June 22, 2020 | The American Interest

How to Beat China’s Military-Civil Fusion

China’s strategy relies on poaching foreign technology. Ours should be geared toward stopping them.
June 22, 2020 | The American Interest

How to Beat China’s Military-Civil Fusion

China’s strategy relies on poaching foreign technology. Ours should be geared toward stopping them.

In September 2018, 27-year-old Ji Chaoqun—a graduate of the Illinois Institute of Technology and a soldier in the U.S. Army Reserves—was arrested for operating as a Chinese intelligence agent for Beijing. In February 2019, Chinese student Zhao Qianli pled guilty to photographing restricted U.S. defense installations. In January 2020, the Department of Justice charged the chair of Harvard’s chemistry department, Charles Lieber, with hiding the hundreds of thousands of dollars that the Chinese government had paid him since 2008—at the same time as he ran a Department of Defense-funded lab in Cambridge. Two of Dr. Lieber’s graduate students were also charged. The first, Yanqing Ye, had already returned to China. The second, Zaosong Zheng, was arrested at Boston’s Logan Airport while attempting to catch a flight back to China. His luggage was full of contraband research materials.

China’s infiltration of U.S. research facilities is both rampant and deliberate. It is directed by Beijing’s military-civil fusion (MCF) apparatus, which exploits the American, and western, tendency to separate cooperation from competition and to assume boundaries between the government and private domains. Beijing weaponizes its private sector’s integration into global free markets and civil society.

This parasitic strategy hinges on sustained access to foreign technology. The strategy fails if the PLA loses access because developed economies implement what Beijing calls a “high-tech blockade.” But the Chinese Communist Party (CCP) is gambling that the U.S. has neither the skill nor the resolve to do so.

The White House may just now be beginning to call Beijing’s bluff. On May 29, the Trump administration issued a proclamation aimed at restricting the ability of Chinese students with People’s Liberation Army (PLA) affiliation from conducting sensitive research in the United States. The proclamation follows the release of a new strategic approach to U.S.-China relations, one that “recognizes the long-term strategic competition between our two systems.”

But these cannot be considered anything more than initial steps. To be effective, a high-tech blockade will need to account for the nuance and scope of China’s MCF strategy, in the U.S. and globally. The United States will have to redefine the range of industries that it protects and the mechanisms of influence from which it protects them. And the U.S. will have to pair the defensive approach of a high-tech blockade with proactive efforts that target China’s own, ample, vulnerabilities.

Military-Civil Fusion as Chinese Competitive Strategy

The CCP has spent more than twenty years refining a strategic concept of “military-civilian fusion with Chinese characteristics.” As Ma Qing Feng of Hunan University defines MCF, it means “the military is for civilian use, the civilian is military, and the military and civilian are fused.” MCF does not simply seek to transfer civilian technology to the military or to leverage defense production for larger economic benefit. Rather, MCF eliminates distinctions between war and peace, cooperation and competition, commerce and conflict. Military and economic resources, mechanisms, and domains fuse in pursuit of a single, competitive purpose: amplifying China’s global power.

MCF’s roots date back to Mao Zedong. Mao saw no distinction between wartime and peacetime. He marshaled China’s national resources to fuel the military industrial system. Chinese analyses call this “military-civil combination.” In the 1980s and 1990s, Beijing began to rethink military-civil combination with a less military focus. Beijing calculated that advances in technology and in globalization gave the civilian and commercial domains new significance—as drivers of economic development, sources of security-relevant technologies, and arenas in which to exert coercive power.

MCF was the result. It updated military-civil combination for an internet era by manipulating China’s integration into globalized, civilian supply chains, markets, and research and development (R&D) systems for strategic ends.

In 1999, Hu Jintao formally declared MCF a strategic concept. In 2015, Xi Jinping elevated MCF to national-level strategy. It became the guiding principle for Chinese state science and technology (S&T) investment. Beijing also built a corresponding institutional apparatus. The Ministry of Industry and Information Technology and its subordinate State Administration for Science, Technology, and Industry for National Defense oversee the implementation of MCF. They assign MCF mandates and funding to research institutions, pools of capital, companies, S&T projects, industry zones, and human capital programs.

Beijing deploys its MCF instruments and actors to obtain dual-use technology from abroad. Beijing also deploys them and their standards to shape international civilian and military systems. For example, MCF-focused venture capital funds invest in companies that are integrated into the U.S. Department of Defense supply chain and innovation efforts. MCF companies invest in critical raw resources, whether rare earths or cobalt, to govern global supply and supply chains. Beijing also exports its MCF players to build port logistics information systems abroad. These systems award Chinese companies global commercial advantage. They also promise the People’s Liberation Army (PLA) Navy access to maritime intelligence. And China’s MCF information systems may allow China to deny its adversaries their own intelligence.

MCF reflects careful Chinese study of other countries’ public-private partnerships and military-industrial complexes—especially those of the United States and the former Soviet Union. Beijing has drawn inspiration from abroad, but it has not sought to replicate foreign models. Rather, Beijing has learned how to manipulate them to enhance China’s own power.

MCF comprises more than simple industrial policy. It is a competitive strategy. Beijing uses its enduring strengths—an immense, attractive domestic economy, massive pools of low-cost labor, a lax regulatory environment, and market control—to cement advantage over American vulnerabilities. In the process, Beijing also shores up its enduring weaknesses, including a limited capacity for fundamental innovation and unpracticed military apparatus.

MCF is especially well-suited to long-term strategic competition because it is a relatively low-cost, low-risk approach that obscures both its offensive ends and its exploitative nature. Whereas defense expenditures pushed the Soviet system to bankruptcy, MCF offloads China’s costs to its competitors. Its mechanisms, in some cases, operate at a profit. Meanwhile, Beijing cloaks its approach in a narrative that attributes Chinese success to scientific innovation. This narrative cleverly suggests that, to avoid being leapfrogged, the U.S. government must disproportionately invest in expensive basic S&T—which a parasitic Beijing coopts. China thus creates a context in which U.S. efforts fuel America’s top competitor.

The United States won the Cold War by deploying its own strengths against the Soviet Union’s weaknesses. Now, that playbook is being used to unseat the United States. The U.S. is beginning to realize as much—but slowly, reactively, and often without the necessary grasp of China’s strategy.

High-Tech Blockade as a First Step Toward a Competitive Strategy

Both the United States and China treat S&T as the key variable in today’s great power competition. But they disagree over how to win an upper hand in the S&T field. The U.S. focuses on pioneering basic research and fundamental S&T. Beijing prioritizes applied research. Beijing invests to deploy new technology—at pace, with scope and scale, under state control.

Beijing’s strategic approach leverages two perceived novelties of the modern environment. First, global interconnectedness decreases the value of original innovation. Second, the network effects underlying information technology make quantity, or large-scale application, more important than quality. In this environment, America’s innovative capacity loses some of its luster. China’s size advantage assumes new weight.

But—as Beijing acknowledges—MCF and its asymmetric orientation retain one critical vulnerability. China fears a high-tech blockade: restrictions on Beijing’s access to developed nations’ technology. The first signs of such a blockade have emerged in the form of the Trump administration’s proclamation limiting the entry into the U.S. of Chinese researchers associated with the PLA. The proclamation specifically prohibits the entry of researchers tied to the entities associated with the PRC’s military-civil fusion strategy. Finally, the United States is threatening MCF’s Achilles heel.

To be effective, U.S. defenses must account for the nuance and scope of Beijing’s military-civil fusion program. MCF initiatives permeate the entire scientific and technological landscape. Both government and private Chinese investment funds follow explicit MCF investment mandates. So do industrial parks and state subsidies. Beijing’s top scientific and technological universities exist under the state organ charged with implementing MCF.

Furthermore, blocking MCF initiatives that target the U.S. is insufficient, since Beijing deploys its researchers, companies, and capital across the developed world. This array of international connections serves to “hedge,” as Liang Yixin of the Ministry of Industry and Information Technology puts it in International Trade, against the risk of a U.S. high-tech blockade.

For a high-tech blockade to succeed and resonate with Beijing, it will have to account for Beijing’s pervasive presence. It will have to take a wide lens and use rigorous, empirical monitoring to document and track Beijing’s MCF apparatus. It will also have to be deployed in conjunction with American allies and partners—that is, with the other developed economies that Beijing ropes into its MCF offensive. Recent attempts to restrict China’s access to U.S. technology, such as foreign investment review and export restriction reforms, are admirable. But they have left gaps that permit Beijing’s system to continue to operate as it desires.

Efforts to revamp the Committee on Foreign Investment in the United States (CFIUS) process, which screens foreign investments in the U.S., should expand the scope of covered transactions to match the breadth of Beijing’s priority areas and the mechanisms that MCF deploys. Congress passed a CFIUS reform bill, the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA), primarily to address gaps in the process that China’s approach exploits. FIRRMA implementation hinges on the phrase “emerging, foundational, or other critical technology.” In defining that term, the Commerce Department should borrow from China’s own framing. For example, it should include the entire expanse of automotive technology—a field that Beijing targets for both its security and economic relevance—ranging from carbon ceramic brakes to LiDAR sensors to route-planning algorithms.

The Treasury Department should in turn use this expanded definition to move its investment review operation ahead of the threat. Rather than reacting to isolated cases as, or if, they come up, the interagency lead of CFIUS should monitor early indicators of Beijing’s priorities and educate U.S. firms about the risks of doing business with Chinese actors who target dual-use technologies, infrastructure, and data. The Department of Defense should budget for drastically more “non-notified reviews” than the 150 they currently plan for per year. And the CFIUS process’s covered transaction mandate should be expanded to include capital, which China weaponizes. MCF-focused funds-of-funds, private equity, and venture capital vehicles invest as limited partners in U.S. and overseas asset allocators in order to establish indirect access to operating companies, the innovators who run them, and the information that undergirds their intellectual property. Such activity is not expressly monitored by investment review.

National security reviews of foreign investment comprise just one part of the puzzle. The scope of export control measures should be similarly expanded to protect a wider range of industries and defend against new threat vectors. The Department of Education should require absolute transparency on foreign sources of research funding at U.S. research institutes. The Department of Defense and intelligence community should revamp their Foreign Ownership, Control, or Influence (FOCI) system to demand equivalent transparency. Existing protocols might document foreign ownership, but they do little actually to identify influence. In 1999, Congress required the Secretary of Defense to issue a list of all Chinese military companies as a part of that year’s defense funding bill. The Department of Defense has yet publicly to release such a list—a full 20 years later—which would empower greater transparency about industrial base risks. The Department of Defense should also refresh its threat intelligence inputs for the nature of China’s approach, while applying them across the programming and budget system to more thoroughly vet supply vulnerabilities.

Once it adopts these and similar steps throughout the national security enterprise, Washington can turn to promoting common approaches with allies and partners. Trade deals with the United States should include requirements to establish unified export control and investment review processes. Those processes should be informed by China’s MCF priorities and mechanisms. The Coordinating Committee of the Cold War—and its antecedents—offer inspiration for the necessary alliance approach. But these precedents will have to be updated for the modern technological and economic environment—and China’s engagement with it.

From Reaction to Action: After a High-Tech Blockade 

The U.S. should not stop at a high-tech blockade. This defensive move is a critical first step. But it is just that. To prevail in the long-term, peacetime contest taking shape with China, the United States needs to start acting rather than reacting. U.S. efforts to date—including the recent proclamation concerning Chinese researchers in the U.S. and moves to “decouple” our economies—have been predominantly defensive. Now, Washington needs to identify its own priorities and invest accordingly. It needs to make sure that those priorities are informed by reliable assessments of the competitive environment and the adversary’s strengths and weaknesses. This would put the U.S. on the path to executing a true competitive strategy.

As MCF’s asymmetry reveals, the CCP’s threat optimizes for a long-term, peacetime struggle. The U.S. national security enterprise would do well to recognize as much and adapt its planning accordingly. Secretary of State Mike Pompeo recently pointed this out. “The threat from the Chinese Communist Party emanates from the nature of the Chinese Communist Party doctrine and ideology,” he said. “We’re gonna have to be at this for a while.”

Emily de La Bruyère and Nate Picarsic are senior fellows at the Foundation for Defense of Democracies and co-founders of Horizon Advisory.

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Issues:

China Military and Political Power U.S. Defense Policy and Strategy