China is Catching up and Getting Ahead through Military-Civil Fusion
As the strategic competition with China intensifies, China’s Military-Civil Fusion (MCF) strategy has justifiably increased the United States’ concern and anxiety. A renewed effort by President Xi Jinping to bolster China’s defense innovation, MCF aims to integrate civilian innovation with the military-industrial base, working collectively to further the regime’s security interests. Today’s MCF encompasses the Party’s ambitious long-term strategic priority to integrate technological innovation into its national security system. The “whole of nation approach” gave MCF substantial political momentum as Xi repeatedly emphasized the idea in high-profile speeches.
Although it is hard to see behind the veil of the CCP’s programs, I present several observable indicators to assess the innovation-inducing power of the MCF framework. I also highlight the analytical value of China’s civilian-military conversion programs, where civilian technology and assets empower military research and development (R&D). The US policy community should closely track and evaluate cases of effective conversions of civilian technology that created or improved specific PLA systems or capabilities, along with the private companies that participated in weapon R&D for the PLA.
The US government and many observers worry that China’s formidable civilian economy, deeply integrated into the global production chain and technological innovation ecosystem, will soon feed cutting-edge technologies and enormous financial resources into the Chinese defense industrial base. Liza Tobin, former China director at the National Security Council during the previous two administrations, considers the MCF a comprehensive challenge “predicated on obfuscation and values hostile to a free and open society, as well as a range of ‘brute force’ tactics that undermine the fabric of transparent, competitive markets.” Civilian companies with superior artificial intelligence (AI) and communication technology could be required to assist the Chinese military and state security services, transforming their high-tech civilian innovations into weapons systems or repressive tools. In a 2023 testimony before the US-China Economic Security Commission, Elsa Kania, a scholar of Chinese military and technological innovation, argued that the ultimate goal of MCF is to diminish US military technological advantage. Indeed, the People’s Liberation Army’s (PLA) ability to derive indigenous technological innovation from the civilian economy means that US export control that aims at preventing China from acquiring advanced technology from abroad will become increasingly ineffective. Specifically, MCF has produced promising results in certain dual-use areas such as unmanned aerial vehicles (UAVs), semiconductors, and robotics. While still a developing initiative, introducing private enterprises into the defense industry has already helped the PLA reduce its reliance on foreign technology.
Assessing Civil-Military Conversion: Dos and Don’ts
To fully leverage the innovative promise of MCF, the Chinese defense industry must promote and sustain civil-military conversion (民参军) programs. The goal of the civil-military conversion is aligned with the broad MCF objective—"to build an advanced national defense industrial system with Chinese characteristics.” In 2017, the State Council published an opinion envisioning “break[ing] down of military and civilian boundary [in military research and production]” and encouraging “civilian units to compete in weapons and equipment R&D production.” The deliverables of these programs are advanced and innovative military technologies built from seamlessly fusing the innovative capacity of the civilian sector with military demands. If fully successful, MCF could allow the PLA to acquire innovative military technologies that the traditional state-run institutions, including the state-owned enterprises (SOEs), could not deliver.
To track Chinese MCF, the United States’ focus should extend beyond the macro-level policy and funding programs. This is because the MCF strategy must incorporate and leverage the civilian sector’s proprietary R&D, access to foreign technology, and market capital to equip the PLA with cutting-edge weapon technology. From this perspective, some of the indicators commonly used by observers may not always track the actual impact of MCF on PLA innovation.
Don’t over-interpret superficial PLA ties
For example, just because a non-PLA affiliated company receives investment from the National Military-Civil Fusion Industry Investment Fund does not automatically make the company a meaningful case of fusion. Many major defense-focused SOEs are investees because they participate in the military-civil conversion (军转民) programs, the opposite process that uses military technology to enhance the Chinese civilian economy. Additionally, there is a significant difference between allowing private firms to participate in the PLA weapons programs as producers and as researchers. The official political documents on MCF, like the 2016 Outline of The National Innovation-Driven Development Strategy, almost always bundles R&D and production (科研生产) as one phrase. This means that official MCF reports may count civilian participation in producing and manufacturing parts for the PLA as MCF programs without having them contribute to any military innovative R&D programs.
This distinction between being manufacturer and being an R&D contributor for the PLA is prominent when evaluating the success of civil-military conversion programs. There is a significant difference between private entities certified as manufacturers for PLA equipment and the number of private companies certified as classified work units that could participate in R&D. As Prof. Tai Ming Cheung and others have found, as of 2018, at least 1800 civilian companies have entered the defense industry and hundreds more have secured the “Equipment Manufacturing Unit Qualification Certificate (装备承制单位资格认证). In reality, only about 50 were given the highest level 1 classified work unit certification to work with sensitive PLA weapon data. Considering that qualified Chinese private companies frequently advertise their classified work unit status and their certification as PLA contractors to attract investors, there is little reason to suspect that the Chinese companies would hide their R&D qualifications for the PLA if they had them. This suggests that the vast majority of MCF companies are merely producers or manufacturers, rather than serious R&D entities for the PLA. Counting the manufacturers with minimal certification to work with the PLA’s R&D enterprise as evidence of MCF progress would misinform the degree of MCF impact on Chinese military technological innovation. Using MCF funding structure and contracting information alone without considering the substance of the non-state entity’s contribution would likely be inaccurate.
Focus on the substance of non-state enterprises’ R&D contribution
Instead, a better way of tracking China’s success with civil-military conversion is by paying attention to what and how they are contributing to the PLA’s R&D process. Truly successful cases of conversion should not only provide insight into how civilian technological advantages fed into the PLA weapons innovation, but also how much influence the private enterprises have over the R&D process. That is, did they build a component of a weapon system (配套) or did they design and produce the entire system (整机)?
For instance, the PLA has acquired diesel engines and seawater desalination units from private firms for its operations. SOEs presumably also offer similar products, but private companies were contracted instead. While official Chinese reports list such contracts as cases of MCF, there is no technological conversion that enhances military systems through civilian or commercial technologies. These are akin to off-the-shelf acquisitions for routine uses that do not involve the innovation-inducing features of MCF.
In contrast, the PLA has also contracted and purchased a proprietary product for one of its weapon systems in service. One of the first cases of PLA weapon R&D program carried out exclusively by a non-state enterprise was an informatized command system that was integrated with a man-portable air-defense missile platform. The company, Tianhe Defense Technology, specialized in anti-air platforms and became a successful R&D contractor for field command and portable anti-air radar systems. Tianhe’s success showcased how the PLA could tap into the civilian economy for weapons R&D that its SOEs could not or chose not to produce. Instead of buying foreign products or sticking with the SOEs, the PLA allowed Tianhe to have control over the R&D process and indirectly compete with the SOEs that had a similar specialty. Paying detailed attention to cases like Tianhe is, therefore, a better way of assessing the future development of MCF, as they directly capture the conversion of civilian sector innovation into PLA weapon systems. It is not just the affiliation or supply contract that makes a non-state entity involved in MCF. Substantive and proprietary contribution to military technological R&D are the real sources of MCF’s innovation power.
Look at areas with greater civil-military conversion viability
As China continues to invest in its MCF economy, certain technological areas are more likely to see successful civil-military conversion programs. These tend to be emerging or dual-use areas where the civilian economy may have something more advanced to offer the PLA . Some key MCF areas have already been identified by key MCF documents, such as cyberspace, information technology, space and telemetry, nuclear energy, and ocean exploration. Furthermore, software-intensive areas are often fertile ground for civil-military conversion, in part because most advancements in these areas tend to emerge from civilian use. This means that the PLA must turn to MCF channels to acquire the latest applications of artificial intelligence and other software services for its military R&D programs. According to PLA Senior Colonel Tan Yungang, who served as the deputy chief military representative (equivalent to a senior acquisition officer responsible for a program of record in the United States) at the Aviation Industry Corporation of China (AVIC), 85% of the civilian companies as of late 2018 that have achieved at least one certification to participate in MCF were in the IT, computing, and other software-intensive services. This suggests that these software-intensive areas are where civil-military conversion is the most likely to make a difference for the PLA’s R&D progress and therefore deserve careful U.S. analytical attention.
Future Assessments
As the United States continues to observe MCF and implement export control against known civilian entities with PLA ties, researchers should focus on the civil-military conversation programs and closely monitor whether substantive civil-military conversion has taken place. Key metrics to track in the coming years will be whether China’s private companies move away from dual civilian-military use products towards a more exclusively military R&D priority. Furthermore, analysts should watch and see if firms that prioritize PLA military technologies without a commercial equivalent thrive or struggle to survive. A key question in all of China’s aspirational MCF projects is this: how long will the Chinese government and the Party leadership trust these private companies with sensitive military data and allow them to share the market (and therefore the profits) with SOE monoliths, especially as the economy stagnates?
Finally, US analysts should pay attention to how the Chinese government eliminates obstacles and shortcomings in civil-military conversion processes. Currently, many PLA observers note that the MCF is far from achieving its designed goals, with many aspects remaining premature. For instance, only a small fraction of Chinese civilian companies are equipped to participate in MCF, and those that are keen on participating may have trouble operating in SOE monopolies (e.g. the missile and rocket industry). While these institutional challenges may be difficult to solve soon, the Chinese government will try to ameliorate the impact of these obstacles through policies supporting non-state enterprises and aggressive regulatory reforms. Future assessment of MCF must also include such reformative efforts that allow the innovation-inducing aspects of MCF to thrive in a traditionally state-dominated R&D environment.
Dr. Elliot Ji is a Non-resident Fellow at the Institute for Future Conflict and Research Fellow for PRC Technological Innovation at the Institute for National Strategic Studies, National Defense University. The views expressed in this article are those of the author that do not necessarily reflect the policy or position of the National Defense University, Department of the Air Force, the Department of War, or the United States Government.