a

GAO

United States General Accounting Office

Report to Congressional Committees

March 2004 WORLD TRADE 

ORGANIZATION

U.S. Companies’ Views 

on China’s 

Implementation of Its 

Commitments

GAO-04-508
www.gao.gov/cgi-bin/getrpt?GAO-04-508.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Loren Yager at 

(202) 512-4128 or yagerl@gao.gov. 

Highlights of GAO-04-508, a report to the

Chairman and Ranking Minority Member, 

Senate Committee on Finance, and to the 

Chairman and Ranking Minority Member, 

House Committee on Ways and Means 

March 2004

WORLD TRADE ORGANIZATION

U.S. Companies’ Views on China’s 

Implementation of Its Commitments 

U.S. company representatives who completed GAO’s 2003 questionnaire 

thought that China had implemented most of the 26 listed WTO commitment 

areas on average only to some or little extent. When respondents assessed 

five areas found to be of greatest importance to their companies overall -- (1) 

standards, certifications, registration, and testing requirements; (2) customs 

procedures and inspection practices; (3) intellectual property rights; (4) 

tariffs, fees, and charges; and (5) consistent application of laws, regulations, 

and practices – responses were mixed, but they reported that China had 

taken at least some steps to implement these commitment areas. Our 

analysis showed that the importance placed on specific areas differed among 

the agriculture, banking, machinery, and pharmaceutical industries. For 

example, agricultural respondents identified tariffs as important while 

banking respondents identified scope of business restrictions for services as 

important. Few respondents were able to assess all of China’s commitment 

areas for reasons that varied depending on each company’s experience and 

operations in China. 

More than two thirds of respondents reported that China’s implementation 

of its WTO commitments had a positive impact on their companies’ ability to 

do business in China. However, some respondents indicated that China’s 

reform efforts had created difficulties for their company operations in China. 

Overall, company representatives reported that company activities, such as 

volume of production in China and company revenue stream, have increased 

since China joined the WTO. However, respondents noted that changes in 

business activities cannot be directly attributed to China’s WTO accession. 

Impact of China’s WTO Implementation on GAO Questionnaire Respondents’ Companies 

Note: Number of respondents = 80. Two respondents had no basis to judge. 

As the second largest source of 

foreign direct investment in China, 

U.S. companies continue their keen 

interest in China’s implementation 

of its World Trade Organization 

(WTO) commitments. China’s 2001 

WTO commitments include specific 

pledges to increase market access, 

liberalize foreign investment, 

continue fundamental market 

reforms, and improve the rule of 

law. In 2002, GAO reported on 

selected U.S. companies’ views, 

finding that many commitment 

areas, particularly those related to 

rule of law, were important to U.S. 

companies. GAO also found that 

company representatives expected 

China’s reforms would have a 

positive impact on their business 

operations but expected some 

difficulties during implementation. 

In 2003, GAO continued to analyze 

companies’ views about (1) the 

extent to which China has 

implemented its WTO 

commitments and (2) the impact of 

China’s implementation of its WTO 

commitments on U.S. companies’ 

business operations. GAO 

collected the views of 

representatives from 82 U.S. 

companies with a presence in 

China. GAO focused on companies 

in the agriculture, banking, 

machinery, and pharmaceutical 

industries. Results reflect a 

response rate of 60 percent of the 

study population. These responses 

may not reflect the views of all U.S. 

companies with activities in China. 
Page i GAO-04-508 China Business Views

Contents

Letter 1

Results in Brief 2

Background 3

Companies Report Progress Made in China’s WTO 

Implementation 6

Most Respondents Reported a Positive Impact from China’s WTO 

Implementation 17

Concluding Observations 22

Appendixes

Appendix I: Objectives, Scope, and Methodology 24

Data Collection 24

Industry Selection 24

Sample Development 26

Questionnaire Administration 26

U.S. Companies Responding to the Questionnaire 27

Limitations 31

Appendix II: Questionnaire of U.S. Companies in China (and U.S. 

Nonprofit Agricultural Organizations) on China-WTO 

Issues 33

Appendix III: Profile of U.S. Investment and Trade with China 41

U.S. Investment in China 41

U.S. Trade with China 44

Sources and Methods 50

Appendix IV: GAO Contacts and Staff Acknowledgments 53

GAO Contacts 53

Staff Acknowledgments 53

Related GAO Products 54

Tables Table 1: 2002 Survey Respondents’ Views on Difficulty of 

Implementation for China’s WTO Commitment Areas Most 

Important to Them 6

Table 2: Ranking of Commitment Areas by Importance to GAO 

Questionnaire Respondents 10

Table 3: GAO Questionnaire Respondents’ Views on the Most 

Important Commitment Areas, by Industry 13
Contents

Page ii GAO-04-508 China Business Views

Table 4: Results of Requests for Interviews from U.S. 

Companies 26

Table 5: List of GAO Industry Groupings from Census Goods Trade 

Data 52

Figures Figure 1: Reported Extent of China’s Implementation in 26 

Commitment Areas 8

Figure 2: Comparison of Number of Respondents Who Assessed 

China’s Implementation of Commitment Areas and Those 

with No Basis to Judge 16

Figure 3: Impact of China’s WTO Implementation on GAO 

Questionnaire Respondents’ Companies 18

Figure 4: U.S. Company Business Activities Since China Joined the 

WTO 21

Figure 5: Number of Companies Responding to GAO’s 

Questionnaire, by Industry 28

Figure 6: Location of Facilities or Other Presence of GAO 

Questionnaire Respondents 29

Figure 7: Number and Types of Respondents’ Business 

Relationships in China 30

Figure 8: Stock of U.S. Direct Investment in China, 2002 ($10 

billion) 42

Figure 9: Stock of U.S. Direct Investment Worldwide, 2002 ($1.5 

trillion) 44

Figure 10: U.S. Exports and Imports of Goods with China, by 

Industry, 2003 46

Figure 11: U.S. Exports of Goods to China, Share by Industry, 

2003 47

Figure 12: U.S. Imports of Goods from China, Share by Industry, 

2003 48

Figure 13: U.S. Exports and Imports of Services with China, by 

Category, 2002 50
Contents

Page iii GAO-04-508 China Business Views

Abbreviations

BEA Bureau of Economic Analysis

FAS Free-Alongside-Ship

IPR Intellectual property rights

N Number of questionnaire respondents

NAICS North American Industry Classification System

WTO World Trade Organization

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page 1 GAO-04-508 China Business Views

United States General Accounting Office

Washington, D.C. 20548

A

March 24, 2004 Letr

The Honorable Charles Grassley

Chairman

The Honorable Max Baucus

Ranking Minority Member

Committee on Finance

United States Senate

The Honorable William M. Thomas

Chairman

The Honorable Charles B. Rangel

Ranking Minority Member

Committee on Ways and Means

House of Representatives

The 2001 conclusion of 15 years of China’s intense negotiations to join the 

World Trade Organization (WTO) raised expectations for U.S. companies’ 

opportunities to trade with and invest in China. In 2002, we reported on 

selected U.S. companies’ views about their expectations for China’s 

implementation of its WTO commitments related to their companies doing 

business in China. The report revealed that a wide range of commitments 

were important to U.S. companies, their belief that WTO commitments 

would positively impact their businesses, and their expectation that 

implementation would include difficulties as well as successes. China’s 

first two years of WTO membership repeatedly confirmed the accuracy of 

these expectations. 

In continuation of your request that we undertake a long-term body of work 

regarding China’s membership in the WTO, we again analyzed selected U.S. 

companies’ views about (1) the extent to which China has implemented its 

WTO commitments in key industries and (2) the impact of China’s 

implementation of its WTO commitments on these U.S. companies’ 

business operations.

To perform our work in 2003, we developed a questionnaire and used it to 

conduct structured interviews with representatives of U.S. companies with 

a presence in China. We selected participants from a commercial database 

listing U.S. companies in China, focusing our company selection on those 

within four industries: agriculture, banking, machinery, and 

pharmaceuticals. Out of a study population of 149 companies, we received 

79 questionnaires, for an overall adjusted response rate of 60 percent. In 
Page 2 GAO-04-508 China Business Views

addition, we received three questionnaires from companies we interviewed 

in 2002 and 11 questionnaires from representatives of nonprofit agricultural 

organizations. Unless otherwise indicated, results include the 79 

respondents from the study population plus the three respondents 

interviewed in 2003 and 2002. We do not generalize results to the larger 

population of U.S. companies doing business in China. Appendix I contains 

a more detailed description of our scope and methodology; responses to 

the questionnaire are included in appendix II. We performed our work from 

October 2002 to January 2004 in accordance with generally accepted 

government auditing standards.

Results in Brief U.S. company representatives we interviewed who did business in China 

reported that China had made some progress in implementing its WTO 

commitments. We found that for most of the 26 listed areas in which China 

had made commitments, respondents reported that China had made 

reforms on average only to some or little extent when asked to characterize 

China’s WTO implementation. Respondents noted higher scores in some 

areas, however, such as reductions in tariffs, fees, and charges. Our 

analysis found that the five specific commitment areas of greatest 

importance to respondents were: (1) standards, certifications, registration, 

and testing requirements; (2) customs procedures and inspection practices; 

(3) intellectual property rights; (4) tariffs, fees, and charges; and (5) 

consistent application of laws, regulations, and practices. Respondents had 

mixed views of China’s implementation of these important commitment 

areas. Industry-specific views differed in terms of the specific areas 

identified as most important to respondents based on the nature of their 

businesses. Overall, many respondents reported that they had no basis to 

judge certain commitment areas due to respondents’ lack of experience in 

areas not applicable to their businesses, lack of understanding about 

specific WTO commitment areas, and/or inability to differentiate between 

China’s general economic reforms and Chinese government actions taken 

to implement WTO commitments.

More than two thirds of respondents reported that China’s implementation 

of its WTO commitments had a positive impact on their companies, for 

example, by reducing tariffs and increasing transparency (openness) of 

laws, regulations, and practices, which ultimately furthered business 

opportunities. A number of respondents also expected that China’s 

progress in the next 2 years would result in a positive impact on their 

businesses. However, some company representatives stated that China’s 

WTO reforms had actually had negative consequences for their business 
Page 3 GAO-04-508 China Business Views

operations to date. Specifically, some respondents stated that China had 

increased registration and testing requirements, and that provinces and 

levels of government had varied approaches to WTO implementation. 

Overall, the majority of respondents reported that specific business 

activities such as revenue and total investments in China had increased, but 

they could not directly tie these results to China’s having joined the WTO.

Background After 15 years of negotiations to join the WTO, on December 11, 2001, 

China bound itself to open and liberalize its economy and offer a more 

predictable environment for trade and foreign investment in accordance 

with WTO rules. U.S. investment and trade with China is of substantial 

interest to U.S. companies and has increased during the past 10 years. Our 

2002 survey of U.S. company views revealed companies’ expectation of a 

positive impact from China’s implementation of WTO commitments as well 

as anticipation of difficulties during implementation.

China’s WTO Commitments The results of China’s negotiations to join the WTO are described and 

documented in China’s final accession agreement, the Protocol on the 

Accession of the People’s Republic of China, which includes the 

accompanying Report of the Working Party on the Accession of China, the 

consolidated market access schedules for goods and services, and other 

annexes. China’s WTO commitments are complex and broad in scope.1

Some commitments related to reforming China’s trade regime require a 

specific action from China, such as reporting particular information to the 

WTO, while others are more general in nature, such as those that affirm 

China’s adherence to WTO principles. 

The accession agreement includes market access commitments regarding 

goods and services. These include commitments that will reduce tariffs on 

products, as well as commitments to reduce or eliminate many other trade 

barriers such as quotas or licensing requirements on some of these 

products. Further, China made commitments to allow greater market 

access in 9 of 12 general service sectors. In the banking sector, for example, 

1

For more information, see U.S. General Accounting Office, World Trade Organization: 

Analysis of China’s Commitments to Other Members, GAO-03-4 (Washington, D.C.: Oct. 3, 

2002).
Page 4 GAO-04-508 China Business Views

China has agreed to reduce licensing requirements and has removed 

restrictions on foreign currency services. 

To improve its trade regime, China has generally agreed to make numerous 

rule of law-related reforms such as publishing and translating trade-related 

laws and regulations and applying them uniformly at all levels of 

government and throughout China. China committed to adhere to 

internationally accepted norms to protect intellectual property rights and 

enforce relevant laws and regulations related to patents, trademarks, and 

copyrights. Moreover, China made a substantial number of other rule of 

law-related commitments regarding transparency of law, judicial review, 

and nondiscriminatory treatment of businesses. 

U.S.-China Investment and 

Trade

In the past 10 years, U.S. investment and trade with China have increased 

significantly. At the end of 2002, U.S. companies had total direct 

investments of $10.3 billion in China, largely in the manufacturing sector. 

This amount represents more than 10 times the approximately $900 million 

invested a decade earlier in 1993. In addition, U.S. goods exports and 

services to China grew at an average annual rate of 12 percent since 1993, 

totaling $27 billion in 2002, according to the Department of Commerce. 

While the United States holds a large bilateral trade deficit with China, it 

has a bilateral goods surplus in areas such as transportation equipment and 

agricultural products. Appendix III provides additional details regarding 

U.S. investment and trade with China.

GAO’s Previous Survey of 

U.S. Companies 

In 2002, we conducted a study of U.S. companies’ views about the 

importance of, the anticipated effects of, and the prospects for, China’s 

implementing its WTO commitments.2

 Our analysis of responses from 191 

of 551 surveyed companies3 revealed that most of China’s WTO 

commitments were important to the companies, with rule of law-related 

reforms the most important. Specifically, at least three quarters of the 

respondents selected intellectual property rights; consistent application of 

2

For additional information on U.S. business views in 2002, see U.S. General Accounting 

Office, World Trade Organization: Selected U.S. Company Views about China’s 

Membership, GAO-02-1056 (Washington, D.C.: Sept. 23, 2002).

3

The results of our analysis were based on our survey of a random sample of 551 U.S. 

companies doing business in China and interviews with 48 judgmentally selected companies 

in four cities in China.
Page 5 GAO-04-508 China Business Views

laws, regulations, and practices; and transparency of laws, regulations, and 

practices as the most important commitment areas for their companies. 

Other than those related to rule of law, respondents most frequently 

selected trading rights; tariffs, fees, and charges; and scope of business 

restrictions as important commitments.

We also found that most companies expected that China’s implementation 

of its WTO commitments would have a positive impact on their business 

operations, although many anticipated impediments to implementation of 

China’s WTO reforms. More than three quarters of the companies reported 

that they expected China’s implementation of its WTO commitments would 

lead to an increase in their companies’ activities in China, including their 

export volume to China, market share in China, and distribution of 

products there. However, many respondents also expected that many WTO 

commitments, particularly in rule of law-related commitment areas 

regarding consistent application of laws, regulations, and practices, and 

intellectual property rights, would be difficult for Chinese officials to 

implement. (See table 1 for 2002 survey respondents’ views on the 

expected level of difficulty of China’s implementation of commitment areas 

that were most important to them.)
Page 6 GAO-04-508 China Business Views

Table 1: 2002 Survey Respondents’ Views on Difficulty of Implementation for 

China’s WTO Commitment Areas Most Important to Them

Source: GAO-02-1056, p. 24.

Note: These represent 8 of the 30 commitment areas listed in the 2002 survey.

Companies Report 

Progress Made in 

China’s WTO 

Implementation

Overall, in 2003, respondents thought that China had implemented most of 

the 26 specific WTO commitment areas to at least some extent when asked 

to characterize China’s reform efforts along a four-point scale ranging from 

no extent to great extent. 4

 Responses were mixed when company 

representatives assessed the commitment areas that we found to be of 

greatest importance to their businesses. In addition, the importance placed 

on specific commitment areas differed among respondents of the four 

industry groups--agriculture, banking, machinery, and pharmaceuticals. It 

is also important to note that many respondents reported they had no basis 

to judge the extent to which China had made reforms related to some WTO 

commitment areas, for reasons that varied depending on each company’s 

experience and operations in China.

 Expected difficulty of 

implementation

Commitment areas of highest importance High Medium Low

Consistent application of laws, regulations, and 

practices X

Intellectual property rights X

Enforcement of contracts and 

judgments/settlement of disputes in Chinese 

court system X

Independence of judicial bodies X

Equal treatment between Chinese and foreign 

entities X

Transparency of laws, regulations, and practices X

Trading rights X

Tariffs, fees, and charges X

4

The 2003 questionnaire listed 26 broad WTO commitment areas, whereas the 2002 survey 

listed 30 commitment areas. Some commitment areas were combined in 2003 in response to 

comments received during administration of the 2002 survey.
Page 7 GAO-04-508 China Business Views

Overall, Companies Report 

Low and Moderate Marks 

for the 26 WTO 

Commitment Areas

Respondents’ assessments of each area varied widely, but they generally 

reported low and moderate ratings of China’s implementation.5 See figure 1 

for respondents’ views on the extent of China’s implementation of the 26 

commitment areas, excluding those with no basis to judge. Many 

respondents had no basis to judge the extent of China’s WTO reforms in 

certain commitment areas. This indicates that few companies have an indepth knowledge of Chinese reforms across all 26 areas, as discussed in 

further detail later. Consequently, the number of company representatives 

evaluating each individual commitment area varied from 14 to 67.

5

In order to determine the extent to which respondents perceived that reforms were made in 

each of the 26 areas, we assigned values of 1 to 4 to responses ranging from “no extent” to 

“great extent” on a four-point scale. We then calculated average extent values for each of the 

commitment areas, where averages included the coded values from all respondents who 

expressed an opinion. 
Page 8 GAO-04-508 China Business Views

Figure 1: Reported Extent of China’s Implementation in 26 Commitment Areas
Page 9 GAO-04-508 China Business Views

Note: The weighted means shown for each commitment area are based on the number of company 

representatives that had a basis to judge each individual commitment area. To calculate the means, 

“Great extent” responses were given a weight of 4, “Moderate extent” responses were given a weight 

of 3, “Some or little extent” responses were given a weight of 2, and “No extent” responses were given 

a weight of 1. The number of respondents used to calculate each weighted mean is shown in the 

column labeled “N”.

On average, respondents assigned lower marks when assessing the 

implementation of 19 of the 26 listed commitment areas.6

 For example, 

company representatives thought that China had made reforms to only 

some or little extent when assessing China’s trading rights reforms7

 (right 

to import or export products) and price controls.8 Company 

representatives said they eagerly awaited the implementation of China’s 

trading rights commitments in late 2004. Several company representatives 

noted that implementation of these commitments would provide more 

control over their business relationships in China and reduce or eliminate 

the need to rely on third parties such as distributors and trading 

companies. Although China had agreed to stop using price controls to 

restrict the level of imports, one company representative derided China’s 

price control reforms and others noted their concern regarding the Chinese 

government’s continuing control of prices on specific products. 

Respondents on average assigned higher marks to the remaining 7 

commitment areas.9 For example, respondents thought that China had 

made reforms to a moderate extent when assessing China’s reforms to 

tariffs, fees, and charges; requirements stipulating a minimum amount of 

production that must be exported; and restrictions on partnerships and 

joint ventures. Several respondents described China’s efforts in lowering 

tariffs, fees, and charges including one respondent who noted that China 

had reduced tariffs for an agricultural product from 35 to 15 percent since 

joining the WTO. Company representatives also discussed China’s 

6

These 19 commitment areas had average scores from 1.8 to 2.4, where values ranging from 

1.5 to 2.5 represent a response of “some or little extent.”

7

The WTO accession agreement committed China to phasing out the general limitations on 

companies’ rights to trade—that is, to import or export—within 3 years of accession.

8

Price controls in China primarily take two forms—direct state or government pricing and 

the more flexible government guidance pricing. Although China has liberalized price 

controls, imported goods that remain subject to state trading control also remain subject to 

price controls or government guidance on prices.

9

These 7 commitment areas had average scores from 2.6 to 2.9, where values ranging from 

2.5 to 3.5 represent a response of “moderate extent.”
Page 10 GAO-04-508 China Business Views

allowance for greater market access for services, stated that WTO has 

allowed companies to provide after-sales service, and one said that “China 

is doing a good job” in addressing this area.

Respondents Had Mixed 

Views on Important 

Commitment Areas 

Respondents’ assessments of the most important commitment areas 

provide further detail regarding companies’ views on China’s progress. See 

table 2 for the ranking of the commitment areas by importance to 

respondents, which we calculated using weighted responses. More than 

half of respondents reported that China had made reforms to a moderate or 

great extent when asked to assess China’s overall progress in implementing 

reforms that were important to their companies. However, when asked to 

assess China’s implementation of specific commitment areas, responses for 

four of the five most important areas fell in the “some or little extent” 

category. Company representatives from the four industries assigned 

varied levels of importance to specific commitment areas.

Table 2: Ranking of Commitment Areas by Importance to GAO Questionnaire Respondents

Rank Commitment area

Weighted 

score

1 Standards, certifications, registration, & testing requirements (product safety, animal, plant, & health 

standards, etc.) 

51

2 Customs procedures & inspection practices 42

3 Intellectual property rights 40

4 Tariffs, fees, & charges 39

5 Consistent application of laws, regulations, & practices (within & among national, provincial, & local 

levels) 

36

6 Trading rights (ability to import & export) 31

7 Market access for services 27

8 Scope of business restrictions for services (types you can provide, customers you can do business with, 

number of transactions you can conduct, & where you can conduct business geographically) 

24

9 Foreign exchange restrictions (including balancing & repatriation of profits) 23

9 Transparency of laws, regulations, & practices (publishing and making publicly available) 23

9 Enforcement of contracts & judgments/Settlement of disputes in Chinese court system 23

12 Distribution rights 18

13 Quotas and other quantitative import restrictions 15

14 Scope of business restrictions for goods (types you can provide, customers you can do business with, number 

of transactions you can conduct, & where you can conduct business geographically) 

13

15 Government requirements stipulating minimum amount of production that must be exported 11
Page 11 GAO-04-508 China Business Views

Source: GAO analysis of responses to GAO 2003 Questionnaire of U.S. Companies in China on China-WTO Issues, question 5b.

Note: The weighted score is the sum of weighted votes by respondents identifying each commitment 

area as one of the three most important areas for their companies (3, 2, 1 values assigned to top, 

second, and third choices, respectively). The five most important commitment areas are shown in bold 

type.

Respondents Rated Progress in 

Five Most Important 

Commitment Areas

The five specific commitment areas ranked as most important to 

respondents overall were (1) standards, certifications, registration, and 

testing requirements; (2) customs procedures and inspection practices; (3) 

intellectual property rights; (4) tariffs, fees, and charges; and (5) consistent 

application of laws, regulations, and practices. Among these five areas, 

tariffs, fees and charges received higher marks, with respondents reporting 

on average that China had made reforms to a moderate extent. 

Respondents noted that it was relatively easy to assess China’s 

implementation of tariffs, fees, and charges because China had set time 

schedules for tariff reductions on various products. Many respondents told 

us that China’s efforts to achieve tariff reductions were on schedule, 

allowing companies to pay lower tariffs on imported products. 

Respondents provided lower ratings on average for the four other 

important commitment areas and indicated that China had only 

implemented these reforms to some or little extent. In the area of 

standards, certifications, registration, and testing requirements, for 

example, some respondents discussed continuing requirements such as 

product registrations that require approval from multiple Chinese 

government agencies, delays and bureaucratic bottlenecks in processing 

product registration, and the use of product standards to protect Chinese 

16 Restrictions on partnerships & joint ventures (choice of partner & equity limits) 7

17 Price controls including dual and discriminatory pricing 5

18 Establishment & employment requirements (capital, deposit, years in practice, threshold sales, forced 

investment, & nationality/residency requirements) 

4

18 Equal treatment (in taxation, access to funding, and under Chinese law) 4

18 Operation of state-owned enterprises 4

18 Export restrictions 4

22 Independence of judicial bodies 3

22 Subsidies 3

24 Local content requirements 2

25 Technology transfer requirements 1

26 China’s application of safeguards against U.S. exports (antidumping and other legal actions against import 

surges)

0

(Continued From Previous Page)

Rank Commitment area

Weighted 

score
Page 12 GAO-04-508 China Business Views

agricultural producers. When evaluating China’s reforms made in customs 

procedures and inspection practices, company representatives discussed 

the “hassles” and inefficiencies created by an unpredictable and slow 

customs system characterized by inconsistent application of standards and 

duties. In addition, numerous company representatives discussed the 

limitations of China’s efforts to address intellectual property rights. 

Respondents cited specific experiences with generic copies of 

pharmaceutical products, products illegally copied to look like those of 

U.S. companies, and false labeling of Chinese products. Some respondents 

even commented on the Chinese government’s inadequate enforcement of 

intellectual property rights. Furthermore, some respondents noted 

inconsistency in China’s application of laws, regulations, and practices 

within and among national, provincial, and local levels of government. For 

example, one banking representative said that different local governments 

each have different explanations of China’s laws and regulations. This issue 

illustrates a larger rule of law-related problem discussed by company 

representatives: the Chinese national government’s commitment to WTO 

implementation did not always coincide with local governments’ 

interpretation and implementation of China’s commitments. 

Industries Placed Importance on 

Different Commitment Areas 

Respondents among the four selected industries (agriculture, banking, 

machinery, and pharmaceuticals) had different views on the commitment 

areas most important to their companies. For example, representatives of 

agricultural companies and organizations noted the significance of quota 

reductions while representatives of banking firms emphasized 

commitments related to market access for services and foreign exchange 

restrictions. Moreover, machinery company representatives identified 

customs procedures and inspection practices as an important area for their 

transport of goods. For pharmaceutical companies, intellectual property 

and trading rights stood out as among the most important commitments. 

Table 3 shows respondents’ views on the most important commitment 

areas by industry. 
Page 13 GAO-04-508 China Business Views

Table 3: GAO Questionnaire Respondents’ Views on the Most Important 

Commitment Areas, by Industry 

Source: GAO analysis of responses to GAO 2003 Questionnaire of U.S. Companies in China on China-WTO Issues and GAO 2003 

Questionnaire of U.S. Nonprofit Agricultural Organizations, question 5b.

Note: Representatives from each industry and agricultural organizations selected the commitment 

areas included above as the three most important commitment areas for their companies. The same 

ranking number is shown when the responses were the same for multiple commitment areas. These 

results include those responding from the study population of 79 company representatives, the 11 

representatives of agricultural organizations, and one agricultural company interviewed in 2003 and 

2002.

The relative importance that respondents from the four industries assigned 

to each of the 26 commitment areas reflected the nature of their 

businesses. Company representatives also described the importance of 

these commitment areas in terms of their experiences with China’s reform 

efforts. First, for example, agricultural companies identified the tariff-rate 

quota system10 as well as China’s application of sanitary and phytosanitary 

measures and inspection requirements as important. Similarly, other 

Agriculture (Company representatives = 5; Agricultural organization 

representatives = 10)

(1) Standards, certifications, registration, and testing requirements 

(2) Tariffs, fees, and charges 

(3) Quotas and other quantitative import restrictions

Banking (Company representatives = 10)

(1) Consistent application of laws, regulations, and practices

(2) Scope of business restrictions for services 

(2) Market access for services 

(3) Foreign exchange restrictions

Machinery (Company representatives = 48)

(1) Customs procedures and inspection practices

(2) Tariffs, fees, and charges

(2) Standards, certifications, registration, and testing requirements

(3) Intellectual property rights 

Pharmaceuticals (Company representatives = 12)

(1) Intellectual property rights 

(2) Standards, certifications, registration, and testing requirements

(3) Trading rights

10China has committed to allow controlled access for imports of some bulk agricultural 

commodities using the tariff-rate quota system.
Page 14 GAO-04-508 China Business Views

agriculture respondents emphasized the importance of tariffs and one 

company representative noted that some agricultural tariffs applicable to 

his company had declined as much as 40 percent. A representative of an 

agricultural organization also noted that although China had increased 

trading rights, continued quota restrictions undermined this effort. Second, 

key issues for banking firms (a service industry) included China’s market 

access commitments to fully open the industry to foreign banks 5 years 

after China’s accession to the WTO. Banking industry representatives also 

identified scope of business restrictions, which can limit the types of 

services offered to clients, as important. However, company 

representatives also told us that market access obstacles, such as branch 

licensing that limits the ability of foreign banks to offer additional products 

and to expand geographically, continue to exist. Next, machinery 

companies identified the importance of China’s tariff rates and product 

certification system that sometimes involves on-site inspection of 

manufacturing facilities outside of China. Some machinery company 

representatives discussed the importance of timely product certification at 

the ports, the importance of an efficient product registration process for 

new products imported into China, and the need for testing procedures at 

customs that allow products to enter the country without damage caused 

by product testing. Finally, representatives from pharmaceutical 

companies identified protection of intellectual property rights as important 

and said that they continue to face challenges in this area. Specifically, 

several pharmaceutical company representatives discussed the continued 

need for patent protection to prevent counterfeiting of drugs sold at a 

fraction of the price charged for the genuine product. A few representatives 

of pharmaceutical firms noted that the Chinese government had allowed 

counterfeit generic drugs to be sold and believed that China displayed 

discrimination favoring Chinese products rather than complying with the 

principle of national treatment, under which imported foreign products and 

services are treated no less favorably than domestic products or services. 

As described by one company representative, although protection of 

intellectual property rights is getting better, the situation is still bad. 

Another respondent said simply that “piracy is everywhere” in China. 

Many Respondents Could 

Not Assess Progress of 

China’s WTO 

Implementation

Another notable finding of our questionnaire is that many respondents 

were unable to assess certain commitment areas listed in our 

questionnaire. Company representatives provided a number of 

explanations for their limited ability to evaluate China’s progress in 

implementing specific WTO commitment areas. Specifically, for 13 of the 

26 specific commitment areas we asked about, more than half of the 
Page 15 GAO-04-508 China Business Views

respondents said they had no basis to judge the extent to which China had 

made reforms in these commitment areas. Most notably, for four 

commitment areas, at least three quarters of the respondents selected “no 

basis to judge” when asked to assess the extent to which China had actually 

made reforms in these commitment areas. These areas included export 

restrictions, such as eliminating taxes and charges on exports; China’s 

application of safeguards against U.S. exports, which includes 

antidumping11 measures and other legal actions against import surges; local 

content requirements; and government requirements stipulating a 

minimum amount of production that must be exported. See figure 2 for the 

number of respondents who indicated they had no basis to judge China’s 

reforms and those who assessed China’s implementation of its WTO 

commitment areas. 

11Antidumping measures include a duty or fee imposed to neutralize the injurious effect of 

unfair pricing practices known as “dumping.” Dumping refers to the sale of a commodity in 

a foreign market at a price lower than its fair market value.
Page 16 GAO-04-508 China Business Views

Figure 2: Comparison of Number of Respondents Who Assessed China’s Implementation of Commitment Areas and Those with 

No Basis to Judge
Page 17 GAO-04-508 China Business Views

The reasons for a “no basis to judge” response could result from any 

number of factors, including the irrelevance of specific commitment areas 

to particular companies, lack of experience with commitment areas, and 

lack of knowledge about China’s WTO commitments. Some company 

representatives told us that they could not assess commitment areas that 

simply did not apply to their companies. For example, representatives of 

machinery companies had no basis to judge “scope of business restrictions 

for services” because they did not provide services. Other respondents 

stated that their companies did not have experience with particular 

commitment areas, such as one respondent’s inability to comment on 

“independence of judicial bodies” because the respondent’s company had 

not accessed the Chinese judicial system. Moreover, some respondents 

noted that they did not have sufficient awareness and understanding of the 

exact terms of China’s WTO commitments and/or did not actively track 

specific Chinese implementation efforts. Several respondents told us that 

they often could not distinguish between China’s broad economic reforms 

and its actions taken to implement specific WTO commitments. Other 

respondents said that the WTO did not apply to their company’s business 

model, did not really matter to their business, or did not have relevance to 

current market conditions that affected their business. 

Most Respondents 

Reported a Positive 

Impact from China’s 

WTO Implementation 

Most respondents reported that China’s implementation of its WTO 

commitments had had a positive impact on their companies, even though 

some company representatives indicated that China’s reform efforts would 

continue to present challenges for their company operations in China. For 

example, one respondent noted the success of his company’s overall 

operations in China but stated that implementation of China’s WTO 

commitments remained slow and problematic. Another company 

representative noted that although actual changes are happening very 

slowly, the overall pressure to reform is having a positive effect. Companies 

also provided information on whether various business activities had 

increased, stayed about the same, or decreased since China joined the WTO 

in December 2001. The majority of respondents reported that most of the 

13 business activities such as revenue stream and volume of production in 

China had increased. Company representatives described a broad range of 

increased company activities including new lines of business and new 

products, expansion of existing business to meet growing demand, and the 

opening of new branch offices and factories. Some respondents discussed 

the broad range of factors that influence company business activities. 

Respondents cited other factors, such as the business environment in 
Page 18 GAO-04-508 China Business Views

China and general market and economic conditions, as more direct 

influences on company activities than China’s WTO membership.

Company Representatives 

Reported Positive Impact on 

Business in China

Overall, company representatives reported a generally positive impact 

from implementation. More than two thirds of the 80 company 

representatives responding to this question reported that China’s 

implementation of its WTO commitments had had a positive impact on 

their companies, as shown in figure 3. Some respondents noted that China’s 

accession to the WTO had increased business opportunities for their 

companies through changes such as decreased tariffs and increased 

transparency of laws and regulations. Respondents also noted that the 

lower tariffs helped to improve business in China and had had an 

immediate impact on their bottom line because of reduced costs, ultimately 

helping their companies increase profits. One company representative told 

us that the prevalence of government officials with a pro-business attitude 

and the ability to speak English proficiently had contributed to the positive 

impact on company operations in China.

Figure 3: Impact of China’s WTO Implementation on GAO Questionnaire 

Respondents’ Companies

Note: N = 80. Two respondents had no basis to judge.
Page 19 GAO-04-508 China Business Views

Responses regarding the impact of China’s WTO implementation on their 

companies varied when analyzed by company size and industry. First, when 

analyzed by company size, a majority of representatives of small- and 

medium-sized enterprises reported little, no, or a negative impact from 

WTO implementation. Large company representatives responded more 

positively, with nearly three quarters selecting either “very positive” or 

“generally positive” when asked what impact China’s WTO implementation 

had on their company’s ability to do business in China. Second, a majority 

of respondents in three of the four industries reported a positive impact on 

company operations. Specifically, most of the representatives of 

agricultural companies reported little, no, or a negative impact from 

China’s implementation efforts. Agriculture respondents discussed 

negative consequences resulting from WTO-inspired testing requirements 

that ultimately resulted in the rejection of U.S. shipments to China. In 

contrast to agriculture, almost all of the banking industry respondents 

reported either a very positive or generally positive impact on their 

companies’ ability to do business in China. One representative from a 

banking company stated that his company has a positive view of market 

development in China—the rules seem much clearer for banks and there is 

an increased sense of assurance that the company can be successful as a 

result of China’s WTO implementation. A majority of the manufacturing 

and pharmaceutical company respondents also reported more positive 

than negative responses regarding the impact of China’s WTO 

implementation on their companies.

Impact from China’s Reforms 

Expected to Continue 

A number of company representatives reported a positive outlook for their 

future in China when asked about the likely impact that China’s WTO 

implementation would have in 2 years’ time, but they also noted the 

challenges they expect to continue. Some respondents said they expected 

the overall business environment in China would improve significantly. 

Others specifically discussed WTO commitments that would have an 

impact on their ability to do business in China. For example, some 

respondents stated that additional tariff cuts would reduce product costs 

and result in increased profits. However, other respondents discussed 

obstacles hindering reform efforts. One company representative noted that 

China’s regulatory reforms may be fine on paper, but speculated that actual 

implementation could invalidate the intent of the reforms. Some company 

representatives noted that different interpretations of laws and regulations 

as well as varied approaches to implementation between provinces and 

levels of government create challenges for foreign companies in China. 

Several company representatives discussed ongoing delays to business 

operations resulting from Chinese requirements for product registration 
Page 20 GAO-04-508 China Business Views

and testing. Generally, company representatives said that progress is 

continuing, that their parent companies would continue investing in 

business operations in China, and that they expected the overall business 

climate to improve, but reforms could take time.

Company Business 

Activities in China 

Increasing

Overall, our questionnaire respondents reported that their company 

activities have increased since China joined the WTO. Respondents 

indicated whether their companies’ business activities in 13 areas had 

increased, stayed about the same, or decreased since China joined the WTO 

in December 2001. Specifically, at least 70 percent of respondents reported 

that their companies’ business activities had increased for 9 of the 13 listed 

activities, as shown in figure 4. Some company representatives told us that 

China’s WTO membership helps to attract foreign investment, which in turn 

helps their businesses. In contrast, most respondents reported that the 

other four activities had stayed the same or decreased. Activities that had 

stayed the same or decreased included the number and value of their 

ventures with Chinese partners. None of the respondents to our 

questionnaire reported a decrease in the number of products distributed in 

China, the scope of product distribution in China, or the number of services 

provided in China. But almost one third of respondents indicated that the 

number of company employees in the United States had decreased while 

about one sixth reported an increase. Respondents told us that the number 

of employees in the United States depends on factors other than China’s 

WTO accession, such as current economic conditions, corporate 

restructuring, changes in the company’s industry, and/or a change in 

company strategy. Some respondents also discussed the difficulty of 

identifying a link between other company activities and China’s WTO 

membership. Company representatives cited a number of possible 

influences on changes in company activity levels, such as China’s ongoing 

economic reforms, an improving business environment in China, and 

market development opportunities in China. 
Page 21 GAO-04-508 China Business Views

Figure 4: U.S. Company Business Activities Since China Joined the WTO

Note: Percentages for the individual activities are based on the number of respondents who made a 

judgment about each business activity. Therefore, the percentages do not include respondents who 

checked “No basis to judge” or “No answer,” or did not provide an answer. Percentages may exceed 

100 percent due to rounding. Appendix II provides a breakdown of these responses.
Page 22 GAO-04-508 China Business Views

Concluding 

Observations

Our analysis of U.S. companies’ responses to our questionnaire provides 

findings and lessons that have important implications for policymakers 

who rely on private sector input in order to judge China’s progress in 

opening its market. As noted in our March 2003 report, the private sector 

plays an important role in monitoring and enforcement activities. Our 

results indicate areas where China has made progress in carrying out WTOrelated reforms and areas that might need more attention. Our results also 

show that despite the problems U.S. companies are facing in China’s 

implementation of specific commitment areas, more than two thirds of 

respondents indicated that China’s WTO implementation had a positive 

impact on their companies’ ability to do business in China.

Our work also provides a number of lessons regarding the use of private 

sector input that could help shape best practices for U.S. government 

efforts to monitor and enforce China’s compliance with its commitments. 

First, because company experiences and assessments varied, both overall 

and among companies in the same industry, policymakers are well advised 

to seek input from a number of companies with interests in an area of 

concern and not just a few companies. Doing so increases the 

representativeness of the information gathered for monitoring purposes, 

because views are often company-specific and one company in an industry 

cannot be assumed to speak for all. 

Second, we found that the number of company representatives who report 

they have a basis to judge China’s implementation of specific WTO 

commitment areas varies greatly. Broad input from a wide range of 

companies assures policymakers that monitoring is authoritative and 

complete because relatively few individual companies believed they had a 

basis to judge all 26 commitment areas. Furthermore, in some cases, like 

Chinese export restrictions, application of safeguards, and/or subsidies, 

very few U.S. companies reported they had a basis to judge 

implementation. This observation raises the question of whether U.S. 

government officials can rely on private sector input to identify the full 

range of China’s compliance problems. Instead, for some commitment 

areas, alternative strategies that reach out to specific companies or that 

rely on economic or legal information to identify problems, for example, 

may be needed to monitor China’s implementation. 

Finally, we report that respondents cited a number of factors that influence 

company activities in addition to China’s efforts to implement specific WTO 

commitments. These results reaffirm the importance of ongoing private 
Page 23 GAO-04-508 China Business Views

sector education about China’s WTO obligations and the market access 

opportunities that the private sector should expect. Furthermore, it 

indicates that any monitoring strategy benefits from collecting and 

reviewing information about what companies may consider solely 

“commercial problems” but that may actually involve WTO-related issues, 

where the U.S. government can clearly take action. 

Nevertheless, knowledge of U.S. company views remains fundamental for 

policymakers to judge the degree to which the benefits of China’s WTO 

membership are being realized. We will consider the implications of this 

work as we conduct our current review of U.S. government monitoring and 

enforcement activities.

We are sending copies of this report to interested congressional 

committees. We will make copies available to others on request. In 

addition, the report will be available at no charge on the GAO Web site at 

http://www.gao.gov.

If you or your staff have any questions about this report, please contact me 

at (202) 512-4128. Other GAO contacts and staff acknowledgments are 

listed in appendix IV.

Loren Yager

Director, International Affairs and Trade
Page 24 GAO-04-508 China Business Views

Appendix I

Objectives, Scope, and Methodology ApApenednxidexiIs

The Chairman and the Ranking Minority Member of the Senate Finance 

Committee and the Chairman and the Ranking Minority Member of the 

House Committee on Ways and Means asked us to undertake a long-term 

body of work relating to China’s membership in the World Trade 

Organization (WTO). This work began in 2001 and includes examining, 

through annual surveys, the experience of U.S. firms doing business in 

China. Our objectives for this report were to assess the views and 

experiences of selected U.S. companies with a presence in China regarding 

(1) the extent to which China has implemented its WTO commitments in 

key industries and (2) the impact of China’s implementation of its WTO 

commitments on these U.S. companies’ business operations. To respond to 

our objectives, we collected the views of 82 U.S. companies and 11 

representatives of U.S. agricultural associations with offices in China. 

Data Collection To answer our two objectives, we gathered company views primarily via inperson interviews in China; we also conducted some interviews by 

telephone in instances when it was logistically impossible to schedule inperson meetings. We used this approach because the work we conducted 

for our 2002 report on U.S. company views indicated that this method 

would yield better response rates than mail or Web surveys and would 

allow us to contact the corporate representatives who were most 

knowledgeable about WTO implementation issues. We selected the 

participants from a commercial database listing U.S. companies that were 

identified as being in China as of 2003. We purchased the database, Foreign 

Companies in China 2003, from Commercial Intelligence Service, a 

division of Business Monitor International. Our research indicated that this 

database best met our need for identifying U.S.-nationality companies and 

their respective contact information in China by industry. However, the 

database likely does not include all U.S. companies in China, because 

foreign investors present a constantly changing population, some 

companies in China may not wish to publicize their presence, and/or 

because it is not always clear who is the ultimate parent of corporate 

subsidiaries. 

Industry Selection We selected industries that encountered implementation issues, had key 

commitments implemented during China’s first year of WTO membership, 

and industries with concentrations of U.S. foreign investment in China. The 

four industries included: agriculture, banking, machinery, and 

pharmaceuticals. Although fewer U.S. agriculture-related companies have a 
Appendix I

Objectives, Scope, and Methodology

Page 25 GAO-04-508 China Business Views

physical presence in China than the other three selected industries, 

agriculture emerged as a key implementation issue in 2002, and its 

importance continued in 2003. In addition to interviewing the agricultural 

firms listed in the purchased database, we also conducted structured 

interviews with a judgmental selection of 11 representatives of nonprofit 

agricultural associations in China. The representatives of these 

associations promote U.S. agricultural exports to China for various 

commodities. We interviewed them to gain a more complete understanding 

of U.S. agricultural interests in China and do not generalize their responses 

to the full universe of nonprofit agricultural associations. Funding for 

representative offices of these associations in China is in part provided by 

the U.S. government through the Department of Agriculture’s Foreign 

Market Development Cooperator Program.1

 We administered the same 

questionnaire we used for the private sector firms, with slight 

modifications to acknowledge the nature of these cooperators as nonprofit 

associations rather than companies. Data for these associations are 

presented separate from company representative responses in the report. 

Next, the banking industry provided an opportunity to explore the 

experiences of firms that provide services in China. Banking issues also 

emerged as a concern for U.S. government officials during the first year of 

China’s WTO membership. Third, machinery is an industry with 

representation from a broad range of U.S. companies. Finally, for the 

pharmaceutical industry, numerous commitments were scheduled for 

implementation during China’s first 2 years of WTO membership. In 

addition, this industry provided an opportunity for us to explore the 

experience of companies with an interest in intellectual property rights, a 

key issue during the first year of China’s WTO membership. 

1

The Foreign Market Development Cooperator Program provides financial assistance to 

nonprofit U.S. agricultural trade organizations that have the broadest possible producer 

representation of U.S. agricultural commodities being promoted in foreign markets. The 

funds provided under the Commodity Credit Corporation Charter Act for this program (15 

U.S.C. 714c(f)) are made available on a competitive basis for the promotion of generic 

activities that do not involve promotions targeted directly to consumers. The U.S. 

Department of Agriculture’s Foreign Agricultural Service administers the Cooperator 

Program.
Appendix I

Objectives, Scope, and Methodology

Page 26 GAO-04-508 China Business Views

Sample Development Companies from the four selected industries were identified in the 

aforementioned electronic database, Foreign Companies in China 2003, 

purchased from the Commercial Intelligence Service. The database 

contained a total of 243 contacts for companies in the four selected 

industries. We reviewed the list of contacts in order to judgmentally 

identify primary, secondary and tertiary contacts for each company. In 

addition, we confirmed U.S. incorporation for each company, leaving a 

total of 149 companies in our study population.

During the scheduling process, it became apparent that positive responses 

from companies on the invited list of 149 companies might not fill our 

itinerary for the planned 2-week data-gathering trip to China in October 

2003. Consequently, we supplemented the list of 149 companies with the 

list of 48 companies that had completed interviews with us in China in 

2002. Three of these 48 companies accepted the interview invitation and 

completed structured interview questionnaires. These companies are 

included in our data analysis of 82 questionnaire responses. See table 4 for 

an explanation of the results of requests for interviews with the 149 

companies from the four selected industries.

Table 4: Results of Requests for Interviews from U.S. Companies 

Source: GAO analysis of U.S. companies in agriculture, banking, machinery, and pharmaceutical industry listings from Commercial

Intelligence Service database.

Note: The study population included 149 companies. GAO received responses from 82 of these 

companies. However, we interviewed 3 of these companies in 2002, but their names did not appear in 

the purchased database. Consequently, these three responses are not included in the study 

population results shown in table 4.

Questionnaire 

Administration

We conducted structured interviews with representatives of U.S. firms and 

agricultural organizations in the United States and Beijing, Shanghai, and 

Result

Number of 

companies

Usable response received 79

Refusal 38

Contact information could not be located 18

Parent company incorporated outside the U.S. 7

Company name identified as duplicate listing 5

Other (out of business or no longer invested in China) 2
Appendix I

Objectives, Scope, and Methodology

Page 27 GAO-04-508 China Business Views

Hong Kong, China, in October 2003. 2 Structured interviews provided an 

opportunity to discuss questionnaire responses in greater detail as well as 

gain an understanding for the context of these responses. We discussed 

topics during the interviews that included the importance of China’s WTO 

commitment areas, the extent to which China had implemented reforms in 

WTO commitment areas, and the impact of China’s reforms on 

respondents’ companies. 

We restricted our analysis to the subset of firms that responded to our 

questionnaire, and we did not make estimates about the larger population 

of all U.S. companies with a presence in China. From the study population 

of 149 U.S. companies with a presence in China, we received 79 

questionnaires, for an overall response rate of 60 percent.3

As the response rate was 60 percent, and some key questions had a high 

frequency of “no basis to judge” responses, we did not calculate sampling 

errors, and we present questionnaire results in this report in unweighted 

form. The unweighted responses represent the responses received and are 

not projected to the population of U.S. companies with a presence in China 

nor the four selected industries. 

U.S. Companies 

Responding to the 

Questionnaire

Respondents to our questionnaire from the study population represented 

four industries: agriculture, banking, machinery, and pharmaceuticals. The 

largest number of respondents represented machinery companies, 

followed by pharmaceuticals, banking, and agriculture. Figure 5 displays 

the number of respondents from each of the four industries.

2

Our work included a several-month suspension due to travel restrictions resulting from the 

outbreak of Severe Acute Respiratory Syndrome (SARS) in China in 2003.

3

We calculated the response rate as (Responses received) / (Responses received + Refusals 

+ estimated eligible nonrespondents)=(79/(79+38+15.29))=59.72 percent. Estimated eligible 

nonrespondents were calculated as the proportion of contacted companies that were 

eligible (79/(79+7+5+2)=94.95 percent), multiplied by the number of companies that could 

not be located, or 0.9495 x 18 = 15.29.
Appendix I

Objectives, Scope, and Methodology

Page 28 GAO-04-508 China Business Views

Figure 5: Number of Companies Responding to GAO’s Questionnaire, by Industry

Note: N=80. The number of company respondents reflected in the figure includes the 79 respondents 

from the four industries selected in 2003 plus one agricultural company not listed in the purchased 

database that we interviewed in 2003 and 2002. The other two companies interviewed in 2003 and 

2002 were not in any of the four selected industries.

Location of Respondents in 

China

Questionnaire respondents reported that they carry out their business 

activities in facilities and offices across all of China. Shanghai, Beijing, and 

Guangzhou were the most frequent responses to the question of where 

companies had a facility or other presence among all of the Chinese 

locations listed in our questionnaire (listed in order of frequency of 

responses). In fact, only a few respondents (less than five) did not have a 

facility or other presence in Shanghai, Beijing, or Guangzhou. About one 

third of respondents reported having facilities or some other presence in all 

three of these locations, while about two thirds of respondents reported 

having a presence in locations beyond Shanghai, Beijing, and Guangzhou. 

Figure 6 shows the number of companies that reported having a facility or 

other presence in each location in China listed in our questionnaire.
Appendix I

Objectives, Scope, and Methodology

Page 29 GAO-04-508 China Business Views

Figure 6: Location of Facilities or Other Presence of GAO Questionnaire Respondents

Note: N=82. Respondents could select multiple locations.
Appendix I

Objectives, Scope, and Methodology

Page 30 GAO-04-508 China Business Views

Respondents’ Business 

Relationships in China

Respondents reported that they engage in a range of business relationships 

in their many locations throughout China. More than two fifths of 

respondents reported having one type of business relationship; about one 

third of the respondents had two types of relationships; and about one 

quarter of the respondents reported three or more types of business 

relationships there. Wholly owned foreign enterprises, joint ventures, and 

representative offices were the most frequently reported types of business 

relationships, respectively. Figure 7 displays the number of respondents 

that reported each type of business relationship.

Figure 7: Number and Types of Respondents’ Business Relationships in China

Note: N=82. Respondents could select all business relationships that applied. 
Appendix I

Objectives, Scope, and Methodology

Page 31 GAO-04-508 China Business Views

Respondents’ Company Size Respondents also varied in terms of the number of employees in the United 

States and the number of employees in China. The number of employees in 

the United States varied from none (such as a company incorporated in the 

United States but with all employees in China) to 90,000. Most of the 

companies that completed our questionnaire, however, were large 

companies. Less than 15 percent of respondents reported that they had 500 

or fewer employees in the United States. The number of employees that 

companies reported having in China ranged from zero to 8,000. Almost two 

thirds of respondents reported that they had 500 or fewer employees in 

China.

Limitations All firms that responded to our questionnaire were assured that their 

responses would remain confidential. In spite of this, due to the sensitive 

and/or proprietary nature of the topics discussed, it is possible that the data 

presented in this report reflect the views of respondents only to the extent 

to which they felt comfortable sharing them with an agency of the U.S. 

Congress. In addition, respondents reported varied knowledge of China’s 

WTO commitments and their application to their companies.

Measures Taken to Address 

Limitations

Other potential sources of errors associated with the questionnaire, such as 

question misinterpretation and question nonresponse, may be present. We 

included steps in the development of the questionnaire, the data collection, 

and data analysis to reduce possible nonsampling errors. We developed this 

questionnaire based on the experience we gained administering the 

instrument for our 2002 survey of U.S. companies with a presence in China. 

In addition, we solicited feedback from internal and external parties on a 

draft of this year’s questionnaire. We pre-tested the questionnaire with 

eligible representatives of U.S. companies with a presence in China to help 

ensure that our questions were interpreted correctly and that the 

respondents were willing to provide the information required. 

We addressed possible interviewer bias, including the fact that we 

conducted some interviews by telephone, by ensuring that all respondents 

had copies of the instrument in front of them when we conducted our 

interviews. We compared the results of our questionnaire to those of recent 

surveys of U.S. companies in China that were conducted by the U.S.-China 

Business Council and the American Chambers of Commerce in China and 

in Shanghai. While these surveys targeted different populations of U.S. 

companies in China and had low response rates, we noted that both had a 
Appendix I

Objectives, Scope, and Methodology

Page 32 GAO-04-508 China Business Views

few questions that were similar to ones we used and that both obtained 

results that were broadly similar to ours. 

We did our work in the Washington, D.C., area, and in Beijing, Hong Kong, 

and Shanghai, China. We performed our work from October 2002 to 

January 2004 in accordance with generally accepted government auditing 

standards.
Page 33 GAO-04-508 China Business Views

Appendix II

Questionnaire of U.S. Companies in China 

(and U.S. Nonprofit Agricultural 

Organizations) on China-WTO Issues ApendxiI

U.S. General Accounting Office 

2003 Questionnaire of U.S. 

Companies (and U.S. Nonprofit 

Agricultural Organizations) in 

China on China-WTO Issues 

a) Interview location: g) Respondent’s name: 

b) Industry group: AG__ BK __ MH__ PH__ h) Respondent’s title: 

c) Specific industry: i) Respondent’s company: 

d) Name of interviewer j) Respondent’s phone: 

e) Date of interview: k) Respondent’s e-mail: 

f) Interview ID number: 

COMPANY BACKGROUND QUESTIONS

We’d like to start off with a few background questions that will help us learn about your company’s 

business operations (organization’s operations) in China in the ____________ industry. 

Q1) First of all, could you please provide some background information about your company’s 

business operations (organization’s operations) in the ____________ industry in China? 

N (Total company representatives and nonprofit agricultural organizations) = 93 

N (Total company representatives without nonprofit agricultural organizations) = 82 

N (Agricultural companies) = 5 

N (Nonprofit agricultural organizations) = 11 

N (Banking companies) = 10 

N (Machinery companies) = 53 

N (Pharmaceutical companies) = 12 

N (Other) = 2 

*Q1a) (for agricultural organizations only) Do all U.S. sales of your main commodity 

commonly go through your organization?

Note: The questionnaire given 

to company representatives 

differed slightly from the 

version administered to 

nonprofit agricultural 

organizations. Wording 

differences for questions that 

differed are noted throughout 

the questionnaire in 

parentheses. Agricultural 

organizations were not asked a 

few questions in this 

questionnaire. An asterisk 

marks one additional question 

that was asked of agricultural 

organizations and not asked of 

company representatives. 

Numbers shown in bold 

throughout the questionnaire 

denote company 

representatives’ responses and 

do not include responses by 

nonprofit agricultural 

organizations. Agricultural 

organizations’ responses are 

denoted in parentheses for 

applicable questions.
Appendix II

Questionnaire of U.S. Companies in China 

(and U.S. Nonprofit Agricultural 

Organizations) on China-WTO Issues

Page 34 GAO-04-508 China Business Views

Q2) Currently, what forms of business investment and operations does your company have 

in China? N = 82

 1. [11] Agent/Distributor in China 

 2. [42] Representative Office 

 3. [10] Minority Equity Joint Venture 

 4. [31] Majority Equity Joint Venture 

 5. [ 4 ] Contractual Joint Venture 

 6. [ 4 ] Foreign-invested Stock Companies 

 7. [48] Wholly Owned Foreign Enterprise 

 8. [12] Other (Please describe.)

 Q3) Where in China does your company have facilities or any other presence? N = 81

 Facilities/ 

other

presence 

Facilities/ 

other

presence 

a) Anhui 11 p) Inner Mongolia 4

b) Beijing 63 q) Jiangsu 26

c) Chongqing 15 r) Jiangxi 7

d) Dalian 14 s) Jilin 7

e) Fujian 16 t) Liaoning (except 

Shenyang) 

10

f) Guangdong 20 u) Shandong 15

g) Guangzhou 33 v) Shanghai 66

h) Guangxi 9 w) Shanxi 8

i) Guizhou & Yunnan 6 x) Shenyang 14

j) Hainan 7 y) Shenzen 16

k) Hebei 13 z) Sichuan 14

l) Heilongjiang 8 aa) Tianjin 23

m) Henan 8 ab) Western province (Any) 

(Shaanxi, Gansu, Qinghai, 

Ningxia, Xinjiang, & Tibet) 

9

n) Hubei 8 ac) Zhejiang 12

o) Hunan 7 ad) Other 16

Q4) Approximately how many permanent, full-time employees does your company 

(organization) have in the United States and in China? N = 82

a) Approximate number of permanent full-time employees in the United States 

_________

b) Approximate number of permanent full-time employees in China ________ 
Appendix II

Questionnaire of U.S. Companies in China 

(and U.S. Nonprofit Agricultural 

Organizations) on China-WTO Issues

Page 35 GAO-04-508 China Business Views

WTO-RELATED QUESTIONS

Now we’d like to ask you some questions about your company’s (organization’s) 

experiences in your industry since China joined the World Trade Organization in 

December 2001. 

Q5a) Please look at the list of China’s WTO reform commitment areas. Which are 

important to your company (organization) and why? 

Tariff & nontariff trade restrictions (increased market access)

1. Tariffs, fees, & charges N=79 (Ag Org N =10) 

2. Quotas and other quantitative import restrictions (licensing & tendering requirements) N=78 (Ag Org N=11) 

 

3. Standards, certifications, registration, & testing requirements (product safety, animal, plant, & health standards, etc.) 

N=78 (Ag Org N=11) 

4. Customs procedures & inspection practices N=78 (Ag Org N=11) 

5. Export restrictions N= 77 (Ag Org N=9) 

6. Market access for services N = 79 (Ag Org N=9) 

Investment-related measures (liberalized foreign investment)

7. Government requirements stipulating minimum amount of production that must be exported N= 78 (Ag Org N=10) 

8. Foreign exchange restrictions (including balancing & repatriation of profits) N=79 (Ag Org N=10) 

9. Technology transfer requirements N=77 (Ag Org N=10) 

 

10. Local content requirements N=76 (Ag Org N=10) 

 

11. Scope of business restrictions for goods (types you can provide, customers you can do business with, number of 

transactions you can conduct, & where you can conduct business geographically) N=76 (Ag Org N=11) 

 

12. Scope of business restrictions for services (types you can provide, customers you can do business with, number of 

transactions you can conduct, & where you can conduct business geographically) N=75 (Ag Org N=10) 

 

13. Restrictions on partnerships & joint ventures (choice of partner & equity limits) N=77 (Ag Org N=10) 

 

14. Establishment & employment requirements (capital, deposit, years in practice, threshold sales, forced investment, & 

nationality/residency requirements) N=77 (Ag Org N=10) 

 

Fundamental market reforms

15. Trading rights (ability to import & export) N=77 (Ag Org N=10) 

 

16. Distribution rights (retail, wholesale and courier) N=78 (Ag Org N=10) 

17. Subsidies (for Chinese firms or for export) N=78 (Ag Org N=11) 
Appendix II

Questionnaire of U.S. Companies in China 

(and U.S. Nonprofit Agricultural 

Organizations) on China-WTO Issues

Page 36 GAO-04-508 China Business Views

18. Operation of state-owned enterprises N=76 (Ag Org N=10) 

 

19. Price controls including dual and discriminatory pricing N=76 (Ag Org N=10) 

20. Equal treatment (in taxation, access to funding, and under Chinese law) N=76 (Ag Org N=10) 

 

Rule of law/Other 

21. Consistent application of laws, regulations, & practices (within & among national, provincial & local levels) N=78 (Ag 

Org N=10) 

 

22. Transparency of laws, regulations, & practices (publishing and making publicly available) N=78 (Ag Org N=11) 

23. Enforcement of contracts & judgments/Settlement of disputes in Chinese court system N=77 (Ag Org N=11) 

24. Independence of judicial bodies N=77 (Ag Org N=10) 

 

25. Intellectual Property Rights N=76 (Ag Org N=10) 

 

26. China’s application of safeguards against U.S. exports (antidumping and other legal actions against import surges) N=73

(Ag Org N=10) 

 

Q5b) Now that you’ve thought about the commitments, could you please tell us which three 

are most important to your company (organization), in order of importance? (Please 

review the list of commitments when answering this question.) 

a) Which is the most important? ________ 

b) Which is the second most important? _______ 

c) Which is the third most important? _______

Q6) Overall, based on your company’s (organization’s) experience, to what extent 

– if any - has China actually made reforms in the commitment areas that are 

important to your company (organization)? Have they done so to a... N= 77

(Ag Org N=11)

1. [11 (3)] Great extent 

2. [32 (2)] Moderate extent 

3. [29 (4)] Some or little extent 

4. [ 5 (1) ] No extent 

............................................. 

5. [ (1) ] Don’t know/No basis to judge 

Follow up: Please explain your response.
Appendix II

Questionnaire of U.S. Companies in China 

(and U.S. Nonprofit Agricultural 

Organizations) on China-WTO Issues

Page 37 GAO-04-508 China Business Views

Q7) Please look at the list of WTO-related reform commitments again. Based on your 

company’s (organization’s) experience in your industry, to what extent has China actually 

made reforms in these commitment areas since joining the WTO? If you are not familiar 

with any of the reform commitments, please indicate that you have no basis to judge.

(Please respond according to the extent scale.) 

No basis to 

judge 

(i)

No extent 

(ii)

Some or 

little extent 

(iii)

Moderate 

extent 

(iv) 

Great

extent 

(v) 

Tariff & nontariff trade restrictions (increased market access)

1. Tariffs, fees, & charges N=79 (Ag Org N=11) 22 (1) 2 (0) 16 (1) 23 (4) 16 (5) 

2. Quotas and other quantitative import restrictions (licensing & 

tendering requirements) N=80 (Ag Org N=11)

49 (5) 7 (2) 15 (2) 7 (2) 2 (0) 

3. Standards, certifications, registration, & testing requirements 

(product safety, animal, plant, & health standards, etc.) N=79 (Ag 

Org N=10) 

24 (0) 16 (2) 27 (4) 10 (2) 2 (2) 

4. Customs procedures & inspection practices N=80 (Ag Org N=11) 26 (1) 15 (1) 17 (5) 19 (3) 3 (1) 

5. Export restrictions N=80 (Ag Org N=11) 66 (9) 4 (0) 2 (0) 2 (0) 6 (2) 

6. Market access for services N=80 (Ag Org N=11) 35 (11) 7 (0) 13 (0) 17 (0) 8 (0) 

Investment-related measures (liberalized foreign investment)

7. Government requirements stipulating minimum amount of 

production that must be exported N=80 (Ag Org N=10) 

60 (9) 3 (1) 4 (0) 5 (0) 8 (0) 

8. Foreign exchange restrictions (including balancing & repatriation 

of profits) N=79 (Ag Org N=10) 

24 (9) 19 (0) 19 (0) 11 (1) 6 (0) 

9. Technology transfer requirements N=78 (Ag Org N=10) 56 (10) 1 (0) 7 (0) 11 (0) 3 (0) 

10. Local content requirements N=77 (Ag Org N=10) 58 (10) 2 (0) 4 (0) 8 (0) 5 (0) 

11. Scope of business restrictions for goods (types you can provide, 

customers you can do business with, number of transactions you can 

conduct, & where you can conduct business geographically) N=78

(Ag Org N=10)

46 (9) 11 (0) 12 (1) 7 (0) 2 (0) 

12. Scope of business restrictions for services (types you can 

provide, customers you can do business with, number of transactions 

you can conduct, & where you can conduct business geographically) 

N=77 (Ag Org N=10)

38 (10) 9 (0) 16 (0) 10 (0) 4 (0) 

13. Restrictions on partnerships & joint ventures (choice of partner & 

equity limits) N=77 (Ag Org N=10)

42 (9) 6 (0) 6 (1) 11 (0) 12 (0) 

14. Establishment & employment requirements (capital, deposit, 

years in practice, threshold sales, forced investment, & 

nationality/residency requirements) N=78 (Ag Org N=10) 

43 (9) 7 (1) 15 (0) 8 (0) 5 (0) 

Fundamental market reforms 

15. Trading rights (ability to import & export) N=79 (Ag Org 

N=11) 

30 (2) 18 (2) 15 (4) 14 (1) 2 (2) 

16. Distribution rights (retail, wholesale and courier) N=79 (Ag Org 

N=11) 

38 (5) 14 (1) 14 (1) 10 (3) 3 (1) 

17. Subsidies (for Chinese firms or for export) N=79 (Ag Org 

N=11) 

58 (5) 7 (3) 10 (3) 3 (0) 1 (0) 

18. Operation of state-owned enterprises N=77 (Ag Org N=11) 53 (6) 4 (2) 9 (1) 9 (2) 2 (0) 

 19. Price controls including dual and discriminatory pricing N=78

(Ag Org N=11) 

52 (9) 11 (2) 8 (0) 4 (0) 3 (0) 

20. Equal treatment (in taxation, access to funding, and under 

Chinese law) N=79 (Ag Org N=11) 

34 (5) 11 (3) 19 (1) 9 (1) 6 (1) 
Appendix II

Questionnaire of U.S. Companies in China 

(and U.S. Nonprofit Agricultural 

Organizations) on China-WTO Issues

Page 38 GAO-04-508 China Business Views

Rule of law/Other 

 21. Consistent application of laws, regulations, & practices (within & 

among national, provincial & local levels) N=79 (Ag Org N=11) 

13 (1) 13 (2) 37 (5) 13 (3) 3 (0) 

22. Transparency of laws, regulations, & practices (publishing and 

making publicly available) N=79 (Ag Org N=11) 

12 (1) 11 (2) 33 (5) 17 (2) 6 (1) 

23. Enforcement of contracts & judgments/Settlement of disputes in 

Chinese court system N=78 (Ag Org N=10) 

33 (5) 14 (2) 25 (1) 6 (2) 0 (0) 

24. Independence of judicial bodies N=79 (Ag Org N=10) 44 (6) 12 (2) 19 (2) 4 (0) 0 (0) 

25. Intellectual Property Rights N=80 (Ag Org N=10) 23 (7) 13 (2) 31 (1) 12 (0) 1 (0) 

26. China’s application of safeguards against U.S. exports 

(antidumping and other legal actions against import surges) N=79

(Ag Org N=9) 

63 (8) 2 (1) 10 (0) 2 (0) 2 (0) 

Q8) Overall, what impact has China’s implementation of its WTO commitments had on 

your company’s (organization’s members) ability to do business in China? N=80 (Ag Org 

N=11)

(Summarize the answers with the following prompt: Overall, would you say that the impact 

has been....) 

1. [10 (4)] Very positive 

2. [44 (4)] Generally positive 

3. [24 (1)] Little or no impact 

4. [ 1 (2)] Generally negative 

5. [ 1 ] Very negative 

............................................. 

6. [ ] Don’t know/No basis to judge 

Follow-up: Does your company (organization) have any expectations about the 

likely impact in two years’ time? 

Q9a) Is the United States Government doing anything on your behalf to ensure that 

China’s WTO commitments are implemented? N=55 (Ag Org N=11)

Follow-up: Is the USG doing anything on your behalf about IPR commitments? 

N=57 (Ag Org N=9)
Appendix II

Questionnaire of U.S. Companies in China 

(and U.S. Nonprofit Agricultural 

Organizations) on China-WTO Issues

Page 39 GAO-04-508 China Business Views

Q9b) How satisfied or dissatisfied are you with the United States Government’s efforts to 

ensure that China’s WTO commitments are implemented? N=80 (Ag Org N=11) 

1. [ 6(4)] Very satisfied 

2. [31(6)] Generally satisfied 

3. [ 3(1)] As satisfied as dissatisfied 

4. [ 5 ] Generally dissatisfied 

5. [ 1 ] Very dissatisfied 

............................................. 

6. [ 34 ] Don’t know/No basis to judge 

Follow-up (If applicable): How satisfied are you with the U.S. Government’s efforts 

to ensure that IPR commitments are implemented? 

Q10) Has your company (Have your organization’s members) contacted any professional 

associations or government agencies in China or the United States about any WTO issues? 

[Note: We are not presenting the results to this question because we changed the wording during 

questionnaire administration to account for differences in how respondents interpreted the 

question.] 

1. [ ] Yes 

2. [ ] No GO TO QUESTION 11. 

3. [ ] Not sure GO TO QUESTION 11. 

Follow-up if the answer is “Yes.” Which ones? 

(Check off the boxes that correspond to the organizations.) 

a. China’s Ministry of Commerce 

b. Other Chinese government agencies 

or officials (Please specify)

c. Provincial officials 

d. Consultants 

e. U.S. trade associations representing 

your company’s interests 

f. U.S. Embassy 

g. U.S. Trade Representative 

h. U.S. Department of Agriculture 

i. U.S. Department of Commerce 

j. U.S. Department of State 

k. U.S. Congress 

l. Other (Please specify):

Follow up: Whom did you contact on which issues? 

 What happened after you contacted these organizations and/or agencies? 
Appendix II

Questionnaire of U.S. Companies in China 

(and U.S. Nonprofit Agricultural 

Organizations) on China-WTO Issues

Page 40 GAO-04-508 China Business Views

Q11) Some reform commitments have to be made by different levels of government, such as 

the central government or the provincial or city governments. Has your company 

(organization) experienced any differences in how reforms have been implemented 

within and among national, provincial and local levels of government? 

Q12) Please tell me whether your company’s (organization members’) activities in each of 

the following areas have increased, stayed about the same, or decreased since China 

joined the WTO in December 2001. (Please respond using the scale provided.) 

Increased 

(i)

Stayed about 

the same 

(ii)

Decreased 

(iii)

No basis to judge/ 

no answer 

(iv) 

 1. Number of facilities in China N=82 (Ag Org

N=9) 

56 (2) 23 (1) 2 (0) 1 (6) 

 2. Value of total investments in China N=82 (Ag

Org N=9) 

65 (0) 13 (1) 2 (0) 2 (8) 

 3. Number of employees in China N=82 (Ag Org

N=10) 

66 (4) 11(1) 4 (0) 1 (5) 

 4. Number of employees in the U.S. N=80 (Ag 

Org N=10) 

12 (0) 33 (3) 20 (1) 15 (6) 

 5. Scope of product distribution in China N=81

(Ag Org N=10) 

55 (8) 17 (0) 0 (0) 9 (2) 

 6. Number of products distributed in China N=82

(Ag Org N=11) 

60 (7) 12 (1) 0 (0) 10 (3) 

 7. Number of services provided in China N=82

(Ag Org N=11) 

51 (0) 22 (0) 0 (0) 9 (11) 

 8. Number of ventures with Chinese partners 

N=82 (Ag Org N=11) 

23 (0) 29 (1) 4 (0) 26 (10) 

 9. Value of ventures with Chinese partners N=82

(Ag Org N=10) 

23 (0) 22 (1) 5 (0) 32 (9) 

 10. Value of exports to China N=82 (Ag Org

N=10) 

51 (8) 8 (2) 6 (0) 17 (0) 

 11. Value of exports from China N=82 (Ag Org

N=11) 

38 (2) 15 (0) 1 (0) 28 (9) 

 12. Volume of production in China N=82 (Ag 

Org N=11) 

59 (0) 3 (1) 1 (0) 19 (10) 

 13. Company revenue stream N=82 (Ag Org

N=10) 

72 (4) 4 (2) 2 (0) 4 (4) 

Q13) Is there anything else you would like to tell us regarding China’s joining the WTO, 

and its implementation of its WTO commitments?

Thank you for your participation and help! 
Page 41 GAO-04-508 China Business Views

Appendix III

Profile of U.S. Investment and Trade with 

China ApendxiI

U.S. investment and trade with China have grown significantly over the 

past decade. As a result of significant new investments from Hong Kong, 

the United States, Japan, and Taiwan; China surpassed the United States as 

the world’s largest recipient of foreign direct investment flows in 2002. 

However, China still represents a very small share of the total stock of U.S. 

investments worldwide. In terms of trade in goods and services, China is 

the United States’ fourth largest trading partner, after Canada, Mexico, and 

Japan. Both U.S. exports to China and imports from China have risen 

rapidly over the past decade. However, the United States imports 

significantly more from China than it exports to China, resulting in a U.S. 

bilateral trade (goods and services) deficit with China of $102 billion in 

2002, according to U.S. trade statistics.1

U.S. Investment in 

China

As of the end of 2002, U.S. companies had a total stock of direct 

investments in China of $10.3 billion—more than 10 times the 

approximately $900 million invested a decade earlier in 1993. However, 

compared to the $1.5 trillion of accumulated U.S. direct investments 

worldwide, China accounts for less than 1 percent of total U.S. investment.2

In terms of new investment inflows, though, China receives significant 

investments from several countries, in addition to the United States. In 

2002, according to Chinese statistics, nearly $53 billion in foreign direct 

investment flowed into China, making it the world’s top investment 

destination (rather than the United States) for the first time.3

 Hong Kong 

was by far the largest supplier of foreign direct investment to China, with 

1

The U.S. bilateral goods deficit continued to grow in 2003, reaching about $125 billion. 

However, data on U.S. bilateral services with China were not yet available for 2003. 

2

Foreign direct investment statistics for the United States, unless otherwise noted, are from 

the Bureau of Economic Analysis (BEA), Survey of Current Business (Washington, D.C.: 

BEA, Sept. 2003). BEA defines U.S. direct investment abroad as the ownership or control, 

directly or indirectly, by one U.S. resident of 10 percent or more of the voting securities of 

an incorporated foreign business enterprise or the equivalent interest in an unincorporated 

foreign business enterprise.

3

In past years, the United States has been the top recipient. Initial reports for 2003 indicate 

that the United States was again the top destination, though these are preliminary statistics. 

We did not independently assess the reliability of Chinese foreign direct investment data. We 

report these statistics here solely to provide background on U.S. trade and investment with 

China and not as a basis for any findings or recommendations. 
Appendix III

Profile of U.S. Investment and Trade with 

China

Page 42 GAO-04-508 China Business Views

about 34 percent of the total, followed by the United States (over 10 

percent), Japan (8 percent), and Taiwan (about 8 percent).4

U.S. direct investment in China has largely focused on manufacturing 

sectors, particularly computer and electronic products and chemicals. 

Mining has also been a significant area of U.S. investment. Figure 8 shows 

the distribution of the stock of U.S. direct investment in China as of 2002. 

Figure 8: Stock of U.S. Direct Investment in China, 2002 ($10 billion)

Notes: 

Investment in this figure is U.S. direct investment position abroad on a historical-cost basis. 

The U.S. Bureau of Economic Analysis has modified its industry classifications used for U.S. direct 

investment abroad since GAO’s September 2002 report, GAO-02-1056. Therefore, a direct 

comparison between the statistics on U.S. investment abroad by industry presented in that report and 

the information provided in this figure cannot be made. 

4

See Congressional Research Service, China’s Economic Conditions, Issue Brief IB98014 

(Washington, D.C.: Jan. 23, 2004). Figures cited are based on Chinese government statistics.
Appendix III

Profile of U.S. Investment and Trade with 

China

Page 43 GAO-04-508 China Business Views

The industry classifications used in this figure do not correspond directly with the industry classification 

used in our questionnaire. For example, our questionnaire included firms classified as agriculture. 

However, these firms may have investments in China in wholesale trade (of agricultural products) and 

manufacturing (of fertilizers, processed foods, or other agriculturally related products). In addition, 

because of the limited number of responses that we received, the companies that did respond to our 

questionnaire in each area do not constitute a representative sample of their overall industry group. 

The pattern of U.S. investment in China, however, differs from the 

worldwide pattern of U.S. investment. Figure 9 shows that manufacturing 

accounts for about 26 percent of U.S. investments worldwide compared 

with about 60 percent of investments in China (fig. 8). Similarly, globally 

the United States has about one third (33 percent) of the stock of its 

investments in other industries (e.g., agriculture, construction, retail trade, 

and transportation and warehousing) compared with about 10 percent of 

its investments in China in the other industries category. Finance and 

depository institutions (except insurance) is the third largest area of U.S. 

global investments, accounting for about 20 percent in 2002, while in China, 

only about 3 percent of U.S. investments are in this area. This difference in 

the pattern of U.S. investment in China compared to global patterns is not 

surprising, because China is a developing country, has an abundant supply 

of relatively low-cost labor, and is a growing producer of manufactured 

goods worldwide. In contrast, the European Union, Canada, and Japan, 

which accounted for well over half of the stock of U.S. direct investment 

abroad, are developed countries with economies similar to the United 

States. 
Appendix III

Profile of U.S. Investment and Trade with 

China

Page 44 GAO-04-508 China Business Views

Figure 9: Stock of U.S. Direct Investment Worldwide, 2002 ($1.5 trillion)

Notes: 

Investment in this figure is U.S. direct investment position abroad on a historical-cost basis.

The U.S. Bureau of Economic Analysis has modified its industry classifications used for U.S. direct 

investment abroad since GAO’s September 2002 report, GAO-02-1056. Therefore, a direct 

comparison between the statistics on U.S. investment abroad by industry presented in that report and 

the information provided in this figure cannot be made. 

The industry classifications used in this figure do not correspond directly with the industry classification 

used in our questionnaire. For example, our questionnaire included firms classified as agriculture. 

However, these firms may have investments in China in wholesale trade (of agricultural products) and 

manufacturing (of fertilizers, processed foods, or other agriculturally related products). In addition, 

because of the limited number of responses that we received, the companies that did respond to our 

questionnaire in each area do not constitute a representative sample of their overall industry group.

U.S. Trade with China U.S. trade in goods and services with China has also grown significantly 

during the past decade. From 1993 to 2002, U.S. exports to China grew at an 

average annual rate of 12 percent, compared with 5 percent for U.S. 

exports worldwide during the same time period. Similarly, U.S. imports 

from China grew at an average annual rate of 17 percent, while overall U.S. 

imports grew at 8 percent annually. Consequently, China was the U.S.’s 

fourth largest trading partner in 2002 (after Canada, Mexico, and Japan), 
Appendix III

Profile of U.S. Investment and Trade with 

China

Page 45 GAO-04-508 China Business Views

with about $27 billion in U.S. exports (goods and services) and about $129 

billion in U.S. imports from China (goods and services). In 2003, goods 

trade data show that this rapid growth continued, with U.S. exports to 

China at about $27 billion, an increase of 30 percent from 2002. Similarly, 

U.S. imports from China in 2003 were about $152 billion, an increase of 21 

percent from 2002. Services trade data for 2003 were not available as of the 

date of this report.5

As a result of the difference between U.S. exports and imports, the United 

States has had a growing bilateral trade deficit with China. In 2002, the U.S. 

bilateral trade deficit with China reached $102 billion, the largest with any 

country. The deficit resulted from the $104 billion difference in goods trade 

(as opposed to services trade). The United States maintained about a $2 

billion surplus in services trade with China in 2002. 

In 2003, the U.S. bilateral goods trade deficit with China expanded further, 

to about $125 billion, an increase of about $21 billion. The increase was 

primarily due to an increase in the trade deficit in computers, electrical 

equipment, and appliances, as well as smaller increases in textiles, apparel, 

and leather; metal and machinery (except electric) products; and 

miscellaneous manufactured components, including furniture. However, 

the U.S. bilateral trade surplus with China in agriculture, food and tobacco 

products, and minerals rose from about $260 million in 2002 to about $2.8 

billion in 2003. Figure 10 shows U.S. exports and imports of goods by broad 

industry category in 2003. 

5

The U.S. Bureau of Economic Analysis publishes private services trade data by country 

annually (for the previous year) in the October issue of the Survey of Current Business.
Appendix III

Profile of U.S. Investment and Trade with 

China

Page 46 GAO-04-508 China Business Views

Figure 10: U.S. Exports and Imports of Goods with China, by Industry, 2003

Notes: 

Exports are domestic exports valued at free-alongside-ship (FAS) value. Imports are imports for 

consumption at customs value. Categories are based on the North American Industry Classification 

System (NAICS).

The industry classifications used in this figure do not correspond directly with the industry classification 

used in our questionnaire. For example, our questionnaire included firms classified as agriculture. 

However, these firms may have investments in China in wholesale trade (of agricultural products) and 

manufacturing (of fertilizers, processed foods, or other agriculturally related products). In addition, 

because of the limited number of responses that we received, the companies that did respond to our 

questionnaire in each area do not constitute a representative sample of their overall industry group. 

In terms of U.S. goods exports, China ranks sixth after Canada, Mexico, 

Japan, the United Kingdom, and Germany. Top U.S. goods exports to China 

in 2003 included: computers, electrical equipment, and appliances (23 

percent); agriculture, food and tobacco products, and minerals (20 

percent); metal and machinery (except electrical) products (16 percent); 

petroleum and chemical products (16 percent); and transportation 

equipment (12 percent). U.S. goods exports to China increased by 30 

percent from 2002 to 2003, compared to an increase of 3 percent for U.S. 
Appendix III

Profile of U.S. Investment and Trade with 

China

Page 47 GAO-04-508 China Business Views

goods exports worldwide during the same period. Figure 11 shows the 

relative share of broad industry groups in U.S. exports to China in 2003. 

Figure 11: U.S. Exports of Goods to China, Share by Industry, 2003

Notes: 

Exports are domestic exports valued at free-alongside-ship (FAS) value. Categories are based on 

NAICS. 

The industry classifications used in this figure do not correspond directly with the industry classification 

used in our questionnaire. For example, our questionnaire included firms classified as agriculture. 

However, these firms may have investments in China in wholesale trade (of agricultural products) and 

manufacturing (of fertilizers, processed foods, or other agriculturally related products). In addition, 

because of the limited number of responses that we received, the companies that did respond to our 

questionnaire in each area do not constitute a representative sample of their overall industry group. 

In terms of U.S. imports of goods, China is the second largest foreign 

supplier to the U.S. market after Canada and ahead of Mexico. Top U.S. 

goods imports from China in 2003 also included computers, electrical 

equipment, and appliances (36 percent). As previously noted, U.S. direct 
Appendix III

Profile of U.S. Investment and Trade with 

China

Page 48 GAO-04-508 China Business Views

investment in China was relatively large in the computer and electronic 

products area. A share of trade in this area between the United States and 

China is likely to be intracompany trade, in which components are 

produced in one country and exported to the other country. The 

components are then used to produce final goods that are ultimately sold in 

each market, as well as other countries. Other important imports included 

miscellaneous manufactured components, including furniture (21 percent) 

and textiles, apparel, and leather (19 percent). Figure 12 shows the relative 

share of broad industry groups in U.S. imports from China in 2003.

Figure 12: U.S. Imports of Goods from China, Share by Industry, 2003

Notes: 

Imports are imports for consumption at customs value. Categories are based on NAICS. 

The industry classifications used in this figure do not correspond directly with the industry classification 

used in our questionnaire. For example, our questionnaire included firms classified as agriculture. 

However, these firms may have investments in China in wholesale trade (of agricultural products) and 

manufacturing (of fertilizers, processed foods, or other agriculturally related products). In addition, 
Appendix III

Profile of U.S. Investment and Trade with 

China

Page 49 GAO-04-508 China Business Views

because of the limited number of responses that we received, the companies that did respond to our 

questionnaire in each area do not constitute a representative sample of their overall industry group. 

Services trade with China is less significant to the United States relative to 

services trade with other partners. Unlike goods trade, China is not in the 

top 10 importers or exporters of services trade with the United States. In 

2002, the United States exported about $6 billion worth of services to 

China, compared with about $280 billion in exports worldwide.6

 Other 

private services (such as education, insurance, telecommunications, and 

business, professional, and technical services) generated $2.6 billion in 

sales, followed by other transportation such as freight charges from 

transportation of goods by ocean, air, or land, and port charges ($1.4 

billion). The United States imported about $4 billion in services from China 

in 2002, compared with about $205 billion worldwide. Top U.S. imports of 

services from China included other transportation ($2.3 billion) and travel 

services ($1.1 billion). Figure 13 shows the value of U.S. services exports 

and imports with China in 2002 by category.

6

Data on U.S. bilateral services with China were not available for 2003. The U.S. Bureau of 

Economic Analysis publishes private services trade data by country annually (for the 

previous year) in the October issue of the Survey of Current Business.
Appendix III

Profile of U.S. Investment and Trade with 

China

Page 50 GAO-04-508 China Business Views

Figure 13: U.S. Exports and Imports of Services with China, by Category, 2002

Note: The industry classifications used in this figure do not correspond directly to the industry 

classification used in our questionnaire. For example, our questionnaire included firms also classified 

as financial services. However, these firms may or may not provide cross-border financial services (as 

opposed to providing financial services to China from their operations in China). In addition, because 

of the limited number of responses that we received, the companies that did respond to our 

questionnaire in each area do not constitute a representative sample of their overall industry group. 

Sources and Methods In order to provide background on U.S. investment and trade with China, 

we collected and analyzed the most recently available direct investment 

abroad and cross-border private services trade data from the Bureau of 

Economic Analysis (BEA) as well as goods trade data from the Bureau of 

the Census. We collected the most recently available Census trade data 

through the U.S. International Trade Commission’s Dataweb. We also 

collected information on worldwide investment in China from reports from 

the Organization for Economic Cooperation and Development and the 

Congressional Research Service (based on Chinese government data 
Appendix III

Profile of U.S. Investment and Trade with 

China

Page 51 GAO-04-508 China Business Views

sources). Since these data are used solely in this appendix as background 

information to the report, we did not assess the reliability of these data. For 

more information on BEA’s methodology for collecting U.S. direct 

investment abroad data, see “U.S. Direct Investment Abroad” in the 

September 2003 issue of the Survey of Current Business and “U.S. Direct 

Investment Abroad: 1994 Benchmark Survey, Final Results” located at 

BEA’s Web site at www.bea.gov. For more information on BEA’s 

methodology for collecting U.S. international services data, see “U.S. 

International Services” in the October 2003 issue of the Survey of Current 

Business also available at BEA’s Web site.

The industry categories that BEA and Census use do not correspond to the 

industry classifications used in our questionnaire. Because of this, and 

because the number of firms that responded to our questionnaire are not 

representative of all companies in China nor of all U.S. companies in China 

from these industries, these responses are not representative of the 

industry groups used in this profile of U.S. investment and trade with 

China. In addition, the industry categories used by BEA and Census have 

changed since our 2002 report.7

 Therefore, the figures in this report and our 

prior GAO report are not comparable. In order to present broader industry 

groups, we combined some Census data categories. These groupings are 

presented in table 5. Census goods trade categories are based on the North 

American Industry Classification System (NAICS). We collected these data 

at the three-digit level of aggregation and combined product categories into 

broader groups. These NAICS codes are listed in table 5. For services trade 

data from BEA, we separated the category “financial services” from the 

broader category of “other services.”

7

GAO-02-1056.
Appendix III

Profile of U.S. Investment and Trade with 

China

Page 52 GAO-04-508 China Business Views

Table 5: List of GAO Industry Groupings from Census Goods Trade Data

Source: GAO.

GAO industry group NAICS industry category

NAICS 3-digit 

code

Agriculture, food and tobacco products, and minerals Agricultural products 111

Livestock and livestock products 112

Forestry products (not elsewhere specified) 113

Fish, fresh, chilled, or frozen, and other marine products 114

Oil and gas 211

Minerals and ores 212

Food manufacturing 311

Beverages and tobacco products 312

Textiles, apparel, and leather Textiles and fabrics 313

Textile mill products 314

Apparel and accessories 315

Leather and allied products 316

Wood, paper, and printing Wood products 321

Paper 322

Printing, publishing, and similar products 323

Petroleum and chemical products Petroleum and coal products 324

Chemicals 325

Plastics and rubber products 326

Nonmetallic mineral products 327

Metal and machinery (except electric) products Primary metal manufacturing 331

Fabricated metal products (not elsewhere specified) 332

Machinery, except electrical 333

Computers, electrical equipment, and appliances Computer and electronic products 334

Electrical equipment, appliances, and components 335

Transportation equipment Transportation equipment 336

Miscellaneous manufactured components, including 

furniture

Furniture and fixtures 337

Miscellaneous manufactured commodities 339

Miscellaneous goods Waste and scrap 910

Public administration 920

Goods returned to Canada or re-imported to the United 

States

980

Special classification provisions (not elsewhere specified) 990
Page 53 GAO-04-508 China Business Views

Appendix IV

GAO Contacts and Staff Acknowledgments ApendxiIV

GAO Contacts Adam Cowles (202) 512-9637

Michelle Sager (202) 512-2712

Staff 

Acknowledgments

In addition to those named above, Martin de Alteriis, Shakira Edwards, 

Victoria Lin, Rona Mendelsohn, Beverly Ross, and Timothy Wedding made 

key contributions to this report.
Page 54 GAO-04-508 China Business Views

Related GAO Products

World Trade Organization: Ensuring China’s Compliance Requires a 

Sustained and Multifaceted Approach. Washington, D.C.: GAO-04-172T, 

October 30, 2003.

GAO’s Electronic Database of China’s World Trade Organization 

Commitments. Washington, D.C.: GAO-03-797R, June 13, 2003.

World Trade Organization: First-Year U.S. Efforts to Monitor China’s 

Compliance. Washington, D.C.: GAO-03-461, March 31, 2003.

World Trade Organization: Analysis of China’s Commitments to Other 

Members. Washington, D.C.: GAO-03-4, October 3, 2002.

World Trade Organization: Selected U.S. Company Views about China’s 

Membership. Washington, D.C.: GAO-02-1056, September 23, 2002.

World Trade Organization: Observations on China’s Rule of Law 

Reforms. Washington, D.C.: GAO-02-812T, June 6, 2002.

(320162)
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