'Vast' U.S. business expansion in China may threaten U.S. tech leadership - report

WASHINGTON (Reuters) - A "vast expansion" in U.S. multinational business activity in China since 2000 may threaten American industrial competitiveness and long-term tech leadership, a new report by a congressional U.S.-China advisory commission found on Wednesday.

The U.S.-China Economic and Security Review Commission warned that rapid moves by U.S. companies away from manufacturing in China and into higher-value activities such as research and development could be "unwittingly enabling China to achieve its industrial policy objectives."

The commission said its analysis of nearly two decades of U.S. economic and trade data showed a 15-fold increase in U.S. commercial assets in China. U.S. companies now employ 1.7 million people in China, an increase of nearly 600% since 2000, when U.S. firms employed just 252,000 people there.

It said U.S. companies had leveraged China’s cheap labor force, large economies of scale, low transportation costs, and concentration of global supply chains, with much of the activity focused on meeting demand from China’s growing consumer class.

U.S. manufacturing in China was mainly focused on production of computers, electronic products and, increasingly, chemicals, but there was also increased investment in research and development, often at the insistence of China.

"These industries ... may indirectly erode the United States’ domestic industrial competitiveness and technological leadership relative to China," it said, urging Congress to take steps to preserve U.S. innovative capacity and leadership.

The report comes amid rising tensions between the United States and China, the world's two largest economies, despite the signing of a Phase 1 U.S.-China trade agreement in January.

The Trump administration has restricted visas and ended exports of defense equipment in response to a new national security law cracking down on Hong Kong's independence, and on Wednesday warned U.S. companies about the risks they face from maintaining supply chains associated with human rights abuses in China's western Xinjiang province.

(Reporting by Andrea Shalal and David Lawder; Editing by Chizu Nomiyama and Jonathan Oatis)