The world’s two largest economies have been locked in a bitter trade battle since 2018. In that year, former US President Donald Trump began setting tariffs and other trade barriers on China following accusations of unfair trade practices and intellectual property theft. In response, the Chinese government accused the US of protectionism and trying to curb its rise as an economic superpower. Although a phase one agreement was signed between the two countries in January 2020, tensions continue to simmer. The trade war is expected to persist under the Biden administration, which has yet to announce plans to relax the tariffs.
As the dispute rages on, research from Investment Monitor reveals that while neither country is the other’s first choice when it comes to selecting a subsidiary destination, US multinational companies (MNCs) are more likely to locate in China than Chinese MNCs are to locate in the US.
More than 40% of the world’s top MNCs are based in China or the US
The Monitor Network’s multinational companies database contains information on 2,190 of the world’s top MNCs by revenue, including how many subsidiaries they have and where they are located. Overall, Chinese and US MNCs constitute 42.8% of the companies included in the database, reinforcing their status as economic superpowers. Of the 2,190 MNCs, 719 are based in the US, representing approximately one-third of all companies. More than one-fifth of US MNCs are in the technology, communications, and electronics sector, followed by financial services (15.2%) and construction (9.3%).
There are 219 MNCs headquartered in China, comprising one-tenth of all companies. China is the third most popular headquarter location of all companies analysed. Despite this, the number of US MNCs is more than triple that of China, highlighting the US’s global economic dominance. Of the China-based MNCs, financial services is the leading sector (22.8%), followed by technology, communications, and electronics (14.2%) and construction (10.5%).
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As a prominent sector for investment in both countries, tech is unsurprisingly one of the most contentious aspects of China-US trade relations. China’s growing influence in high-tech sectors is considered a grave threat to US national security, leading to high-profile bans aimed at telecommunications giant Huawei and social media platform TikTok.
Financial services has also proved to be a divisive industry for the two countries. Until recently, China was relatively restricted in this area in terms of foreign investors, while the US established barriers for Chinese financial companies. As part of the phase one agreement between the two countries signed in January 2020, China promised the US greater access to its finance consumers and businesses.
US and China MNCs run 100,000 subsidiaries
The top US and China-based MNCs are responsible for the creation of 99,537 subsidiaries. US-based companies set up the vast majority (87.8%) compared with China (12.2%). This can be attributed to the fact that US-based MNCs represent a significantly higher percentage of the top 2,190 companies. In addition, US-based MNCs set up considerably more subsidiaries on average. The 719 US-based MNCs operate 87,404 subsidiaries, an average of 122 subsidiaries per company. The average for a China-based MNC is less than half the US figure, at 55 subsidiaries.
In addition, of the 2,190 companies overall, six of the top ten by number of subsidiaries are headquartered in the US: Blackstone Group, HCA Healthcare, Thermo Fisher Scientific, UnitedHealth Group, Ventas and Welltower each operate more than 1,000 subsidiaries. The Chinese MNC with the largest number of subsidiaries is construction giant Poly Development Holding Group with 738 subsidiaries.
Where do US and China MNCs set up shop?
The domestic market is key for both US and Chinese MNCs. Domestic subsidiaries represent 56.1% of those established by US MNCs and 84% of China’s subsidiaries. The importance of the domestic market for Chinese MNCs is further reinforced by the fact that Hong Kong, one of China’s special administrative regions, is the second most popular external subsidiary destination with 589 subsidiaries.
China is the leading Asia-Pacific subsidiary destination for US MNCs and the fourth most popular foreign destination overall, behind the UK, the Netherlands and Canada. US-based MNCs operate 1,860 subsidiaries in China, representing 2.1% of subsidiaries overall and 4.8% of international subsidiaries.
The US is the top North American subsidiary destination for China-based MNCs and the fourth most popular foreign destination, preceded by Hong Kong, the British Virgin Islands and Singapore. Overall, the 219 China-based MNCs operate 122 subsidiaries in the US. This figure is significantly lower than the number of Chinese subsidiaries set up by US-based MNCs and constitutes just 1% of subsidiaries established by Chinese MNCs. However, it does represent 6.3% of international subsidiaries established by China’s MNCs, a higher percentage than that of the US’s Chinese subsidiaries.
It appears that both Chinese and US MNCs favour their allies when it comes to establishing international subsidiaries. However, despite trade disputes, both Chinese and US MNCs recognise the importance of having a foothold in each country to ensure access to the world’s largest economies as well as the wider regional market.