A Sharper Approach to China’s Military-Civil Fusion Strategy Begins by Dispelling Myths

The U.S. senators who found time to ask Treasury Secretary nominee Janet Yellen about China’s military-civil fusion showed how widespread have become concerns about Beijing’s efforts to blur the lines between the country’s military and civilian entities. But the Trump administration’s oft-hyperbolic messaging about MCF has given rise to myths and several misperceptions. To confront the threat appropriately, the Biden administration will need a more sophisticated understanding of this strategy—and that will require separating facts from fictions.

Make no mistake: the concerns are legitimate. Amid Beijing’s drive to create a world-class military, Chinese companies have, on several occasions, acquired sensitive technology and stealthily transferred it to the country’s military. But the problem is also misunderstood or mischaracterized, such as when the Trump administration tried to ban TikTok, the Chinese social media platform, in part for being an “active” participant in MCF — but could produce scant evidence of national security harm.

Our new CNAS report, “Myths and Realities of China’s Military-Civil Fusion Strategy,” tackles several prominent misconceptions. 

First, MCF is not an invention of Xi Jinping. While it can be tempting to view MCF as another manifestation of Xi’s China—which has been marked by growing repression and state control—MCF builds upon decades of efforts to attract private companies to defense research and procurement. These past initiatives achieved, at best, limited success, demonstrating the difficulty of achieving true “fusion” in practice. 

This history shows that despite the efforts of a strong state that seeks to exercise central control, MCF is hardly a fait accompli. Achieving more extensive coordination and integration between the defense industrial base and private and commercial enterprises will take time and require trial and error. While its scope and sweeping ambition are certainly noteworthy, MCF remains in its early stages, such that the prospects for ultimate success remain uncertain. 

Second, MCF is not uniquely Chinese, nor a distinctive competitive advantage for China at this stage. As Foreign Ministry Spokesperson Hua Chunying has pointed out, “promoting the development of military-civilian is a common practice in the international community, including the United States.” While MCF as a strategy is uniquely expansive and ambitious in China today, there are distinct parallels in aspects of the relationship between American companies, universities, and the government. In fact, American approaches to using commercial technologies have been closely studied in China as models for its own MCF efforts. America should not aspire to emulate “the China model”—and especially, should avoid poor policy choices informed by inaccurate impressions of PRC policies.  

Third, MCF is not explicitly required by law for Chinese companies. Several American politicians and policymakers, including former Secretary of State Pompeo, have claimed that Beijing has imposed a legal obligation on Chinese companies to participate in MCF. This is misleading, beginning from the narrowest sense that China’s party-state needs no law to compel a company to turn over technology. Legislation to promote MCF is in the works, but progress has been slow so far. Moreover, such forced tech transfer would not create the type of integrated ecosystem that China’s leaders seek. Instead, MCF appears to turn more on incentives than coercion. 

Fourth, MCF does not actively involve nearly every Chinese enterprise at this stage. Only a limited (but gradually growing) proportion of China’s high-tech enterprises are actively or openly engaged in supporting the military. The success or failure of MCF will turn on Beijing’s ability to entice Chinese company participation. Those who would seek “decoupling” entirely or indiscriminately should recognize such a response is likely to make Beijing’s task easier. 

There are feasible avenues by which to continue research collaborations between American and Chinese counterparts that are mutually beneficial and necessary, such as in combating COVID-19. There is a case to be made that the benefits outweigh the risks, given how much the United States has gained and continues to benefit from a highly integrated, globalized innovation ecosystem. 

Ultimately, American policymakers must also recognize that MCF is a competitive challenge, but not a major concern as a policy issue per se. U.S. critiques about MCF are unlikely to change the fundamentals of the strategy and will only engender complaints of hypocrisy in return from Beijing.

Of course, MCF is intended to blur boundaries and increase the connectivity of defense and commercial developments and applications in China. These issues merit continued analytic attention as this agenda continues to evolve and progress in the years to come, highlighting the importance of robust investments in leveraging open-source intelligence, such as through analytic exchanges that include information-sharing, including with allies and partners.

Next Steps 

A more targeted, effective response to MCF is feasible. American countermeasures should aim to curb behaviors that are illicit, illegal, or problematic — e.g., I.P. theft and tech-transfer tactics — rather than overly fixating upon the strategy itself. Useful measures could include better research security and integrity, improved cybersecurity at companies in critical industries, and reasonable prosecutions to hold bad actors accountable. 

Beyond that, the Biden administration ought to consider the incentives of Chinese companies. Their motives are, in some respects, not too dissimilar from those of their American counterparts in terms of seeking profit in a competitive ecosystem.

While commercial motivations can lead companies to collaborate with the PLA or contribute to building the Party-state’s surveillance capabilities, such influences can also lead them to distance themselves from the Chinese government to the best of their ability. Indeed, whatever financial enticements the Chinese government may dangle in front of them to participate in MCF can pale compared to those available from opportunities within global markets.

This suggests the Biden administration could attempt to drive a wedge between Beijing and the technology companies upon which its Party-state depends. U.S. efforts to do so would require demonstrating to Chinese companies that doors to global markets will be more open to those that avoid involvement in MCF. Rather than treating all Chinese companies as possible accomplices to MCF, the administration can develop a more calibrated, differentiated approach. 

The U.S. government can become a source of considerable business risk for companies that contravene U.S. interests. Adding a foreign company to one of the several blacklists can make shares plummet overnight and factory operations screech to a halt. These include the Entity List (which bans U.S. suppliers from selling to the company), the Specially Designated Nationals and Blocked Persons List (which blocks financial transactions, or the new “Chinese Military Companies” List (which bars the trading of publicly traded securities). However, these tactics have their limits, beginning with the intensive efforts required to monitor data and intelligence on an ongoing basis, continue to update the lists, and impose the bans or sanctions in practice. Even with dedicated efforts and capacity building, that means usually playing catch-up. 

U.S. policies should also be aiming to shift the burden of proof onto Chinese companies looking to enter the U.S. market. That starts with more explicit definitions of unacceptable behaviors and their potential consequences — clear enough so that Chinese companies can make choices with reasonable certainty about the rewards and penalties.

The potential damages to reputation and commercial consequences can have notable impacts if there is viable recourse to avoid those adverse impacts. For this reason, many Chinese companies and investors have been quick to deny or dissociate themselves from military research, surveillance in Xinjiang, or other activities that could turn them into pariahs on the world stage. Although such denials aren’t always credible, these cases demonstrate the incentives and concerns for international opportunities that lead PRC companies to seek acceptance. 

U.S. policymakers might also think about rewarding Chinese companies that have transparent governance and ownership structures, a publicly accountable board of directors, and a track-record of eschewing internal party-building initiatives. Such firms could qualify for a fast-lane to invest in the United States or acquire an end-user license. By contrast, companies with “red flags,” like an internal CCP Party Secretary, evidence of participation in MCF, or complicity in human rights abuses would warrant more due diligence and closer scrutiny. 

This approach could incentivize Chinese companies to sever existing ties to MCF and distance themselves from Beijing to the extent possible. The U.S. government has more leverage than it realizes. Tools like robust auditing and required disclosure to do business in the United States, such as through new measures for “beneficial ownership,” as introduced through the latest National Defense Authorization Act, also have the potential to promote a viable alternative to more unrealistic, maximalist notions of so-called “decoupling.” With its well-to-do consumers—and capability to shape norms and policies in other major markets—the United States can be appealing and offer commercial opportunities for Chinese companies that can do business here and are seeking to expand internationally. 

MCF will remain important for the American national security community to understand, especially using open-source intelligence. However, U.S. competitive strategies on China would be ill-served by “tough” or “hawkish” approaches that are too careless of the collateral or consequences. A smarter strategy is possible on many fronts, and the Biden administration should explore sharper and more creative approaches. 

Elsa Kania is an Adjunct Senior Fellow with the Technology and National Security Program at the Center for a New American Security. She is also a Ph.D. candidate in Harvard University’s Department of Government. Her views are her own. 

Lorand Laskai is a J.D. candidate at Yale Law School and a visiting researcher at Georgetown’s Center for Security and Emerging Technology. He recently co-edited “Measure Twice, Cut Once,” a series of reports on the prospect of U.S.-China decoupling for the Johns Hopkins University Applied Physics Laboratory.