Executive Summary

Biology has the potential to offer solutions to the biggest challenges facing society in the 21st century, from the global climate crisis to food insecurity to new materials that will transform industries and manufacturing at scale. How nations pursue the power to engineer with living systems will reshape our ways of life, including whether our strategies reflect and reinforce—or contradict—the values of democratic societies. The United States and its allies must be positioned to harness these developments, ensure that applications reflect our values, and protect against misuse. If an authoritarian nation dominates the genomics space—and the industry that supports it—that nation will control the development of next-generation medical technologies, research standards and norms, and future genomics applications. This will have economic, ethical, and security implications for the U.S. and other liberal democratic states.

However, in the changing nature of global competition, what will be even more important than any one technology or any one field is how open market economies ensure a level playing field for their companies and researchers. Using BGI Group¹ as a case study, we dive into the complex world of China’s hybrid economic system that blurs private and public, civilian and military to meet the goals of the State. This system creates market distortions and undermines the global norms of science by leveraging researchers as well as academic and commercial entities to further national priorities, rather than open, mutually beneficial collaborations or fair commercial competition that fosters innovation and is free from market-distorting subsidies and restrictions. Through its policies and programs, China uses the power of the State to not only advantage its own companies but to disadvantage others, with the goal of dominating these industries of the future.

BGI Group is the “pointy end of the spear” for Beijing’s industrial policy for biotechnology. China’s policies to develop its Strategic Emerging Industries—including biotechnology—were first issued in 2013 and re-issued in 2020; they provide a blueprint for its goals of dominating key sectors through interconnectedness and central planning. These plans focus on first securing the domestic China market, as a first step on the path to building global champions. Using a playbook that reaped success in the development of Huawei and 5G, China uses R&D subsidies, process reforms, export financing, diplomatic support, and procurement rules for a guaranteed market in China that pushes out foreign competition and creates an unfair playing field.

Observing the growth of BGI Genomics and MGI Tech is watching China’s industrial policies unfold in real time. BGI Group has grown into an international competitor, taking on the same role in the biotech space as Huawei has in telecommunications. BGI Genomics and MGI Tech have financed their growth in ways that are not typical for growth-stage public or private companies of their scale, and point to direct involvement of the state in funding their growth. Moreover, their publicly disclosed capital markets activity seems at odds with the rapid expansion of market share, the scope of international activities, and the number of affiliates both companies maintain.

The Ministry of Finance and Ministry of Industry and Information Technology’s 2021 “Buy China” policy, or Order 551: Guidance of Government Procurement of Imported Products, outlined new rules for procurement of “315 local products, including 178 medical items.”² MGI Tech products such as sequencing, PCR, mass spectrometers, and sample preparation instruments and devices are all included in the list. MGI Tech has openly stated that it sees this “trend of domestic substitution” as an opportunity to increase its market share.³ These policies directly impact the ability of foreign firms like Illumina and Thermo Fisher Scientific to maintain market share in China. Moreover, China’s evolving regulatory environment—and resultant state support to companies like BGI Group—is expected to enhance the companies’ ability to grow domestically.

To better understand these corporations, as well as their global reach, accumulation of genomic data worldwide, and support from the Chinese government, we assembled information from financial data, public disclosures, and databases. We assess that at a minimum, we have uncovered an unusual structure that is inconsistent with the norms of most global companies and demonstrates BGI Genomics, MGI Tech, and Complete Genomics’ (a major subsidiary of MGI Tech based in the United States) ties to the Chinese government. We have uncovered a lack of transparency with nested LLC structures, among not only BGI Group but also its investor base, that obfuscate how the company is funded and conducts operations. Additionally, we found that other Western sources such as PitchBook, Refinitiv, and Crunchbase did not have the same comprehensive coverage of Chinese companies as our primary data sources—highlighting the lack of transparency in China’s commercial ecosystem and the difficulty in conducting due diligence.

With China’s recent moves to further restrict the flow of information in its economy and to tighten regulations and surveillance over foreign companies and investors in the People’s Republic of China (PRC), we anticipate that it will become increasingly difficult to understand the real nature of China’s companies like BGI Group.

As evidenced by numerous financial abnormalities we identified within BGI Genomics and MGI Tech, the BGI Group entities exemplify Chinese companies that are publicly listed on international stock exchanges but do not conform to global market norms. Key findings include:

A majority of the shareholders having direct or indirect ties to the Chinese Communist Party (CCP).

• BGI Group’s shareholder base is majority-controlled by corporate insiders and state-affiliated entities. Approximately 59% of the company’s shares float on the stock exchange, while the remaining 41% are privately held. Over half of the private shareholders are government-affiliated, and an additional several are insiders. Meanwhile, via the publicly traded shares, state-linked shareholders and shareholders affiliated with BGI Group together control 57% of the company. Effectively no power or influence can be wielded by those dozens of shareholders who together split the remaining 2% of the public shares.
• Approximately 77% of MGI Tech’s shares float publicly—that is, are traded on the public markets—while 23% remain privately held. Looking at the publicly floated shares, the vast majority of those shares—69% of all MGI Tech shares—are held by either state-affiliated or BGI Group-affiliated entities. Looking at the privately held shares, 75% of those shareholders are government-affiliated.

Direct investment into both BGI and MGI by multiple Chinese government guidance funds.

• BGI Genomics and MGI Tech (and, as a result, their U.S. subsidiary Complete Genomics) are supported by China’s practice of channeling capital to select companies through government guidance funds (政府引导基金). Guidance funds are public-private investment funds that aim to both produce financial returns and further the state’s industrial policy goals, including China’s pursuit of leadership in strategic and emerging technologies.⁴ BGI and MGI rely primarily on the state as the primary source to fund their operations and global expansion.
• Beyond the involvement of government guidance funds, both BGI Genomics and MGI Tech raise funding directly from other state-owned enterprises as a primary means to fund their operations and global expansion.

BGI Genomics has also undertaken a number of capital markets activities that are unusual in global markets outside of China.

• These activities include pledging shares, accepting guarantees from executive officers, and engaging in unusual related-party transactions that make it look unlike a regular public company. Beijing has historically used economic and financial tools like these to support its national champions.

Overlapping current and former leadership roles blur the lines between BGI and MGI and the State.

• Several key executives simultaneously hold leadership positions in multiple parts of the organization, as well as government-related positions in State Key Labs or Government Guidance Funds—this is similar to the leadership movements of State Owned Enterprises (SOE) where individuals move between the SOE, research enterprises such as State Key Labs, Universities and Chinese Academy of Sciences, as well as positions in Chinese ministries and government offices. For example, Wang Jian (汪建) is the chairman of MGI (深圳华大智造科技股份有限公司) and, through Zhizao Holdings (智造控股) and Huazhan Venture Capital (华瞻创投), owns 52% of its stocks. He is also the co-founder and chairman of the board of directors of BGI Group, and according to 2022 MGI prospectus is chairman of both Shenzhen Huada Gene Technology Co Ltd. (深圳华大基因科技有限公司) and BGI Genomics (深圳华大基因股份有限公司).⁵

Despite the importance of genomics and initial investments into the Human Genome Project, the U.S. still lacks a comprehensive national strategy for the bioeconomy. China will gain an advantage in technology competition if we don’t acknowledge and address those areas where national security and market forces diverge. The early stages of development for these new knowledge-based industries—such as biotechnology—will be most critical for government support and policies. These “first-mover” advantages may prove to be so critical that those nations that fail to make similar investments and commitments may have difficulty catching up. This gives centrally funded programs targeting specific new technologies an advantage. An erosion in leadership could constrain Washington’s policy options such as the United States’ ability to set global technology norms, regulations, and standards, as well as harness and control access to technologies for military purposes.⁶

Our analysis of BGI highlights the depth and breadth of China’s use of a hybrid economic model that necessitates new kinds of actions if the U.S. and like-minded countries are going to compete in technology development, and will require new approaches to level the playing field. Steps the U.S. (as well as its allies) can take include:

• Secure U.S. genomics data. Protect U.S. citizens’ genomic data so that it cannot be exploited by foreign entities, without overcompensating such that innovation is stifled. For example, developing sequencing capabilities that support both research and clinical settings; setting regulations on foreign-funded, supported, and controlled entities’ access to U.S. genomic data; and creating platforms where U.S. researchers and clinicians can share data securely.
• Foster U.S. companies (and companies in allied countries) so they can compete with entities that are state-supported. The CCP’s policies have created an ecosystem in which Chinese companies are not neutral actors⁷ nor fair competitors.
• Reconfigure anti-monopoly and other laws to reflect the nature of global competition and incorporate the impact that state-supported companies have on U.S. companies’ ability to compete.
• Treat the research base as critical infrastructure. The U.S. should not be dependent on China for our current medicines, future medicine, or tools of discovery. This will require rethinking the supply chain, investments in biomanufacturing, and talent development.
• Support translating R&D into useful applications. Harnessing the acquisition process, the U.S. government can support not just precision medicine but the multiple areas this technology will touch. Too often the U.S. funds basic research but then does not provide an avenue for the discoveries to either be commercialized or used as a public good.
• Think the unthinkable.⁸ These technologies can be used in ways we would consider unethical. Understanding the depth and breadth of research globally and discussing ways to regulate—as well as develop countermeasures—with allies and like-minded countries will ensure we are better prepared for misuse.

Policy solutions will need to look beyond traditional trade remedies such as export controls and tariffs because, in the early stages of these new technologies, there are not-yet-produced tradeable goods. Traditional trade remedies such as tariffs and trade sanctions probably will be ineffective at correcting all of the imbalances in biotechnology, which relies on know-how and expertise, as well as the accumulation of genomic data. They will also have limited impact on China’s major national initiatives because China views this as a key part of its future and U.S.–China competition. The ultimate lesson from past successes, 5G development, and Operation Warp Speed is that the U.S. government and like-minded allies have tools that can be used to foster the development of emerging technologies, and that they should not be afraid to take a proactive approach to foster the building blocks of future discovery and the national innovation base.

Supplementary materials for “China, Biotechnology, and BGI: How China’s Hybrid Economy Skews Competition” (including a table of BGI-related entities) can be found on GitHub.

1. Throughout this piece we will refer to “BGI” to include the mix of subsidiaries, affiliates, branches and holding companies that make up BGI Group. We will identify individually listed companies when what we present references that particular entity, such as BGI Genomics and MGI Tech. We will explain this complex corporate structure later in the paper.
2. Helen Chen and Grace Wang, “Going Local: Strategic Considerations for Medtech Manufacturers in China,” L.E.K. Consulting, L.E.K. Insight Volume XXV, Issue 24, April 4, 2023, https://www.lek.com/insights/hea/cn/ei/going-local-strategic-considerations-medtech-manufacturers-china.
3. Andrew P. Han, “Life Sciences Tools Firms, Observers Sound Alarm on Near-Term China Business Outlook,” GenomeWeb, September 21, 2023, https://www.genomeweb.com/business-news/life-sciences-tools-firms-observers-sound-alarm-near-term-china-business-outlook.
4. Ngor Luong, Zachary Arnold, and Ben Murphy, “Understanding Chinese Government Guidance Funds: An Analysis of Chinese-Language Sources,” Center for Strategic and Emerging Technology, March 2021, available at https://cset.georgetown.edu/publication/understanding-chinese-government-guidance-funds/.
5. MGI 2022 prospectus, page 122 (document is available to researchers upon request
6. Mazzucato, Mariana. 2018. The Entrepreneurial State. Harlow, England: Penguin Books.
7. By neutral actors, we mean that they function in the same way companies, researchers, and universities function in open liberal democracies. This is not the case due to China’s policies and laws.
8. National Academies of Sciences, E., Medicine, “Human Genome Editing: Science, Ethics, and Governance,” (Washington, DC: The National Academies Press, 2017); The Hinxton Group (2015), Statement on Genome Editing Technologies and Human Germline Genetic Modification, retrieved from http://www.hinxtongroup.org/Hinxton2015_Statement.pdf; Araki, M., & Ishii, T. (2014), “International Regulatory Landscape and Integration of Corrective Genome Editing into In Vitro Fertilization,” Reproductive Biology and Endocrinology, 12, 108. Doi:10.1186/1477-7827-12-108; Hampton, T. (2016). “Ethical and Societal Questions Loom Large as Gene Editing Moves Closer to the Clinic,” JAMA, 315(6), 546-548. Doi:10.1001/jama.2015.19150; Ishii, T. (2017), “Germ Line Genome Editing in Clinics: The Approaches, Objectives and Global Society,” Briefings in Functional Genomics, 16(1), 46-56. Doi:10.1093/bfgp/elv053; Cyranoski, D., & Reardon, S. (2017), “Chinese Scientists Genetically Modify Human Embryos,” Nature, Doi:10.1038/nature.2015.17378.