
Reshaping China’s Government-Services Supply Chain HONG KONG – A supply chain links producers and consumers through a complex web of outsourcing contracts , with market leaders in any product category orchestrating activities to produce components profitably along its entire length . For example , an iPad is designed in California – with chips from Japan and parts from South Korea , Taiwan , and elsewhere – and finally assembled in China for global distribution . But the ecology of supply chains is not as straightforward as this depiction suggests . Most studies of supply chains examine their operations , but take for granted governments ’ critical enabling role . Because the non-delivery of government services would inhibit the proper functioning of business supply chains , understanding how the government-services supply chain works is vital . For example , the Chinese economy’s transformation was enabled by the synchronized delivery of government services to support the logistics , finance , and manufacturing supply chains . This was a complex task that involved different levels of the Chinese government and many state agencies and ministries . A supply chain is not only a network for production , but also a live feedback mechanism , continually adjusting itself to ensure that production is coordinated and aligned efficiently to meet changes in global consumers ’ demand , tastes , and preferences . Technology has enabled faster , more efficient “ just-in-time ” delivery , taking full advantage of specialization and knowledge-sharing on a global scale . As Apple has discovered , the winner in orchestrating a supply chain emerges with the lowest global costs and the largest market share . The iPad could not be produced at such high speed and low cost without the “ made-in-the-world ” supply chain based in China . In addition to the macro and micro aspects of economics , understanding supply chains in private and public goods and services in China requires [ 178]mezo ( institutional ) and meta ( system-wide ) analysis . When China initiated its economic reforms in 1979 , it inherited a centrally planned economy that lacked the institutional infrastructure for markets . Recognizing the need for systemic change , China allowed local governments in special economic zones and cities to experiment with modern legal , administrative , and logistical practices for export industries , including investments in utilities and transport . Intense competition among local governments for foreign investment led to dramatic improvements in the business environment , featuring economic incentives in areas like land , labor , and taxation , as well as speedy issuance of permits and approvals . City leaders were given responsibility for mobilizing local resources to generate GDP and employment , and they were ( and continue to be ) rewarded with promotion for good performance . The result was considerable innovation and institutionalization of local government services to support market activities , including outsourcing of expertise in infrastructure project design , administration , and operations to private and foreign consulting and design companies . To support China’s participation in global manufacturing supply chains , many local governments sold and dismantled their state-owned enterprises ( SOEs ) , enabling many new private firms to provide the services needed for an export-oriented , market-based economy . At the national level , the consolidation of SOEs and banks , and the modernization of their corporate governance via public listing on stock exchanges , enabled improved efficiency in regulated utilities , hard infrastructure , and resource sectors , complementing liberalization and market growth . The Chinese government-services supply chain also benefited substantially from a meritocratic human-resources tradition . Officials with substantial and successful experience in local governments , ministries , or SOEs were deliberately promoted and cross-posted to less-developed regions to spread know-how , technology , and best practices and processes . Indeed , China’s economic success reflects the depth of administrative and market experience embedded in the Chinese bureaucracy . Chinese mayors are CEOs of their local economy , responsible not only for market development , but also for social stability . The critical mechanism for orchestrating and implementing the complex web of contracts embodied in China’s government-services supply chain is the Five-Year Plan , which foresees vertical and horizontal integration of almost all Party and administrative agencies . The FYP uses broad objectives and targets for social and economic development , formed after extensive internal and public consultations . These mandates are translated by sub-national officials into projects and work plans , such as targets for reducing energy use per unit of GDP in order to address resource constraints and concern about climate change . China’s success in developing from scratch a modern government-services delivery system explains why many foreign investors find it much easier to deal with Chinese governments than those in other developing countries . The 12th FYP aims to shift China from an export-driven growth model toward a balanced economy that relies on domestic demand , while simultaneously addressing industrial transformation , social inequities , and environmental degradation . This implies more complex contracts that go beyond promoting markets , GDP growth , and employment to ensure inclusive , equitable , and high-quality government-services delivery . Implementation of these evolving social goals through local government agencies by specific officials is a daunting task that requires profound changes in roles and performance metrics . No one doubts that Chinese local governments play a much more active and intrusive role than their counterparts in the West , which implies an additional complicating factor . Local governments now face not only growing demands from the emerging middle class for greater transparency , competition , fairness , and access to opportunities , but also deepening conflicts between local interests and global rules . Orchestrating a complex government-services supply chain in a substantially open continental economy with 1.3 billion people and five levels of government is difficult enough using a simple GDP growth objective . Adapting the governance metric in a country of China’s size to an economy that is green , inclusive , and equitable presents a novel challenge in human history . The only precedent for such an achievement is China itself .