July 1, 2020

Disclaimer: This paper is the product of professional research performed by staff of the U.S.-China Economic and Security Review 

Commission and was prepared at the request of the Commission to support its deliberations. Posting of the report to the Commission’s 

website is intended to promote greater public understanding of the issues addressed by the Commission in its ongoing assessment of U.S.-

China economic relations and their implications for U.S. security, as mandated by Public Law 106-398 and Public Law 113-291. However, 

the public release of this document does not necessarily imply an endorsement by the Commission, any individual Commissioner, or the 

Commission’s other professional staff, of the views or conclusions expressed in this staff research report.

Kaj Malden, Policy Analyst, Economics and Trade

Ann Listerud, Former Research Assistant, Economics and Trade

Acknowledgments: The authors thank Dr. Lee Branstetter and Dr. Mary Lovely for their helpful insights. 

Their assistance does not imply any endorsement of this report’s contents, and any errors should be 

attributed solely to the authors. 

Trends in U.S. Multinational Enterprise 

Activity in China, 2000–2017
U.S.-China Economic and Security Review Commission 

Table of Contents

Executive Summary....................................................................................................................................................3

Introduction ................................................................................................................................................................4

U.S. MNE Activity at a Glance ..................................................................................................................................5

U.S. MNE Activity in China ......................................................................................................................................8

China Top Destination for U.S. MNE Employment Abroad..................................................................................8

China Emerging as a Competitive Research Hub for U.S. Companies................................................................11

U.S. Investment Fortifies China’s Position in Global Technology Supply Chains..............................................15

China Moving Up the Value-Added Chain ..........................................................................................................17

Considerations for Congress.....................................................................................................................................20

Further Reading........................................................................................................................................................22

Appendix: Definitions..............................................................................................................................................23
U.S.-China Economic and Security Review Commission 3

Executive Summary

From 2000 to 2017, U.S. multinational enterprises’ (MNE) operations*in China, while small relative to those in the

United States, have been some of the fastest growing globally of all U.S. MNE foreign subsidiaries. U.S. MNE 

operations in China center on manufacturing, with manufacturing assets accounting for nearly half of all U.S. MNE 

assets in China. U.S. MNEs have leveraged China’s cheap labor force, large economies of scale, low transportation 

costs, and concentration of global supply chains to build centers of production for global exports and serve China’s 

growing consumer class. U.S. MNE manufacturing in China focuses mostly on the production of computers and 

electronic products and, increasingly, chemicals. These industries not only contribute to U.S. companies’ global 

economic competitiveness but also figure prominently in China’s national development ambitions. 

In analyzing the evolution of U.S. MNE operations in China from 2000 to 2017, this report finds they may indirectly 

erode the United States’ domestic industrial competitiveness and technological leadership relative to China. 

Additionally, as U.S. MNE activity in China increasingly focuses on the production of high-end technologies, the 

risk that U.S. firms are unwittingly enabling China to achieve its industrial policy and military development 

objectives rises. Other specific findings on selected measures of U.S. MNE activity in China include: 

• China’s vast consumer market and the Chinese government’s coercive policies have incentivized many 

U.S. MNEs to move their manufacturing operations to China. U.S. Department of Commerce Bureau of 

Economic Activity (BEA) data explored in this report indicates the major destination for goods and services 

supplied by U.S. MNEs in China is the Chinese market itself. In 2017, U.S. MNE foreign affiliates in China 

sold 82 percent of the goods and services produced in China directly to Chinese customers. At the same time, 

trade barriers, including localization requirements and export restrictions on key raw materials, have further 

induced production within China. Sales to Chinese consumers may also constitute sales of intermediate goods 

and services which might be used in final goods for export to the United States.†

• U.S. MNEs employ more people in China than in any other country outside of the United States, 

primarily in the assembly of computers and electronic products. As of 2017, U.S. MNEs employed 1.7 

million people in China, a 574.6 percent increase from the 252,000 people employed in 2000. China ranks as 

the top destination for all U.S. MNE employment across all manufacturing categories with the exception of 

food and transportation equipment. Outside of manufacturing, U.S. MNE employment in China is second 

highest in accommodations and food services, likely due to growing disposable income levels of China’s rising 

middle class, who purchase more services. 

• China is the fourth-largest destination for U.S. MNE research and development (R&D) expenditure and 

increasingly competes with advanced economies in serving as a key research hub for U.S. MNEs. The 

growth of U.S. MNE R&D expenditure in China is also comparatively accelerated, averaging 13.6 percent yearon-year since 2003 compared with 7.1 percent for all U.S. MNE foreign affiliates in the same period. This 

expenditure is highest in manufacturing, particularly in the production of computers and electronic products, 

but has diversified over time. For example, R&D expenditure on the improved manufacture of chemicals, 

including pharmaceuticals, surged nearly 30-fold from a low base of $13 million in 2000 to $392 million in 

2017.

• U.S. MNE capital expenditure in China has focused on the creation of production sites for technology 

products. This development is aided by the Chinese government’s extensive policy support to develop China 

* The Bureau of Economic Analysis at the U.S. Department of Commerce defines a U.S. MNE as a U.S.-headquartered company with a 

domestic business in the United States and one or more reportable foreign affiliates whose assets, sales, or net income exceeded $60 million 

at any time during the year for which the BEA collects annual financial and operating data. The BEA collects this data from U.S. MNEs’ 

responses to form BE-11, the Annual Survey of U.S. Direct Investment Abroad. U.S. Department of Commerce, Bureau of Economic 

Analysis, A Guide to BEA’s Direct Investment Surveys, April 2018, 6. https://www.bea.gov/sites/default/files/2018-04/a-guide-to-beadirect-investment-surveys.pdf. 

† Data on the extent to which U.S. and other foreign-invested enterprises serve the Chinese market or whether they primarily operate within 

an ecosystem supporting major exporters deserves further examination. For example, one study calculated that 60 percent of China’s 

exports to the United States from 2006–2014 originated in foreign-invested enterprises. See Mary E. Lovely and Yang Liang, “Trump 

Tariffs Primarily Hit Multinational Supply Chains, Harm U.S. Technology Competitiveness,” Peterson Institute for International 

Economics, May 2018, 5. https://www.piie.com/system/files/documents/pb18-12.pdf. 
U.S.-China Economic and Security Review Commission 4

into a hub for electronics production, address gaps in the domestic production of technology goods, and 

maximize access to the technical expertise of multinational firms. For example, U.S. MNE capital expenditure 

in China for the production of semiconductors, a strategically important electronic component, accounted for 

nearly a third of all U.S. MNE global capital expenditure on semiconductor manufacturing assets in 2017.

• China has grown from the 20th-highest source of U.S. MNE affiliate value added in 2000 ($5.5 billion) to 

the fifth highest in 2017 ($71.5 billion), driven primarily by the manufacture of computers and electronic 

products as well as chemicals. The surge is especially notable in semiconductors and other electronic 

components, which accounted for $5.6 billion of total manufacturing value added in 2017, up 250 percent from 

$1.6 billion in 2009. Separately, pharmaceutical manufacturing serves as the largest chemical sector in terms 

of value added, accounting for $2.6 billion in 2017.

Introduction

Since Deng Xiaoping launched China’s market-opening measures in the early 1990s, U.S. MNEs have leveraged

the country’s low-cost labor, well-developed transportation infrastructure, and central location in regional supply 

chains to build production for export and to serve the domestic market. This engagement has accelerated since 

China’s accession to the WTO in 2001. The Chinese government has further compelled U.S. companies to expand 

their manufacturing operations in China by deploying trade restrictions that push them to localize production.* As 

a result, U.S. MNE activity in China, including employment, investment in manufacturing plants and equipment, 

and R&D expenditure, has been among the fastest growing globally over the past two decades and cemented China’s 

role as the world’s factory.

The costs of more than 15 years of deepening U.S. MNE activity in China have surfaced in recent years. Bilateral 

trade frictions sparked by China’s unfair economic practices, as well as supply chain disruptions wrought by the 

outbreak of the novel coronavirus COVID-19, have thrown into stark relief the risks to the United States of U.S. 

MNEs’ China-centric production networks. While these risks introduce an array of implications for U.S. economic 

and national security, a full assessment of them is beyond the scope of this report, which surveys U.S. business 

activity and performance in China only through 2017 (the most recent year for which data is available). Instead, in 

delineating the profile of U.S. MNE activity in China and tracing its evolution since China’s accession to the WTO, 

this report aims to provide Congress with a reference on the scope of U.S. commercial operations in China and 

inform relevant policy debate on how to mitigate selected risks associated with U.S.-China economic 

interdependence.

Note on Research Scope, Data Sources, and U.S. BEA Survey Methodology

This report uses data exclusively from the U.S. Department of Commerce’s BEA†to assess the overall profile of 

U.S. MNE activity in China since its accession to the WTO. Though this data was updated in August 2019, it lags

* The Chinese government sets localization targets mandating that a minimum share of components and finished products must be produced 

within China’s borders. Such policies can induce foreign manufacturers to establish joint ventures with Chinese firms to meet such 

requirements. In testimony before the Commission, Linda Menghetti Dempsey, vice president of international economic affairs at the 

National Association of Manufacturers, said localization policies related to production or technology mandate local testing and certification 

requirements for information and communications technology and medical products, among others. Analysis from the Mercator Institute 

for China Studies (MERICS) adds that such policies, most clearly espoused in the “Made in China 2025” initiative, seek to enable Chinese 

companies to substitute foreign technology with Chinese technology in the long run. See Linda Menghetti Dempsey, written testimony for 

U.S.-China Economic and Security Review Commission, Hearing on U.S. Tools to Address Chinese Market Distortions, June 8, 2018, 2; 

Jost Wübbeke et al., “Made in China 2025: The Making of a High-Tech Superpower and Consequences for Industrial Countries,” Mercator 

Institute for China Studies, December 2016, 20–21. https://www.merics.org/sites/default/files/2017-

09/MPOC_No.2_MadeinChina2025.pdf.

† The BEA distinguishes between majority-owned foreign affiliates (MOFAs) and foreign affiliates. Affiliates that are at least 10 percent 

owned by U.S. parents are categorized as foreign affiliates. A MOFA is a foreign business enterprise in which the combined ownership of 

all U.S. parents, either directly or indirectly, exceeds 50 percent. As of 2017, MOFAs accounted for about 92 percent of all foreign affiliates 

and 85 percent of the employment by all foreign affiliates. Given the preponderance of MOFAs in all U.S. MNE global activities, as well 

as the fact that the BEA collects and publishes more detailed data for MOFAs, this report uses data for MOFAs exclusively in describing 

and assessing U.S. MNE activities in China and other countries. U.S. Department of Commerce, Bureau of Economic Analysis, Activities 

of U.S. Multinational Enterprises, 2017, August 23, 2019, 4. https://www.bea.gov/system/files/2019-08/omne0819.pdf.
U.S.-China Economic and Security Review Commission 5

by two years and only covers U.S. MNE activity through 2017, preventing analysis of more recent trends in U.S. 

business activity abroad. 

This report is modeled on an annual report prepared by the BEA on the worldwide activities of U.S. MNEs. The 

annual report examines the activities of U.S. MNE parent companies (i.e., the domestic operations of U.S. MNEs 

in the United States) and their foreign affiliates (i.e., the foreign operations of U.S. MNEs) across several measures, 

including employment, R&D expenditure, capital expenditure, and value added. 

The BEA aggregates relevant data on these activities from responses to a series of surveys of U.S. direct investment 

abroad. The purpose of these surveys is to measure U.S. MNE activity at home and abroad in terms of revenue, 

business structure, sales, employment, and other financial and operating data. The specific surveys conducted 

include: 

• BE-11 Annual Survey of U.S. Direct Investment Abroad: This is the standard annual survey the BEA conducts 

among U.S. MNEs. Its principal purpose is to report annual financial and operating data of the U.S. reporter 

and its foreign affiliates. The BE-11 Annual Survey series includes Form BE-11A, filed for the fully 

consolidated U.S. domestic business enterprise of a U.S. reporter that has a foreign affiliate, as well as Form 

BE-11B, filed for the majority-owned foreign affiliate (MOFA) that has a net income of more than $60 million 

at the end of the fiscal year. The BE-11 Annual Survey series was last conducted for the fiscal year ending in

2018. Results are expected to be published in the latter half of 2020.

• BE-10 Benchmark Survey of U.S. Direct Investment Abroad: The BE-10 Survey is the BEA’s most 

comprehensive survey of U.S. MNE activity. It is conducted once every five years in lieu of the BE-11 annual 

survey. The most recent benchmark survey covered the fiscal year ending in 2014, and MNEs this year will file 

BE-10 forms for the 2019 Benchmark survey year, with results to be published in the latter half of 2021. In 

November 2019, the BEA announced it would solicit new information in the 2019 BE-10 survey, including 

number of R&D personnel employed by foreign affiliates, their compensation, and what share of R&D they 

perform for the entire enterprise.1 The BEA believes these questions will allow it to follow the production and 

use of intellectual property (IP) in global value chains. It will also for the first time collect information on sales, 

employment, costs, and expenses related to the provision of goods and services via digital platforms.

Considered in aggregate, the data compiled through the BEA’s surveys of U.S. direct investment abroad provides

details on the operations of U.S. multinationals in the United States and foreign markets.

*

(For definitions of key 

terms used in this report, see the Appendix.)

U.S. MNE Activity at a Glance

The majority of U.S. MNE activities is concentrated in the United States (see Figure 1).2In 2017, U.S. MNE parents 

in the United States employed 28.1 million workers, accounting for 66.1 percent of worldwide U.S. MNE 

employment; performed $298.3 billion worth of R&D, accounting for 84.1 percent of worldwide U.S. MNE R&D 

expenditure; spent $653.6 billion on capital, accounting for 76.6 percent of worldwide U.S. MNE capital 

expenditure; and had a value added of $3.9 trillion, or 73.6 percent of worldwide U.S. MNE value added.3

* For more information on the BEA’s surveys of U.S. direct investment abroad, see U.S. Department of Commerce, Bureau of Economic 

Analysis, A Guide to BEA’s Direct Investment Surveys. https://apps.bea.gov/surveys/pdf/a-guide-to-bea-direct-investment-surveys.pdf.
U.S.-China Economic and Security Review Commission 6

Figure 1: Activities of U.S. MNEs, Selected Years

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

Though U.S. MNE parents comprise the bulk of worldwide U.S. MNE activity, foreign affiliates’ activities have 

grown across all major markets, most dramatically in China (see Table 1).4 For example, U.S. MNE foreign affiliate 

assets in China surged nearly 15-fold from $29.3 billion in 2000 to $446.7 billion in 2017.5 Sales in China grew at 

a similarly rapid pace, rising 13-fold from $26.4 billion in 2000 to $375.6 billion in 2017.6

$0

$100

$200

$300

$400

$500

$600

$700

2000 2008 2017

US$ billions 

Capital Expenditure

0

5

10

15

20

25

30

2000 2008 2017

Millions of employees

Employment

$0

$50

$100

$150

$200

$250

$300

$350

2000 2008 2017

US$ billions

R&D Expenditure

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

2000 2008 2017

US$ trillions

Value Added (Gross Product)

U.S. Domestic Total Overseas (Excluding China) China
U.S.-China Economic and Security Review Commission 7

Table 1: Selected Measures of U.S. MNE Affiliate Activity, 2017

China Affiliates All affiliates

Number of Affiliates 1,727 35,374

Percent change over 2000 +277.1% +66.2%

Assets $446.7 billion $27.9 trillion

Percent change over 2000 +1,426.8% +488.2%

Sales $375.6 billion $6.2 trillion

 Percent change over 2000 +1,325.2% +148.1%

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

As of 2017, manufacturing assets account for the largest share (48 percent) of U.S. MNE assets in China.7 Across 

sectors, computers and electronic products, chemicals, and machinery dominate U.S. MNE manufacturing 

investment in China (see Figure 2).8

Figure 2: Total Assets of U.S. MNE Foreign Affiliates in China by Manufacturing Sector, 2017

Note: Within the chemicals category, U.S. MNE manufacturing assets are largest for basic chemicals ($14.7 billion, or 30.1 percent of total 

chemicals manufacturing assets), followed by pharmaceuticals and medicines ($9.2 billion, or 18.7 percent of total chemicals manufacturing 

assets). 

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

Key drivers of U.S. MNE investment in China include relatively lower labor and overhead costs, flexible production 

and benefits from economies of scale, decreased transportation costs, and proximity to global supply chains.

9 The 

Chinese government’s industrial policies and related trade restrictions have also coerced foreign companies into 

expanding their manufacturing operations in China. For example, between 2005 and 2010 Beijing steadily reduced 

export quotas on rare earth elements, often used in the production of electronic components, making it necessary 

for many information and communications technology (ICT) equipment manufacturers to locate production in

China.10 As a result, U.S. MNE ICT manufacturing assets in China grew 61.7 percent from $14.1 billion in 2005 to 

$22.8 billion in 2010.11 

Production also increasingly serves Chinese consumers. According to BEA data, in 2000 U.S. MNE foreign 

affiliates in China sold 70 percent of the goods and services they produced in China to the Chinese market; by 2017, 

the proportion grew to 82 percent (see Figure 3).12 In addition, though U.S. affiliates in China accounted for only 

1.6 percent of U.S. MNE worldwide assets in 2017, they comprised 6 percent of worldwide sales, a number some 

analysts estimate could grow to 15 percent in 2020.13

$31.1

$9.7

$9.9

$10.8

$22.2

$28.4

$48.8

$53.2

$0.0 $10.0 $20.0 $30.0 $40.0 $50.0 $60.0

Other

Electrical equipment

Primary and fabricated metals

Food

Transportation equipment

Machinery

Chemicals

Computers and electronic products

US$ billions
U.S.-China Economic and Security Review Commission 8

Figure 3: Destination of Goods and Services Sold by U.S. MNE Foreign Affiliates in China, Selected Years

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

U.S. MNE Activity in China

China Top Destination for U.S. MNE Employment Abroad

U.S. multinationals are proportionally hiring more abroad. In 2017, 34 percent of U.S. MNE employees were

employed outside the United States, compared to 25 percent in 2000.

14 Between 2000 and 2017, overall foreign

employment* by MNEs grew from 8.2 million people to 14.4 million, a 76 percent increase.15 As of 2017, China 

was the single largest foreign destination for U.S. MNE employment: approximately one in ten of these employees, 

or 1.7 million, were based there (see Figure 4).16 This represents a six-fold increase from 252,000 employees in 

2000.17 By comparison, total U.S. MNE employment in the United States, though significantly higher at 28.1

million people as of 2017, grew by a more modest 17.5 percent from 23.9 million in 2000.18

* The data reported by the BEA accounts only for employees directly hired by U.S. MNEs and does not account for employment with thirdparty companies contracting with U.S. multinationals either at home or abroad.

Legend (2008) Sales to China Sales to the United States Sales to Other Foreign Countries

$18.5 B

$3.1 B

$4.8 B

2000 

($26.3 billion)

$95.9 B

$11.5 B

$19.4 B

2008 

($126.8 billion)

$304.4 B

$24.3 B

$44.7 B

2017 

($373.4 billion)
U.S.-China Economic and Security Review Commission 9

Figure 4: U.S. MNE Employment by Country, 2000–2017

Note: Data from 2009 and 2014 on U.S. MNE employment abroad is based on “benchmark surveys” of U.S. direct investment abroad. 

Benchmark surveys, which are conducted every five years, are the BEA’s most comprehensive surveys in terms of coverage of companies. 

Consequently, the marked increase in U.S. MNE foreign affiliate employment from 2008 to 2009 and 2013 to 2014 reflects the improved 

and expanded coverage of these activities in the benchmark surveys. U.S. Department of Commerce, Bureau of Economic Analysis, 

Worldwide Activities of U.S. Multinational Enterprises: Revised Results from the 2014 Benchmark Survey, November 2017. 

https://www.bea.gov/system/files/methodologies/MNE%2014-R%20Methodology.pdf.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

The sharp uptick in U.S. MNE employment in China is partly due to the emergence of China’s consumer class, with 

U.S. MNEs investing in the production of goods and services in China to satiate Chinese demand. China’s 

disposable income per capita surged nearly six-fold from $521.88 (renminbi [RMB] 3,721.34) in 2000 to $3,642.58 

(RMB 25,973.79) in 2017.* 19 U.S. MNE employment in China tracked this growth trajectory, increasing 574.6 

percent from just 252,000 people employed in 2000 to 1.7 million people in 2017.

† 20

Nearly half of total U.S. MNE employment in China is concentrated in manufacturing, primarily the assembly of 

computers and electronic products (see Figures 5 and 6).21 In 2017, U.S. MNEs employed 763,500 persons in 

manufacturing jobs in China. According to the Deloitte Global Manufacturing Competitiveness Index, in addition 

to China’s growing consumer class, the country’s robust raw material supply base‡and well-developed physical 

infrastructure serve as major draws for U.S. MNE manufacturing investment in China.22 As a result, China ranks as 

* This estimate is based on an exchange rate of $1 = renminbi (RMB) 7.13. 

† The only other major country to experience similar growth is India, where 1.3 million employees worked in 2017, a 1,736 percent surge 

from a low base of 70,800 employees in 2000. U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. 

Multinational Enterprises, August 23, 2019. https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

‡

In its 2019 report on China’s WTO compliance, the United States Trade Representative noted China is the world’s top producer for a range 

of raw materials used in manufacturing. The Chinese government has historically controlled exports of raw materials where it holds this 

leverage, in turn pressuring foreign producers to move operations, jobs, and technology to China. See Office of the U.S. Trade 

Representative, 2019 Report to Congress on China’s WTO Compliance, March 2020, 35. 

https://ustr.gov/sites/default/files/2019_Report_on_China%E2%80%99s_WTO_Compliance.pdf.

0

5

10

15

20

25

30

200020012002200320042005200620072008200920102011201220132014201520162017

Millions of employees

U.S. Parent China UK Mexico Canada India Germany All Other Countries
U.S.-China Economic and Security Review Commission 10

the top destination for U.S. MNE employment abroad for all manufacturing categories, excluding food and 

transportation equipment, where Mexico takes the lead.23

Figure 5: U.S. MNE Employment in China, Manufacturing and All Other Sectors, 2000–2017

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

Figure 6: U.S. MNE Manufacturing Employment in China by Sector, 2000–2017

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Thousands of employees

Manufacturing All Other Sectors

0

100

200

300

400

500

600

700

Thousands of Employees

Transportation Equipment Electrical equipment, appliances, and components

Computers and electronic products Machinery

Primary and fabricated metals Chemicals

Food
U.S.-China Economic and Security Review Commission 11

Outside of manufacturing, U.S. MNE employment in China is highest in hospitality industries such as 

accommodations and food services*(see Figure 7).24 In 2017, U.S. MNEs employed over 440,000 persons in 

accommodations and food services in China.

† 25 By comparison, U.S. MNEs employed only 145,000 persons in 

accommodations and food services in the entire Western Hemisphere (excluding the United States)‡in 2017, 

making China the largest single market for U.S. MNE employment abroad in this category.

26 The trend may be

attributable to an uptick in domestic Chinese tourism: according to data from China’s Ministry of Culture and 

Tourism, more than five million Chinese citizens traveled domestically for leisure or business in 2017, up 572 

percent from 744,500 in 2000.

27

Figure 7: U.S. MNE Employment in China, Manufacturing and Accommodations and Other Miscellaneous 

Industries, 2009–2017

Note: BEA data does not report subindustry figures from before 2009. The Accommodations and Other Miscellaneous Industries category 

contains accommodation and food services; agriculture, forestry, fishing, and hunting; construction; utilities; transportation and warehousing; 

real estate and rental and leasing; management of nonbank companies and enterprises; administration, support, and waste management; 

healthcare and social assistance; and miscellaneous services.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

China Emerging as a Competitive Research Hub for U.S. Companies

Though U.S. MNE parent R&D expenditure§in 2017 ($298.3 billion) greatly overshadowed that of China ($3.7 

billion), R&D activity in China has grown at a comparatively accelerated rate. In 2000, the year before China’s 

accession to the WTO, U.S. MNE R&D expenditure in China was tenth highest globally, at $506 million.28 U.S. 

MNE R&D expenditure in China ballooned 631.2 percent to $3.7 billion in 2017, with China surpassing advanced 

* The BEA defines accommodation and food services as a sector comprising establishments that provide customers with lodging and/or that 

prepare meals, snacks, and beverages for immediate consumption. The sector includes both accommodation and food services 

establishments because the two activities are often combined at the same establishment, such as in hotels. U.S. Department of Commerce, 

Bureau of Economic Analysis, Guide to Industry Classifications for International Surveys 2017, April 2018, 90. 

https://www.bea.gov/sites/default/files/2018-04/2017-industry-code-guide.pdf.

† BEA data for U.S. MNE accommodations and food services employment in China is suppressed to avoid disclosure of data of individual 

companies. Though the precise number of persons is not reported, the BEA reports ranges in which employment numbers fall. The number 

reported here is a minimum calculated by Commission staff based on available BEA data.

‡ Western hemisphere here refers to Canada and countries in Latin America and the Caribbean. 

§ Total R&D expenditures cover employee compensation expenses (including stock-based compensation), materials and supplies, 

depreciation expense, computer software, utilities, travel, professional dues, taxes, insurance, maintenance and repair, and allocated 

company overhead. Kassu Hossiso, “Activities of U.S. Multinational Enterprises in 2017,” Survey of Current Business 99:9 (September 

2019): 16. https://apps.bea.gov/scb/2019/09-september/pdf/0919-multinational-enterprises.pdf.

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

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All Other Sectors Accomodations and other miscellaneous industries Manufacturing
U.S.-China Economic and Security Review Commission 12

economies such as Canada, Japan, and France to become the fourth-largest destination for U.S. MNE R&D 

expenditure abroad that year.

29 U.S. MNE R&D expenditure is also growing faster in China, averaging 13.6 percent 

year-on-year growth since 2003*compared with 7.1 percent for all U.S. MNE foreign affiliates and just 5 percent 

for U.S. MNE parents in the United States in the same period (see Figures 8 and 9).

30

 

Figure 8: U.S. MNE R&D Expenditure by Country, 2000–2017

Note: BEA data for U.S. MNE MOFA R&D expenditure in China in 2001 is suppressed to avoid disclosure of data of individual companies.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

Figure 9: U.S. MNE Foreign R&D Expenditure, Selected Years

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

The uptick in U.S. MNE R&D expenditure since 2000 has coincided with Beijing’s concerted efforts to promote 

innovation and encourage the development of higher-value-added industries. For example, the State Council’s 

National Medium- and Long-Term Program for Science and Technology Development, published in 2006, outlined 

* BEA data for U.S. MNE R&D expenditure in China in 2001 is suppressed to avoid disclosure of data of individual companies. Given the 

unavailability of the data, the average annual growth rate for U.S. MNE MOFAs in China versus U.S. MNE MOFAs worldwide is 

calculated from 2003.

$0

$10

$20

$30

$40

$50

$60

US$ billions

China Canada Japan UK Germany India All Other Countries

$0.5 B

$2.3 B

$1.6 B

$4.1 B

$3.1 B

$8.8 B

2000 

($20.5 billion)

$1.7 B

$3.2 B

$2.0 B

$6.2

B

$8.1 B

$1.3 B

$19.2 B

2008 

($41.7 billion)

$3.7 B

$3.5 B

$2.9 B

$6.4

B

$8.2 B

$3.6 B

$28.4 B

2017 

($56.6 billion)

China Canada Japan Legend (2008) UK Germany India All Other Countries
U.S.-China Economic and Security Review Commission 13

an array of goals to elevate China’s global leadership in science and innovation. These included the establishment 

of “world-caliber contingents of scientists and research teams” as well as “world-competitive R&D centers.”31

Crucially, the plan states that “without emphasizing assimilation, absorption, and re-innovation,” efforts to advance 

R&D capabilities will falter.32 Beijing has encouraged foreign companies’ investment in R&D operations in China 

in sectors where it lacks the capacity, expertise, and technological know-how to conduct advanced research or 

manufacture advanced technology.33 For example, major U.S. pharmaceutical and biotechnology firms such as 

Pfizer, Merck, and AbbVie have established R&D centers in China.34

Increased U.S. MNE R&D activity in China enables U.S. companies to better tailor their products to the Chinese 

market. According to a 2018 survey conducted by the American Chamber of Commerce in Shanghai,* 75 percent 

of U.S. MNEs cite meeting the demands of the Chinese market as a primary reason for establishing R&D operations 

in China. 35 U.S. MNEs also take advantage of China’s relatively high number of science and engineering 

professionals, a talent pool Beijing has worked to cultivate.† Data from the U.S. National Science Board reveals 

that the number of undergraduate science and engineering degrees granted by Chinese universities quadrupled from 

360,000 in 2000 to 1.7 million in 2015, while those awarded in the United States grew a more modest 50 percent 

from 503,467 to 751,195 in the same period.36

U.S. MNE R&D expenditure in China has been highest in manufacturing, growing 328 percent from $491 million 

in 2000 to $2.1 billion in 2017 (see Figure 10).37 Among manufacturing sectors, R&D expenditure is highest in 

computers and electronic products, but it has diversified over time as China’s pool of science and engineering talent 

has expanded (see Figure 11). For example, R&D expenditure in the chemicals sector has grown nearly 30-fold 

from a low base of $13 million in 2000 to $392 million in 2017.38

* The survey solicited information from 52 member companies conducting R&D in China. The largest group of respondents were high-end 

manufacturers (42 percent of total respondents) followed by biopharmaceutical firms (19.2 percent). The remaining respondents

represented the IT, chemical, and consumer goods industries. The majority of firms surveyed (67.3 percent) had conducted R&D in China 

for more than ten years. Doug Strub and Veomayoury Baccam, “Chasing Innovation: R&D Barriers and Incentives in China,” Viewpoint, 

April 2018, 2. https://www.amcham-shanghai.org/sites/default/files/2018-

04/R%26D%20viewpoint%202018%20April%20Final%20EN_0.pdf.

† The rapid growth in science and engineering talent in China is attributable to the top-level attention paid by China’s government to 

developing such expertise. The State Council’s National Plan for Science and Technology Talent Development (2010–2020) states that 

China should strengthen and cultivate talent for R&D personnel in the business sector. Separately, in early 2020 China’s Ministry of 

Education launched a pilot program to steer more students into courses relevant to integrated circuits and new materials, among others. 

See Remco Zwetsloot, “China’s Approach to Tech Talent Competition: Policies, Results, and the Developing Global Response,” Brookings 

Institution, April 2020, 2. https://www.brookings.edu/wp-content/uploads/2020/04/FP_20200427_china_talent_policy_zwetsloot.pdf; 

Nick Marro, “Foreign Company R&D: In China, For China,” China Business Review, June 1, 2015. 

https://www.chinabusinessreview.com/foreign-company-rd-in-china-for-china/.
U.S.-China Economic and Security Review Commission 14

Figure 10: U.S. MNE R&D Expenditure in China, Manufacturing and All Other Sectors, 2000–2017

Note: BEA data for U.S. MNE R&D expenditure in all sectors in 2001 is suppressed to avoid disclosure of data of individual companies. 

U.S. MNE R&D expenditure for total manufacturing in the years 2009 and 2010 is suppressed to avoid disclosure of data of individual 

companies, though the BEA does provide data on U.S. MNE R&D expenditure in selected manufacturing sectors in those years. Commission 

staff estimated approximate U.S. MNE R&D expenditure in total manufacturing in 2009 and 2010 by summing the values for those 

manufacturing sectors for which BEA data is available. These values were then subtracted from BEA estimates of total U.S. MNE R&D 

expenditure to calculate approximate U.S. MNE R&D expenditure in all other sectors in 2009 and 2010.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

Figure 11: U.S. MNE Manufacturing R&D Expenditure in China by Sector, 2000–2017

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

US$ billions

Manufacturing All Other Sectors

$0.0

$0.2

$0.4

$0.6

$0.8

$1.0

$1.2

$1.4

$1.6

$1.8

$2.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

US $billions

Food Chemicals

Primary and fabricated metals Machinery

Computers and electronic products Electrical equipment, appliances, and components

Transportation Equipment
U.S.-China Economic and Security Review Commission 15

U.S. Investment Fortifies China’s Position in Global Technology Supply Chains

While U.S. MNE parent capital expenditure in the United States ($653.6 billion) dwarfs U.S. MNE foreign affiliate 

expenditure in China ($11.7 billion), the rate of expenditure in China is dramatically higher.39 U.S. MNE capital 

expenditure in China increased 631.3 percent from $1.6 billion in 2000 to $11.7 billion in 2017 (see Figure 12).40

Additionally, since China’s WTO accession in 2001, the average annual growth rate for U.S. MNE capital 

expenditure in China (14.5 percent) has outstripped that of all U.S. MNE foreign affiliates (3.9 percent).41

As with other measures of U.S. MNE activity in China, U.S. MNE capital expenditure is highest in manufacturing.42

An array of factors explain the unique resilience of U.S. MNE expenditure on manufacturing equipment in China, 

despite the maturation of China’s economy and emergence of other lower-cost centers of production such as 

Vietnam. For one, China’s scale, robust local supply chains, and increasing adoption of advanced manufacturing 

capabilities*sustain its competitiveness as a production base.43 The continued expansion of China’s consumer 

market also serves as a draw. Oxford Economics, for example, has estimated that the contribution of exported goods 

to manufacturing gross domestic product (GDP) fell from 57 percent in 2007 to 46 percent in 2017, suggesting 

evidence of internal market growth. 44 Lastly, localization requirements also compel foreign companies to 

manufacture a share of their inputs in China or source locally, further incentivizing U.S. MNEs to deepen their 

operations in the Chinese market.

45

Figure 12: U.S. MNE Capital Expenditure in China, Manufacturing and All Other Sectors, 2000–2017

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

Among manufacturing sectors, U.S. MNE capital expenditure is most strongly focused in computers and electronic 

products (see Figure 13).46 Together with low labor costs and China’s central position in Asian supply chains, the 

Chinese government’s policy support for the computers and electronics industry has increasingly led U.S. 

* For example, China has served as the world’s largest industrial robot market since 2013 and accounted for more than one-third of total 

installations globally in 2017 and 2018. International Federation of Robotics, “Robot Investment Reaches Record $16.5 Billion,” 

September 18, 2019. https://ifr.org/downloads/press2018/2019-09-

18_Press_Release_IFR_World_Robotics_2019_Industrial_Robots_English.pdf.

$0

$2

$4

$6

$8

$10

$12

$14

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

US$ billions

Manufacturing All Other Sectors
U.S.-China Economic and Security Review Commission 16

multinational ICT manufacturers to invest in production facilities in China.* This dynamic is especially pronounced 

for semiconductors. U.S. MNE expenditure on semiconductor manufacturing assets has jumped 166.7 percent from 

$1.2 billion in 2010 (the earliest year for which complete BEA data is available) to $3.2 billion in 2017, accounting 

for 90 percent of all U.S. MNE expenditure on computers and electronic products manufacturing assets in China 

(see Figure 14).47

Figure 13: U.S. MNE Capital Expenditure in China by Manufacturing Sector, 2017

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

* National, provincial, and local funding made available through Beijing’s industrial policy initiatives, such as the 2014 National Integrated 

Circuit Investment Fund, has incentivized MNEs to establish joint ventures or expand existing business partnerships. One study found that 

multinational semiconductor manufacturers Intel and Samsung, for example, took advantage of subsidized loans from the Chinese

government to expand their existing operations in China. See John VerWey, “Chinese Semiconductor Industrial Policy: Past and Present,” 

U.S. International Trade Commission Journal of International Commerce and Economics, July 2019, 17. 

https://www.usitc.gov/publications/332/journals/chinese_semiconductor_industrial_policy_past_and_present_jice_july_2019.pdf.

$0.2

$0.2

$0.3

$0.3

$1.3

$1.6

$3.6

$0.0 $0.5 $1.0 $1.5 $2.0 $2.5 $3.0 $3.5 $4.0

Primary and Fabricated Metals

Electrical Equipment

Food

Machinery

Transportation Equipment

Chemicals

Computers and Electronic Products

US$ billions
U.S.-China Economic and Security Review Commission 17

Figure 14: U.S. MNE Capital Expenditure in China, Computers and Electronic Products Manufacturing 

Sectors, Selected Years

Note: The BEA calculates U.S. MNE capital expenditure on audio and video equipment manufacturing assets in 2010 to be a nonzero value 

that is rounded to zero. In 2017, U.S. MNE capital expenditure on audio and video equipment manufacturing assets was $38 million.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

China Moving Up the Value-Added Chain

In the last 20 years, China has become a significant source for added value to U.S. MNE activities. As of 2017,

China was the fifth-highest source of affiliate value added to U.S. MNEs, contributing 5 percent of all international 

value-added gross product, up from 20th in 2000 when China contributed just 0.9 percent (see Figure 15).

48

$121 M$160 M

$3.2 B

$48 M 1.1%

 Computers and peripheral equipment Communications equipment

 Semiconductors and other electronic components Navigational, measuring, and other instruments

 Audio and video equipment

 Computers and peripheral equipment Communications equipment

 Semiconductors and other electronic components Navigational, measuring, and other instruments

$66 M

$145 M

$1.2 B

$62 M

2010 

($1.5 billion)

$121 M

$160 M

$3.2 B

$48 M

$38 M

2017 

($3.6 billion)
U.S.-China Economic and Security Review Commission 18

Figure 15: U.S. MNE Foreign Affiliate Value Added by Country, Selected Years

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

The majority of Chinese affiliates’ value added is in manufacturing (see Figure 16), although this share has 

decreased from approximately 80 percent of all value added in 2000 to 60 percent in 2017.49

Figure 16: U.S. MNE Value Added in China, 2000–2017

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

Within manufacturing, value added is driven primarily by computers and electronic products as well as chemicals 

(see Figure 17).50 By subcategory, semiconductors and other electronic components made up the largest portion of 

manufacturing value added, contributing $5.6 billion in 2017, 243 percent higher than in 2009.51 By comparison, 

the next-largest contributor was computers and peripheral equipment manufacturing, totaling $3.5 billion in 2017, 

266 percent higher than in 2009 (see Figure 18).52

China UK Germany Canada Japan Ireland Other Countries

$0

$10

$20

$30

$40

$50

$60

$70

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US$ billions

Manufacturing All Other Sectors

$5.5 B

$110.9 B

$60.3

B

$73.5 B

$36.4 B

$16.4 B

$303.7 B

2000 

($606.6 billion)

$26.0 B

$159.9 B

$94.6 B

$123.6 B

$39.7 B

$49.1 B

$695.4 B

2008 

($1.2 trillion)

$71.5 B

$179.7 B

$85.5 B

$131.3 B

$46.6 B

$97.5 B

$806.3 B

2017

($1.4 trillion)
U.S.-China Economic and Security Review Commission 19

Figure 17: U.S. MNE Value Added in China by Manufacturing Sector, 2000–2017

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

Figure 18: U.S. MNE Value Added in China, Computers and Electronics Manufacturing, 2009–2017

Note: BEA data does not report subindustry figures from before 2009.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

Pharmaceutical manufacturing is the largest chemical sector in terms of value added, accounting for $2.55 billion 

in 2017, 37 percent higher than in 2009.53 Basic chemicals value added is close behind at $2.26 billion in 2017, a 

430 percent increase since 2009 (see Figure 19).54

$0

$5

$10

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$45

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US$ billions

Chemicals Computers and electronic products Other Manufactured Products

$0

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$12

2009 2010 2011 2012 2013 2014 2015 2016 2017

US$ billions

 Communications equipment

 Navigational, measuring, and other instruments

 Computers and peripheral equipment

 Semiconductors and other electronic components

 Other
U.S.-China Economic and Security Review Commission 20

Figure 19: U.S. MNE Value Added in China, Chemical Manufacturing, 2009–2017

Note: The BEA does not report subindustry figures from before 2009.

Source: U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

Considerations for Congress

While U.S. business operations in China focus principally on manufacturing, higher-value-added activities such as 

R&D have grown in recent years across a broader array of industries. To the extent that such activities are coerced 

by Beijing as a price for market access, U.S. companies run the risk of losing their competitiveness in hightechnology and other industries in the long term.

Congress should consider approaches to preserve and protect U.S. innovative capacity and leadership as strategic 

competition between the United States and China heightens. The development of such approaches may necessitate 

more granular data on the scope of U.S. MNE activity in China, particularly around R&D expenditures. Currently, 

BEA surveys only require U.S. MNEs to report their level of expenditure on R&D, but not any further information 

on what kind of research that spending is going toward. Though the current 2019 Benchmark Survey will require 

MNEs to report the number of R&D personnel employed at foreign affiliates, their compensation, and what share 

of R&D they perform for the entire enterprise, more detail on the nature of this research and its results (e.g., basic 

vs. applied; value of IP produced) would be useful to policymakers. 

Other features of U.S.-China economic interdependence as facilitated by U.S. commercial operations in China that 

warrant congressional attention include:

• Shocks to China’s economy and uneven regulatory enforcement have outsized impacts on the commercial 

health of U.S. businesses. As this report finds, U.S. MNEs rely on China as a key source of production of 

goods for global export and, increasingly, as a driver of global sales. Given China’s growing importance to U.S. 

MNEs’ global operations, transportation, supply, and labor market disruptions may have a disproportionate 

impact on their operations and revenue. According to a survey conducted by the Institute for Supply 

Management,*for example, nearly 75 percent of U.S. companies operating in China report supply chain 

disruptions in some capacity due to COVID-19-related transportation restrictions, and more than 80 percent 

believe their business will experience negative impacts beyond the first quarter of 2020.55 Such disruptions 

* The Institute for Supply Management is a nonprofit professional supply management organization representing 47,000 companies in more 

than 90 countries. The survey was completed by 628 member U.S. companies with manufacturing (52 percent) and nonmanufacturing (48 

percent) operations from February 22 to March 5. Institute for Supply Management, “COVID-19 Survey: Impacts on Global Supply 

Chains,” March 11, 2020. http://ism.files.cms-plus.com/ISMReport/ISM_Coronavirus%20Survey%20Release_3.11.20_FINAL.pdf.

$0

$2

$4

$6

$8

$10

2009 2010 2011 2012 2013 2014 2015 2016 2017

US$ billions

 Pharmaceuticals and medicines

 Basic chemicals

 Soap, cleaning compounds, and toilet preparations

 Resins and synthetic rubber, fibers, and filaments

 Other
U.S.-China Economic and Security Review Commission 21

compound perennial challenges of uneven regulatory enforcement. In its annual survey* of China’s business 

climate, the American Chamber of Commerce in China found that 55 percent of U.S. companies continue to 

cite inconsistent regulatory interpretation and enforcement as the top challenge of doing business in China in 

2019, up from 47 percent in 2015.56

• U.S. MNEs’ reliance on China as a source of sales and a pivotal hub for global manufacturing poses a 

risk of solidifying dependencies for selected industries that bear on U.S. national security. Furthermore, 

such reliance threatens to heighten the cost of supply chain diversification. U.S. MNE activity in China 

focuses chiefly on manufacturing, particularly of computers and electronic products, some of which may be

dual use in nature and are critical to global economic competitiveness in the 21st century. China’s large market 

for and dominance of computers and electronic products manufacturing has entrenched it in global computers

and electronics value chains. According to a study conducted by the McKinsey Global Institute, China’s share 

of global production of computers and electronic products grew from 21 percent in 2003–2007 to 44 percent in 

2013–2017.57 China also serves as a top consumer of such products, accounting for 40 percent of global mobile 

phone sales and 19 percent of global computer sales.58 China’s centrality in computer and electronics supply

chains contributes to the Chinese government’s ability to coerce technology or IP from multinationals keen to 

engage with the Chinese market and make use of its extensive manufacturing networks.59 As research prepared 

for the Commission has noted, U.S. ICT firms’ surrender of technology or other proprietary information to 

Chinese entities as a condition of market access potentially opens them, and the U.S. ICT networks they serve, 

to Chinese cyberespionage efforts.60 Separately, the gradual rise in value added by U.S. MNEs’ manufacture of 

pharmaceutical products in China suggests U.S. MNEs’ departure from China as a production hub for 

pharmaceutical drugs must be carefully assessed alongside the significant presence China occupies in U.S. 

pharmaceutical supply chains.

†

• The Chinese government’s access to U.S. innovation is rising in tandem with U.S. MNE activity in China, 

raising the possibility of increased spillovers in critical technologies and inadvertent U.S. commercial 

advancement of China’s military development. Many U.S. MNEs prefer to conduct manufacturing R&D in 

China due to its extensive manufacturing networks, cheaper access to materials and components, and relative 

abundance of lower-cost science, technology, engineering, and mathematics (STEM) workers and engineers.61

Manufacturing industry representatives also report that conducting R&D closer to where goods are produced 

facilitates innovations in both products and their production processes.62 These factors together explain the 

sharp uptick in U.S. MNE R&D activity in China. Data explored in this report suggests this shift accompanies 

greater capital expenditure in manufacturing assets for ICT equipment, and greater reliance on value-added

gross product in key sectors, like pharmaceuticals. The deepening and diversification of U.S. MNE research 

and production in such high-technology products in China is occurring as the Chinese Communist Party

sharpens its influence among private businesses, including MNEs,

‡

and increasingly predicates market access 

* The survey was completed by 314 member companies representing large, medium, and small-sized enterprises from a range of industries, 

including aerospace, healthcare, technology, automotive, energy, consumer products, and financial services, among others, from November 

13 to December 16, 2018. American Chamber of Commerce in China, “2019 China Business Climate Survey Report,” February 2019, 12–

14. https://www2.deloitte.com/content/dam/Deloitte/au/Documents/international-specialist/deloitte-amcham-2019-china-businessclimate-survey-report-bilingual-190301.pdf.

† As the Commission reported in its 2019 Annual Report to Congress, China is a key global source of critical generic drugs and pharmaceutical 

ingredients, with nearly 15 percent of all U.S. drug imports by import line originating directly from China in 2018. Experts estimate a 

much higher percentage of active pharmaceutical ingredients (APIs) from China—key inputs into finished drugs—are further upstream in 

the U.S. pharmaceutical supply chain. This dependence on drugs and pharmaceutical ingredients produced in China exacerbates the risk 

of supply disruptions. The COVID-19 outbreak has brought this risk into sharper relief, with multinational pharmaceutical producers 

grappling with shortages of Chinese-made pharmaceutical ingredients caused by extended factory closures. Stephen Findlay, Hannah 

Kuchler, and Sarah Neville, “Drugmakers Braced for Coronavirus Disruption to China Supplies,” Financial Times, February 12, 2020. 

https://www.ft.com/content/8630c51c-4cc0-11ea-95a0-43d18ec715f5; U.S.-China Economic and Security Review Commission, Chapter 

3, Section 3, “Growing U.S. Reliance on China’s Biotech and Pharmaceutical Products,” in 2019 Annual Report to Congress, November 

2019, 248–282. 

‡ According to the U.S.-China Business Council, some U.S. companies in joint venture agreements with state-owned enterprises have reported 

requests to alter corporate articles of association to support Party cells and allow critical issues to be approved by Party cells before 

presenting them to the board. Jake Laband, “Fact Sheet: Communist Party Groups in Foreign Companies in China,” U.S.-China Business 

Council, May 31, 2018. https://www.chinabusinessreview.com/fact-sheet-communist-party-groups-in-foreign-companies-in-china/.
U.S.-China Economic and Security Review Commission 22

on R&D collaboration.

* Heightened Chinese Communist Party influence and forced transfer of technology to 

Chinese entities may result in U.S. MNE commercial innovation in China being leveraged to realize industrial 

policy ambitions and aid China’s military development, per Beijing’s military-civil fusion strategy.

† The Next 

Generation Artificial Intelligence (AI) Development Plan, for example, explicitly calls on local governments to 

push foreign artificial intelligence enterprises to establish R&D centers in China.

63

Further Reading

• COVID-19 impact on U.S. supply chains: Kaj Malden and Suzanna Stephens, “Cascading Economic Impacts 

of the COVID-19 Outbreak in China,” U.S.-China Economic and Security Review Commission, April 21, 2020. 

• Challenges posed by Chinese industrial policies: U.S.-China Economic and Security Review Commission, 

“U.S.-China Commercial Relations,” in 2019 Annual Report to Congress, November 2019. 

• U.S. reliance on China’s pharmaceutical products: U.S.-China Economic and Security Review Commission, 

“Growing U.S. Reliance on China’s Biotech and Pharmaceutical Products,” in 2019 Annual Report to Congress, 

November 2019.

• IP leakage risks in military-applicable critical technologies: U.S.-China Economic and Security Review 

Commission, “Emerging Technologies and Military-Civil Fusion - Artificial Intelligence, New Materials, and 

New Energy,” in 2019 Annual Report to Congress, November 2019.

• China’s forced technology transfer: Sean O’Connor, “How Chinese Companies Facilitate Technology 

Transfer from the United States,” U.S.-China Economic and Security Review Commission, May 6, 2019. 

• Limitations of China’s IP system: U.S.-China Economic and Security Review Commission, “Tools to 

Address U.S.-China Economic Challenges,” in 2018 Annual Report to Congress, November 2018. 

• China’s coercive foreign investment climate: U.S.-China Economic and Security Review Commission, 

“Foreign Investment Climate in China,” in 2015 Annual Report to Congress, November 2015. 

* For example, U.S. pharmaceutical company Eli Lilly was afforded access to the Chinese market only after it formed an R&D partnership 

with Shanghai-based Innovent Biologics in 2015 to codevelop cancer drugs. Mark Kazmierczak et al., “China’s Biotechnology 

Development: The Role of U.S. and Other Foreign Engagement,” Gryphon Scientific (prepared for the U.S.-China Economic and Security 

Review Commission), February 14, 2019, 64. 

† The Chinese government’s military-civil fusion strategy aims to mobilize private sector innovation in modernizing China’s military 

capabilities, raising the risk that U.S. MNE business partnerships and collaborations in China could aid China’s military development. For 

example, the Financial Times reported that Microsoft Research Asia, Microsoft’s Beijing-based unit for Asia-Pacific R&D activity, 

collaborated with researchers affiliated with China’s National University of Defense Technology on artificial intelligence research that 

could be used for surveillance and censorship. Madhumita Murgia and Yuan Yang, “Microsoft Worked with Chinese Military University 

on Artificial Intelligence,” Financial Times, April 10, 2019. https://www.ft.com/content/9378e7ee-5ae6-11e9-9dde-7aedca0a081a.
U.S.-China Economic and Security Review Commission 23

Appendix: Definitions 

U.S. multinational enterprise (MNE): The U.S. parent and its foreign affiliates. 

U.S. parent: A person, partnership, corporation, or other organization residing in the United States that owns 10 

percent or more of a foreign business enterprise, referred to as its foreign affiliate. In this report, all references to 

U.S. parent activities refer to the domestic operations and activities of U.S. MNEs in the United States. The 

worldwide operations of a U.S. MNE reflect both its domestic operations, represented by the U.S. parent company, 

and its foreign operations, represented by the foreign affiliates.

Foreign affiliates: Affiliates that are at least 10 percent owned by U.S. parents. 

Majority-owned foreign affiliate (MOFA): A foreign business enterprise in which the combined ownership of all 

U.S. parents, either directly or indirectly, exceeds 50 percent. In 2017, MOFAs accounted for about 92 percent of 

all foreign affiliates and 85 percent of the employment by all foreign affiliates. 

• Given the preponderance of MOFAs in all U.S. MNE global activities, as well as fact that the U.S. 

Department of Commerce’s Bureau of Economic Analysis (BEA) collects and publishes more detailed data 

for MOFAs, this report uses data for MOFAs exclusively in describing and assessing U.S. MNE activities 

in China and other countries. 

Employment: The total number of full-time and part-time employees on the payroll at the end of the year. 

Research and development (R&D) expenditures: The expenditures for R&D performed by the U.S. parent or its 

foreign affiliate, whether the R&D was for their own use or for use by others and irrespective of the source of 

funding. 

Value added: The value of final goods and services produced by a firm’s labor and property. It represents the firm’s 

contribution to gross domestic product (GDP) in the firm’s country of residence. The measure is calculated by 

summing cost and profit data collected by the BEA’s surveys of U.S. MNEs’ direct investment abroad. 

Capital expenditure: The expenditure for property, plant, and equipment, and covers total expenditures for land 

and depreciable structures and equipment. These expenditures are gross any sales, retirements, or transfers of 

previously owned and tangible assets. 
U.S.-China Economic and Security Review Commission 24

Endnotes

1 U.S. Department of Commerce, Bureau of Economic Analysis, “Direct Investment Surveys: BE-10, Benchmark Survey of U.S. Direct 

Investment Abroad,” Federal Register 84:218 (November 12, 2019). https://www.federalregister.gov/documents/2019/11/12/2019-

24414/direct-investment-surveys-be-10-benchmark-survey-of-us-direct-investment-abroad.

2 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

3 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

4 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

5 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

6 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

7 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

8 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

9 Alexander Hammer, “Why Have U.S. Firms Offshored to China,” U.S. International Trade Commission Executive Briefings on Trade, 

June 2017, 1–2. 

10 Wayne M. Morrison and Rachel Tang, “China’s Rare Earth Industry and Export Regime: Economic and Trade Implications for the 

United States,” Congressional Research Service, April 30, 2012, 17. https://fas.org/sgp/crs/row/R42510.pdf; Keith Bradsher, “Chasing 

Rare Earths, Foreign Companies Expand in China,” New York Times, August 24, 2011. 

https://www.nytimes.com/2011/08/25/business/global/chasing-rare-earths-foreign-companies-expand-in-china.html.

11 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

12 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

13 U.S.-China Economic and Security Review Commission, Hearing on Risks, Rewards, Results: U.S. Companies in China and Chinese 

Companies in the United States, written testimony of Mary E. Lovely, February 28, 2019, 4; U.S. Census Bureau, Activities of U.S. 

Multinational Enterprises, August 23, 2019. https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprisesmnes.

14 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

15 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

16 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

17 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

18 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

19 China’s National Bureau of Statistics via CEIC database. 

20 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

21 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

22 Deloitte, “2016 Global Manufacturing Competitiveness Index,” 2016, 48. 

https://www2.deloitte.com/content/dam/Deloitte/global/Documents/Manufacturing/gx-global-mfg-competitiveness-index-2016.pdf.

23 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

24 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

25 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

26 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

27 China’s Ministry of Culture and Tourism via CEIC database. 

28 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

29 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.
U.S.-China Economic and Security Review Commission 25

30 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

31 State Council of the People’s Republic of China, National Medium- and Long-Term Program for Science and Technology Development 

(2006-2020) (国家中长期科学和技术发展规划纲要 [2006—2020 年]), 2006. Translation. 

http://www.gov.cn/gongbao/content/2006/content_240244.htm.

32 State Council of the People’s Republic of China, National Medium- and Long-Term Program for Science and Technology Development 

(2006-2020) (国家中长期科学和技术发展规划纲要 [2006—2020 年]), 2006. Translation. 

http://www.gov.cn/gongbao/content/2006/content_240244.htm.

33 U.S. Department of State, 2019 Investment Climate Statements: China, 2019. https://www.state.gov/reports/2019-investment-climatestatements/china/.

34 Xiaoru Fei, Benjamin Shobert, and Joseph Wong, “The Rise of Chinese Innovation in the Life Sciences,” National Bureau of Asian 

Research, April 2016, 16. https://www.nbr.org/wpcontent/uploads/pdfs/publications/special_report_56_china_life_science_april2016.pdf.

35 Doug Strub and Veomayoury Baccam, “Chasing Innovation: R&D Barriers and Incentives in China,” Viewpoint, April 2018, 7. 

https://www.amcham-shanghai.org/sites/default/files/2018-04/R%26D%20viewpoint%202018%20April%20Final%20EN_0.pdf.

36 Josh Trapani and Katherine Hale, “International S&E Higher Education,” National Science Board, 2019. 

https://ncses.nsf.gov/pubs/nsb20197/international-s-e-higher-education.

37 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

38 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

39 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

40 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

41 Kassu Hossiso, “Activities of U.S. Multinational Enterprises in 2017,” Survey of Current Business 99:9 (September 2019): 16. 

https://apps.bea.gov/scb/2019/09-september/pdf/0919-multinational-enterprises.pdf; U.S. Department of Commerce, Bureau of Economic 

Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. https://www.bea.gov/data/intl-trade-investment/activities-usmultinational-enterprises-mnes. 

42 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

43 Economist, “Still Made in China,” September 10, 2015. https://www.economist.com/special-report/2015/09/10/still-made-in-china.

44 Ian Colotla et al., “China’s Next Leap in Manufacturing,” Boston Consulting Group, December 2018, 5. https://imagesrc.bcg.com/Images/BCG-Chinas-Next-Leap-in-Manufacturing-Dec-2018_tcm30-209521.pdf.

45 Office of the U.S. Trade Representative, Findings of the Investigation into China’s Acts, Policies, and Practices Related to Technology 

Transfer, Intellectual Property, and Innovation Under Section 301 of the Trade Act of 1974, Appendix C: Summary of Public 

Submissions, March 22, 2018. https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF.

46 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes; Economist, “Special Report on Global 

Supply Chains: Which Way Out?” July 11, 2019. https://www.economist.com/special-report/2019/07/11/which-way-out; Deloitte, “2016 

Global Manufacturing Competitiveness Index,” 2016, 45. 

https://www2.deloitte.com/content/dam/Deloitte/us/Documents/manufacturing/us-gmci.pdf.

47 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

48 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

49 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

50 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

51 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

52 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

53 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

54 U.S. Department of Commerce, Bureau of Economic Analysis, Activities of U.S. Multinational Enterprises, August 23, 2019. 

https://www.bea.gov/data/intl-trade-investment/activities-us-multinational-enterprises-mnes.

55 Institute for Supply Management, “COVID-19 Survey: Impacts on Global Supply Chains,” March 11, 2020. http://ism.files.cmsplus.com/ISMReport/ISM_Coronavirus%20Survey%20Release_3.11.20_FINAL.pdf.

56 American Chamber of Commerce in China and Deloitte, “2019 China Business Climate Survey Report,” February 2019, 39. 

https://www2.deloitte.com/content/dam/Deloitte/au/Documents/international-specialist/deloitte-amcham-2019-china-business-climatesurvey-report-bilingual-190301.pdf.
U.S.-China Economic and Security Review Commission 26

57 Jonathan Woetzel et al., “China and the World: Inside the Dynamics of a Changing Relationship,” McKinsey Global Institute, July 2019, 

57. 

https://www.mckinsey.com/~/media/mckinsey/featured%20insights/china/china%20and%20the%20world%20inside%20the%20dynamic

s%20of%20a%20changing%20relationship/mgi-china-and-the-world-full-report-june-2019-vf.ashx.

58 Jonathan Woetzel et al., “China and the World: Inside the Dynamics of a Changing Relationship,” McKinsey Global Institute, July 2019, 

57. 

https://www.mckinsey.com/~/media/mckinsey/featured%20insights/china/china%20and%20the%20world%20inside%20the%20dynamic

s%20of%20a%20changing%20relationship/mgi-china-and-the-world-full-report-june-2019-vf.ashx.

59 Tara Beeny et al., “Supply Chain Vulnerabilities from China in U.S. Federal Information and Communications Technology,” Interos

(prepared for the U.S.-China Economic and Security Review Commission), April 19, 2018, 19.

60 Tara Beeny, “Supply Chain Vulnerabilities from China in U.S. Federal Information and Communications Technology,” Interos Solutions 

(prepared for the U.S.-China Economic and Security Review Commission), April 2018, 23. 

61 U.S.-China Economic and Security Review Commission, Hearing on Technology, Trade, and Military-Civil Fusion, written testimony of 

Dan Coughlin, June 7, 2019, 3–4; Sridhar Kota and Thomas C. Mahoney, “Manufacturing Prosperity: A Bold Strategy for National 

Wealth and Security,” Alliance for Manufacturing Foresight, June 2018, 17, 20–24. 

https://www.manufacturingusa.com/reports/manufacturing-prosperity-bold-strategy-national-wealth-and-security; Lee G. Branstetter, 

Britta M. Glennon, and J. Bradford Jensen, “The IT Revolution and the Globalization of R&D,” National Bureau of Economic Research, 

NBER Working Paper No. 24707, June 2018, 7–8.

62 Sridhar Kota and Thomas C. Mahoney, “Manufacturing Prosperity: A Bold Strategy for National Wealth and Security,” Alliance for 

Manufacturing Foresight, June 2018, 2, 19–24.

63 State Council of the People’s Republic of China, Next Generation AI Development Plan (新一代人工智能发展规划), July 8, 2017. 

http://www.gov.cn/zhengce/content/2017-07/20/content_5211996.htm.