

The COVID-19 pandemic has disrupted economies and expectations for economic growth and development the world over. But even before the pandemic, Asian economies were reassessing their growth strategies.

In a podcast conversation about the new edited volume Shifting Gears in Innovation Policy: Strategies from Asia, APARC's Korea Program Deputy Director Yong Suk Lee discusses some of the impediments Asian countries face in trying to encourage economic development and entrepreneurship, but also the inherent strengths that could allow innovative strategies take hold and grow in East Asia. Listen to the full conversation below.

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Edited by Lee, Gi-Wook Shin, and Takeo Hoshi, Shifting Gears in Innovation Policy is the first of three volumes resulting from APARC's Stanford Asia-Pacific Innovation project that produces policy research to promote innovation and entrepreneurship in East Asia and the greater Asia-Pacific region.

Lee explains, “Many Asian countries achieved economic growth by importing new technologies from advanced economies like the U.S., using them very effectively, and then expanding exports. But now where East Asia stands, many of these countries have already successfully caught up to the technological frontier of advanced economies, so if they want to maintain growth, there needs to be a shift in their strategies.”

The shift Lee and the other volume authors propose is one towards economic growth that is driven by innovation and entrepreneurship rather than the ‘catch-up’ model that Asian economies have commonly relied on. Unlike startup hubs such as the San Francisco Bay Area of California, Asian countries often lack an entrepreneurial tradition because of antagonistic financial structures and differences in cultural definitions of success. These additional financial and social risks have cast entrepreneurial endeavors in an unattractive light for multiple generations of workers.

But encouraging entrepreneurship and endemic innovation are crucial to maintaining stable economic growth. With rapidly aging populations, greater interconnections in both trade and diplomacy, and transformation in the workforce, workplace, and work itself, effectively adapting development strategies to meet present and future challenges remains a central priority for East Asia policymakers and innovators alike. As Lee advises, “There’s strong infrastructure in East Asia, both physically and digitally, which is a great advantage. But they’re now at a frontier with no trajectory to follow, and there needs to be indigenous growth and continuous innovation in order to not be surpassed by competitors.”

The Stanford Center at Peking University (SCPKU), the Center on Democracy, Development and the Rule of Law (CDDRL), and the APARC China Program jointly hosted a workshop on China’s Belt and Road Initiative (BRI) in early March. The workshop, held on March 2 and 3, welcomed researchers from around the world with expertise in the Initiative. Unfortunately, because of the rapidly developing health emergency related to the coronavirus, participants from not only China, but also Japan, were prevented from attending. As described by Professor Jean Oi, founding director of SCPKU and the China Program, and Professor Francis Fukuyama, director of CDDRL and the Ford Dorsey Master's in International Policy, who co-chaired the workshop, the meeting aimed to provide a global perspective on the BRI, consolidate knowledge on this opaque topic, and determine the best method and resources for future research.  

The workshop began with presentations from several of the invited guests. Dr. Atif Ansar from the University of Oxford’s Saïd Business School kicked off the first day by describing not only the tremendous opportunity that the BRI presents to developing economies, but also the serious pitfalls that often accompany colossal infrastructure projects. Pointing out the poor returns on investment of mega infrastructure projects, Ansar examined the frequest cost and schedule overruns, random disasters, and environmental degradation that outweigh the minimal benefits that they generally yield. China’s own track record from domestic infrastructure projects does little to mitigate fear of these risks, Ansar claimed. In response, he urged professional management of BRI investments, institutional reforms, and intensified deployment of technology in BRI projects. Dr. Ansar was followed by Dr. Xue Gong of the S. Rajaratnam School of International Studies, Nanyang Technological University, Singapore. Dr. Gong’s analysis centered on the extent to which China’s geopolitical motivations influenced its outward foreign direct investments (OFDI). Although her research was still in the early stages, her empirical analysis of China’s OFDI inflows into fifty BRI recipient countries from 2007-2018 nevertheless revealed that geopolitical factors often outweigh economic factors when it comes to China’s OFDI destinations.

Participants then heard presentations from Amit Bhandari of Gateway House: Indian Council on Global Relations and Professor Cheng-Chwee Kuik of the National University of Malaysia. Mr. Bhandari’s talk focused on Chinese investments in India’s six neighboring countries, which tend to center more on energy rather than connectivity projects. He first found that the investments are generally not economical for the host countries because they come with high costs and high interest rates. Secondly, he argued that these projects often lacked a clear economic rationale, appearing instead to embed a geopolitical logic not always friendly to India. Professor Kuik, by contrast, provided a counterexample in his analysis of BRI projects in Southeast Asia. He described how, in Southeast Asia, host countries’ reception of the BRI has varied substantially; and how various stakeholders, including states, sub-states and other entities, have used their leverage to shape outcomes more or less favorable to themselves. Kuik’s analysis injected complexity into the often black-and-white characterizations of the BRI. He highlighted the multidimensional dynamics that play out among local and state-level players in pursuit of their goals, and in the process of BRI implementation.

Professor Curtis J. Milhaupt and Scholar-in-Residence Jeffrey Ball, both at Stanford Law School, followed with individual presentations on the role of State-Owned Enterprises (SOEs) in the BRI and the emissions impact of the BRI on climate change, respectively. Professor Milhaupt  characterized Chinese SOEs as both geopolitical and commercial actors, simultaneously charged with implementing Party policies and attaining corporate profits. Chinese SOEs are major undertakers of significant overseas BRI projects, acting not only as builders but also as investors, partners, and operators. This situation, Milhaupt asserted, carries significant risks for SOEs because these megaprojects often provide dismal returns, have high default rates, and can trigger political backlash in their localities. Milhaupt highlighted the importance of gathering firm-level data on businesses actually engaged in BRI projects to better infer geostrategic, financial, or other motivations. Jeffrey Ball turned the discussion to carbon emissions from BRI projects and presented preliminary findings from his four-country case studies. He concluded that, on aggregate, the emissions impact of the BRI is still “more brown than green.” Twenty-eight percent of global carbon emissions may be accounted for by BRI projects, Ball asserted, underscoring the importance of the BRI to the future of global climate change.

The day concluded with presentations by  Michael Bennon, Managing Director at the Stanford Global Projects Center, and Professor David M. Lampton, Oksenberg-Rohlen Fellow at the Freeman Spogli Institute for International Studies. Bennon first presented findings from two empirical case studies of BRI projects and then went on to describe how the BRI is now practically the “only game in town” for infrastructure funding for developing countries. Lengthy environmental review processes at Western multilateral banks have turned the World Bank, for example, from a lending bank into a “knowledge bank,” he argued. He also highlighted that, in general, economic returns on BRI projects for China are very poor, even though recipient countries may accrue macroeconomic benefits from these projects. Finally, Professor Lampton turned the discussion back to Southeast Asia, where China is currently undertaking massive cross-border high-speed rail projects through eight ASEAN countries. He described how each host country had varying capacity to negotiate against its giant neighbor, and how the sequential implementation of these cross-border rail projects also had varying impacts on the negotiating positions of these host countries. BRI played out differently in each country, in other words, eliciting different reactions, push-backs and negotiated terms.

The second day of the workshop was dedicated to working toward a collaborative approach to future BRI research. The group discussed the key gaps in the existing research, including how to know what China’s true intentions are, how to measure those intentions, who the main players and their interests in both China and the host countries are, and even what the BRI is, exactly. Some cautioned that high-profile projects may not be representative of the whole. Participants brainstormed about existing and future sources of data, and stressed the importance of diversifying studies and seeking empirical evidence.