Semiconductors: The Limits of Containment?
The conference returned repeatedly to America’s use of export controls—and whether they are working. The verdict was nuanced. Philip Wong, the Willard R. and Inez Kerr Bell Professor of Electrical Engineering at Stanford, argued that in the semiconductor space the strategy has plainly backfired. By cutting China’s firms off from American chip-making equipment and advanced logic chips, the controls created a large captive domestic market for China’s equipment suppliers who previously had no customers. “It basically enabled the indigenous supply chains to have a wonderful set of customers within China,” Wong said, “and so they were able to climb up the learning curve really quickly, much more quickly than before.” Other speakers suggested that may be a tolerable cost as long as export controls allow the US to reach certain frontier capabilities first—as has been the case with Anthropic’s Mythos model.

Wong pushed back on both alarmism and dismissiveness about China's broader technological rise. China, he argued, has genuine world-class talent and infrastructure across multiple sectors—a peer competitor, not a pretender. "If you are among the best athletes, sometimes you win, sometimes other people win. That happens all the time." To treat any given Chinese breakthrough as proof of American collapse, or to wave it away as a fluke, both miss the point: China is, in his words, "a bona fide good athlete."

Wong’s recommended alternative to export controls was direct: rather than trying to slow a competitor, the United States should focus on “how do we make ourselves run faster.” That sentiment echoed throughout the day, particularly after he noted that the National Science Board had recently been dismissed and that American R&D funding continues to be primarily focused on defense-oriented research. 

Biotech: From Follower to Leading Force
Physician-scientist Chenjian Li, a research fellow at the Hoover Institution, offered striking data on China’s advancement in biotech. In the active pharmaceutical ingredients that form the basis of medicines taken by hundreds of millions of Americans daily, China has achieved near-total global dominance—some categories are 100% Chinese-sourced. “Medicine, be it advanced experimental drugs, high-end prescriptions or just daily over-the-counter pills, are actually much more impactful than weapons of mass destruction,” Li said, “because they affect 80% of the United States and global population.”

At the cutting edge of drug discovery, the picture is more nuanced but equally notable. Chinese biotech startups are increasingly producing competitive "me-too, me-better" drugs that improve on existing treatments, and pushing into "first-in-class" drugs—the crown jewels of pharmaceutical innovation. Major multinational corporations (MNCs) are paying billions to acquire them. The fact that Pfizer, Merck, and Eli Lilly are spending at this scale, Li argued, says something important: “The MNCs buy those new therapeutic assets because they are solid and unique, and because the MNCs don’t think that they can be as fast and as good in those lines.”

Economist Ruixue Jia of UC San Diego connected this pharmaceutical surge to China’s education system, which has spent decades steering enormous numbers of students toward engineering and STEM fields, including biology and life sciences. The founder of one of last year’s biggest biotech deals—a $5.6 billion transaction—fit a pattern Jia’s research keeps finding: educated in China, PhD in Canada, postdoc in the United States, returned to China in 2008. “It’s not just a success story of Chinese education,” she noted. “It’s also a success story of North American education.”

Fragmentation and the AI Race
A central tension runs through the broader debate: what do the world’s two largest economies actually gain or lose from their escalating technological confrontation?

Tsinghua economist Hong Ma argued that, measured by its own goals, the American trade war has largely failed. US import dependence on Chinese value-added has remained roughly constant despite years of tariffs, as goods simply reroute through third countries. Beyond tariffs, he warned of a longer-term cost: fragmentation into two separate innovation ecosystems, neither large enough to fully benefit from the other. The US would lose access to the Chinese market, Chinese engineering feedback, and the scale that sustains rapid innovation. “On both sides,” he said, “this is not the optimal equilibrium.”

Panelists pointed to China’s open-weight AI models as evidence of a different kind of competition playing out below the frontier. China’s models from Alibaba, Moonshot AI, and others are being used across the globe—often simply because they are cheaper and good enough for most applications. In this way, big US labs may be ahead on raw benchmarks, but that advantage does not automatically translate into leading global adoption.

Impressive Achievements, Costly Failures
Another useful synthesis came from Scott Kennedy of the Center for Strategic and International Studies. Kennedy’s “bumpy success” framework holds that China’s innovation trajectory is clearly positive—it now ranks tenth globally on the Innovation Index, ahead of Japan in the Asia-Pacific—but deeply uneven across sectors. He described China as a “slow tech dragon”: vast misallocation of resources produces genuine breakthroughs alongside enormous waste, and that waste is a real drag on the broader economy. Commercial aviation was one such example—despite being a signature priority for China’s leadership and the single largest recipient of state investment, the result is, in Kennedy’s words, “an American plane with Chinese paint.” The lesson is not that China cannot innovate, but that state-directed industrial policy produces highly variable results.

That framework—impressive achievements, structural waste, uneven outcomes—runs as a quiet undercurrent through the broader debate. Structural challenges remain: a domestic market that cannot yet absorb the premium prices of cutting-edge drugs; an education system optimized for solving known problems rather than identifying unknown ones; and an economy in which the benefits of technological investment are not yet reaching ordinary households.

The picture that emerges resists easy predictions, but carries a clear message: the old frameworks—China as technological follower, export controls as sufficient means to maintain America’s remaining technological edge, global supply chains as something susceptible to political redirection—often no longer fit the evidence. The task now is building better ones.
 

Discover more from the 2026 SCCEI China Conference. 
 

"That advantage is entirely theoretical," Doshi conceded. "Unlocking its potential, though, is the central task of American statecraft in this century." In practice, that might mean Japan and South Korea investing in American shipbuilding; Taiwan building semiconductor plants in the U.S.; allies co-producing advanced weapons systems; and all parties maintaining a shared tariff or regulatory wall against China's excess industrial capacity. On the economic side, Doshi called for common investment screening, coordinated industrial policy, and an "economic Article 5" ensuring that when China uses economic coercion against one ally, all respond together.

Addressing the Skeptics
Doshi acknowledged "the new pessimism," the view that Trump-era damage to U.S. alliances has made allied scale impossible. The strain is real, he said, but not terminal, for three reasons:

1. The alternatives are worse. Spheres of influence, unrestrained multipolarity, and a China-led order all leave the U.S. and its partners poorer and less secure. 
2. Alliances have absorbed serious shocks before and survived. For example, France's withdrawal from NATO's unified command, Nixon's opening to China, the Plaza Accord. 
3. The underlying logic of interdependence persists. Allied economies are growing more dependent on U.S. markets as China buys less from them, allies are purchasing record numbers of American weapons, and even the Trump administration has not escaped the pull of allied scale, with Vice President Vance publicly calling for a trading bloc among allies to break China's chokehold on critical minerals.

Eight Principles to Achieve Allied Scale
Doshi closed with a practical blueprint — eight principles for building allied scale.

1. Turn the page on the Trump era. Persuade allies that the most damaging recent policies were products of individual leadership rather than durable features of the American political system.

2. Begin with humility. Start with small, achievable projects: a joint shipbuilding effort, a critical minerals offtake agreement, a co-production line. Build from there.

3. Build mutually beneficial bargains. Allies invest in America; America invests in allies. All extend each other more preferential terms than they do to non-market economies like China.

4. Pay attention to domestic politics. “The danger of the ‘Trump Approach’ is alienation and polarization of allied politics that makes diplomacy impossible.” Any allied scale strategy must be first grounded in domestic politics.

5. Build ad hoc coalitions. Allied scale does not mean doing everything with everyone. It means assembling the right groupings for specific challenges and opportunities.

6. Bolster credibility through congressional legislation. Executive orders are too easily reversed. Durable commitments to allies require legislative backing that is harder to undo with a change in administration.

7. Build on existing platforms. Frameworks like the Quad, AUKUS, the U.S.-Japan-South Korea trilateral, and the G7 already exist. Allied scale should strengthen what works, not start from scratch.

8. Articulate an affirmative vision. "Allied scale can't just be about balancing China," Doshi said. "It has to be about building the kind of world that we want to see and live in."

“That work is hard,” Doshi concluded, but “it's not impossible. And the alternatives are far more concerning than the future that I’m outlining.” Doshi ended his address on a note of optimism: a call to action for the U.S. to reforge our alliances and rebalance the world order to create a better world for not just the U.S., but for nations across the globe.

A full recording of Dr. Rush Doshi’s talk is available on YouTube and below.

While cigarette sales have fallen across much of the world, China has moved in the opposite direction. The trend is driven by the immense power of China's State Tobacco Monopoly Administration, which both regulates and profits from the industry. And as China's economy slows and traditional revenue sources like land sales decline, the government has become more dependent on tobacco revenue. According to Stanford anthropologist Matthew Kohrman, a faculty affiliate with APARC who studies smoking in China, this institutional reality is compounded by social factors. Citizens are turning to nicotine as a "mood modulator" to cope with economic stress, a habit made easier by the weak enforcement of smoking restrictions, Kohrman tells the New York Times. Read the article >

The Ghost of Plaza

The specter Hsieh described traces back to the 1985 Plaza Accord, when U.S.-Japan negotiations forced Taiwan to allow its currency to appreciate. In response, Taiwan's policymakers developed a deep institutional fear that the economy is always just one step away from disaster; this persistent fear has shaped policy ever since. Rather than allowing the gains of export success to flow broadly through the economy, Taiwan has systematically suppressed domestic consumption and kept the New Taiwan dollar undervalued to protect its competitive edge.

This policy has produced a trade surplus that reached 20% of GDP in 2025 and may climb to an extraordinary 35% of GDP in 2026. The surpluses have been invested most notably through purchases of U.S. treasury bonds by Taiwan's life insurance industry, parking roughly 90% of its assets in U.S. dollar-denominated instruments. The result is a system carrying enormous hidden financial risk: if the New Taiwan dollar appreciates sharply, a significant portion of Taiwan's life insurance sector faces potential collapse.

Who Bears the Cost?

A central thread of Hsieh's lecture was a pointed question: who has actually benefited from Taiwan's economic boom? His answer was largely: not workers. Labor policy in Taiwan, including widespread use of non-compete agreements, suppressed wages, and constrained mobility between firms, reflects the same logic of sacrifice that underlies macroeconomic policy in Taiwan. 

Hsieh illustrated this with a simple analogy: imagine your income rises significantly, but you are culturally and institutionally pressured to act as though it didn't. That, he argued, is the lived experience of many Taiwanese workers: a social norm of sacrifice rationalized by a sense of perpetual economic insecurity.

Toward an Uncertain Future

Present-day Taiwan may face a potential policy response to growing external pressure: rather than holding surpluses in foreign treasury bonds, Taiwan would channel investment into direct foreign investment, including building manufacturing facilities in the United States. While this may ease political tensions around the trade imbalance, Hsieh cautioned that it does nothing to address inequality at home. Any returns from such investments will flow to firms, not to workers.

Professor Hsieh closed with a call for honest reckoning. Taiwan's economy has achieved something genuinely extraordinary, but its success has been built on a foundation of suppressed wages, financial risk, and a policy psychology rooted in fear rather than confidence. Moving beyond the Ghost of Plaza, he suggested, will require confronting those structures directly, and ensuring that the gains of Taiwan's boom are finally shared more broadly.

Watch the Recorded Event

This lecture was endowed by the family of Dr. Sam-Chung Hsieh (1919–2004), former Governor of Taiwan's Central Bank, in honor of his legacy of economic stewardship and development.

Headlines about foreign companies establishing a foothold in China only to fail years later no longer surprise anyone. But why does this keep happening? Kenneth Wilcox, former CEO of Silicon Valley Bank (SVB) from 2001 to 2010 and author of The China Business Conundrum: Ensure that Win-Win Doesn't Mean Western Companies Lose Twice, argues that the answer comes down to mental models and preparation.

In a recent lecture hosted by the Stanford Center on China's Economy and Institutions, Wilcox explained that we all develop mental models — internal frameworks that help us interpret and navigate the world around us. We carry these models with us wherever we go, applying them instinctively to new situations and environments. The trouble, Wilcox argues, is that a mental model only holds up if the new environment resembles the one it was built for. And American mental models, more often than not, simply don't hold up in China.

Wilcox knows this firsthand. After a decade leading SVB, he and his wife moved to China in 2011 to open a Chinese branch of the bank. Things started smoothly enough — he secured a partnership with Shanghai Pudong Development Bank and obtained the necessary license — but it quickly became clear that the rules he'd spent his career following no longer applied. The license, for instance, permitted him to open the bank but barred him from conducting any business in renminbi, China's national currency, for the first three years. For a bank, this created an obvious problem: how do you pay staff, let alone operate, without access to local currency? The government's solution was a subsidy to cover operating costs during that period, along with an invitation to meet regularly with other banks and business leaders to share SVB's model and approach. After many such meetings, Wilcox's Chinese partners told him they had been so impressed with what they'd learned that they planned to open their own bank modeled on SVB's approach.

This, Wilcox explained, is a pattern that plays out with striking regularity in China. Foreign companies are lured in with the promise of a vast new market and eager local partners. They are then entangled in regulations and bureaucracy, kept afloat with subsidies while they wait for permission to operate more freely — all while their technology and intellectual property are quietly absorbed. Eventually, the foreign company is left with little choice but to close up and leave. Some companies see it happening but look the other way. Others don't recognize it until it's too late. Many never fully understand why they failed at all.

Wilcox traced all of this back to the limitations of mental models. American businesses tend to arrive in China assuming the environment will function more or less like home: keep your head down, stay out of politics, focus on the business, and you'll be fine. But that assumption doesn't hold in China, where the government and the Communist Party exert control over virtually every aspect of commercial life. The most powerful players routinely hold simultaneous roles — party member, bank executive, government official — all at once. It is precisely these unexamined assumptions, Wilcox concluded, that set so many Western ventures up to fail before they've even begun.