Military-Civil Fusion: Beijing’s “Guns AND Butter” Strategy to Become a Technological Superpower

Note: This article leverages previous research and analysis on China’s military-civil fusion strategy by Pointe Bello, a strategic intelligence and advisory firm specializing in China.

Introduction

A great gamble is underway in China, as the Chinese Communist Party (CCP) attempts to introduce new concepts that challenge traditional notions of centralized economic and defense planning. A key pillar of this effort is “military-civil fusion” (军民融合, jun-min ronghe), or MCF—a national strategy that has quickly become a guiding force behind not only local government economic planning but also the strategies of Chinese corporations. MCF is influencing investment decisions, talent recruitment, and research and development (R&D) across multiple fields of dual-use technology sectors, to include artificial intelligence, advanced materials, and aviation.

To date, most coverage of MCF has focused on the military aspects of the strategy in enabling the People’s Liberation Army (PLA) to field more high-tech weaponry and systems for future combat. This is no doubt important; however, it misses the grander strategic thrust behind the initiative, which when revealed yields deeper insight into how Chinese leaders are positioning the country to compete militarily and economically in an emerging technological revolution. According to Jiang Luming (姜鲁鸣) of the PLA National Defense University, the MCF concept provides a long-term “law of development” for synchronizing China’s economic and national defense building efforts. It involves the “comprehensive planning of the two major systems of military and civilian resources, brings about a compatible economic and technical foundation for [resource] sharing, transforms limited social resources into bidirectional and interactive combat power and production power, and achieves multiple types of production from a single investment” (PLA Daily, June 2, 2016).

This description captures MCF’s importance as a means of managing resource allocation to most effectively translate economic scale into military might. Said differently, it represents an innovative, though still unproven, effort to turn the classic macroeconomic “guns versus butter” model on its head. This is especially critical as the leaders of the People’s Republic of China (PRC) seek to navigate the economy through the “middle-income trap,” while also revamping the country’s defense science, technology, and industrial (DSTI) system to create systematized capabilities for potential future conflicts. [1] While this strategy makes perfectly clear that Beijing has no intention of matching Washington dollar for dollar on defense, it will likely make it more difficult to properly assess the full scope of China’s military programs and posture.

The notion of “bi-directional and interactive” combat and production power noted by Jiang is generated from investments in dual-use technology sectors including aerospace, advanced equipment manufacturing, artificial intelligence, and alternative sources of energy. It also involves greater integration of military and civilian administration at all levels of government: in national defense mobilization, airspace management and civil air defense, reserve and militia forces, and border and coastal defense. In June 2017, CCP General Secretary Xi Jinping also called for boosting MCF across dual-use infrastructure, national defense-related science and technology, weapons and equipment procurement, and talent cultivation, as well as implementing MCF in the outer space, cyberspace, biology, new energy, and maritime domains (Xinhua, June 21, 2017).

A growing body of research regarding the historical evolution and policy orientation of MCF is creating greater awareness of the issue. [2] Despite this, MCF is not well-understood outside China; furthermore, it is a concept undergoing steady change and evolution. As a result, the advancement of the MCF concept in Chinese industry warrants greater attention from U.S. policymakers, military officials, and businesspeople alike.

The Implementation of MCF Is Progressing Rapidly

MCF appears to be entering a new phase of development, as expanded policies and doctrines clarifying roles, responsibilities, and priorities are proliferating across China’s vast bureaucratic system. The formation in 2017 of the CCP Central Military-Civil Fusion Development Committee (中央军民融合发展委员会, Zhongyang Jun-Min Ronghe Fazhan Weiyuanhui), or CMCFDC, has greatly accelerated MCF implementation at the local-level (Xinhua, January 23, 2017). Headed by CCP General Secretary Xi Jinping, the CMCFDC acts as the highest level “decision-making and coordination mechanism” for MCF development, and it is leveraging the Party’s authority to break down institutional barriers across the government, military, and industry that have hindered MCF implementation. [3]

Since its first plenary meeting in June 2017, the CMCFDC has promulgated at least 11 policies defining near-term MCF priorities. These include requiring the formation of local-level MCF work committees to oversee implementation and promulgation of a document detailing MCF strategic doctrine. [4] These measures appear to be correlated with an uptick of MCF-related initiatives at all levels of the PRC party-state bureaucracy. Notable milestones include:

• In the last 24 months, most provincial and local governments—including examples available from Zhejiang, Guizhou, and Hunan—have announced MCF industrial development plans. [5]
• At least 36 national-level MCF industrial zones—many of which are home to foreign companies—have been designated across China to support interactions between companies, research institutes, civil government agencies, and military organizations. As seen in the example of the Zhongguancun Science Park in Beijing, information exchange platforms within these industrial zones link military science and technology requirements with the work of both state-owned and nominally-private technology companies (Zhongguancun Science Park, January 8).
• Central and local government agencies have unveiled tens of billions of dollars in investment funds—such as the $4.8 billion Central Military-Civil Fusion Fund (国华军民融合发展基金, Guohua Jun-Min Ronghe Fazhan Jijin)—dedicated to supporting MCF industrial development (Asia Corporate News Network, September 7, 2016).

Military-Civil Fusion in Action: The Commercial Activities of the Kuang-Chi Group

Understanding the growing role of PRC corporations, universities, investment vehicles, and research organizations in advancing MCF initiatives—especially when it comes to PRC defense mobilization—is critical to monitoring MCF progress, identifying potential national security risks in the commercial domain, and crafting meaningful policy responses. One case that illuminates MCF in action is the Shenzhen-based Kuang-Chi Group (光启集团, Guangqi Jituan). Founded in 2010 on metamaterials research (which has stealth applications) diverted from a Duke University research lab by its founder Liu Ruopeng [刘若鹏], Kuang-Chi presents itself as a multi-billion dollar “global innovation company” leading disruptive research on new materials, near space, and engine technology. [6]

Kuang-Chi is often referred to in Chinese media as a “military-civil fusion enterprise” (军民融合企业, jun-min ronghe qiye) (Sina Finance, December 29, 2017). The company is spearheading the establishment of a “military-civil fusion innovation center” in the Xiong’an New District (Baoding, Hebei Province), and its products are used in PLA warplanes, naval systems, missiles, and anti-stealth radar systems. [7] In fact, the company recently won a military contract to apply its metamaterials products on Chinese warships to enhance stealth capabilities (Yicai Global, January 15). ) Kuang-Chi also collaborates with defense and public security stakeholders, including China Unicom, China Telecom, and the Hunan Space Bureau (068 Base)—a center for R&D and production of near space reconnaissance platforms—to develop technologies and products for government public security customers (Hong Kong Exchange News, December 27, 2017; Hong Kong Exchange News, September 20, 2017; East Money, February 28, 2015).

In addition to its stated research activities, Kuang-Chi is a significant investor in foreign technology companies. Kuang-Chi operates two $250 million venture capital funds, which are collectively called the “Global Community of Innovation” (GCI) fund. The first fund (GCI Fund I) invests in emerging technology companies operating in the fields of robotics, aviation, virtual reality/augmented reality, telecommunications, internet of things, and digital health (South China Morning Post, October 31, 2016). The second fund (GCI Fund II) was announced in January 2017 and is focused on investing in Israeli tech startups (Reuters, January 12, 2017).

Kuang-Chi’s $600 million investment in Singapore-based Hyalroute Communications Group hints at potential collaboration between Kuang-Chi and Chinese military planners. [8] Through subsidiaries, HyalRoute builds, operates, and owns a vast fiber optic communications network across Southeast Asia, including in Myanmar and Cambodia. [9] The company has described its network layout in the region as “in line” with Beijing’s “One Belt, One Road” strategy. In April 2017, China’s “Belt and Road Fund” selected HyalRoute as part of its first major round of investment projects because the company “is an important node in the ’One Belt, One Road’ strategy in Southeast Asia” (Zhitong Caijing, April 9, 2017).

In March 2016, the Cambodian government granted HyalRoute a 25-year concession to build, own, and operate a landing station in Sihanoukville and underwater fiber optic cables connecting Cambodia to the AAE-1 Cable, a consortium-led high-speed submarine cable connecting Southeast Asia to Europe via Africa (Phnom Penh Post, March 3, 2016). [10] The landing station and HyalRoutes subterranean fiber optic networks appear to lie within or adjacent to the Ream naval base. [11] This is a significant fact in light of recent reports of a secret agreement between Beijing and Phnom Penh to allow PLA forces to use the Ream naval base in Sihanoukville (China Brief, August 14).

Kuang-Chi’s ties to PRC military and government stakeholders, its description in Chinese media as a “military-civil fusion enterprise,” and HyalRoute’s claims to be advancing Chinese government strategies, all point to the Kuang-Chi Group as a prime example of MCF in action. The company’s business activities in Southeast Asia appear to be aimed at both commercial and strategic state goals, and therefore warrant further consideration.

Conclusion

Beijing’s focus on dual-use capabilities undermines traditional Western notions of separate spheres of commercial, academic, and military activity. The collaboration between PRC corporations, research institutes connected to military or government stakeholders, and foreign companies or universities creates technology transfer risks that “enhance the vitality of China’s national defense science and technology innovation” (PLA Daily, June 2 2016). Furthermore, Chinese corporations are not solely economic actors. Clear indications exist that PRC corporations are coordinating some commercial activities in tandem with military planners—especially in relation to dual-use infrastructure connected to defense mobilization and staging. Kuang-Chi Group is but one example that helps to contextualize the role that Chinese companies can play in advancing national-level policy initiatives set by the CCP.

Though impediments remain to the full implementation of military-civil fusion, grand Chinese initiatives often start slowly, gaining momentum and adoption over time. Time is a necessary ingredient for successful cases to emerge and become models for replication. As MCF enters its next phase of development, additional financial resources will be allocated to support construction of dual-use technology zones and projects. PRC defense manufacturers are expected to expand into new markets promoting China’s nuclear power technology, aerospace, and shipbuilding capabilities. Finally, as PRC companies adopt MCF into their corporate strategies, their activities may help to signal Beijing’s strategic intent as it gears up for geopolitical competition with the West. The future evolution and implementation of the MCF concept are matters worthy of sustained attention and further research.

Greg Levesque is the CEO and co-founder of Strider, a technology company delivering tools that help enterprises enhance their long-term competitiveness, including the ability to combat economic espionage threats. He has advised governments and corporations on matters of economic statecraft, and is a regular contributor to publications on China’s strategic initiatives.

Notes

[1] For additional information on the role of military-civil fusion within China’s broader innovation policy see: Greg Levesque, “Testimony before the U.S.-China Economic and Security Review Commission Hearing on What Keeps Xi Up at Night: Beijing’s Internal and External Challenges,” February 7, 2019 at https://www.uscc.gov/sites/default/files/Levesque_USCC%20Testimony_Final_0.pdf.

[2] For helpful and authoritative assessments on military-civil fusion’s evolution and elevation under General Secretary Xi Jinping see: Marcel Angliviel de la Beaumelle, Benjamin Spevack, Devin Thorne, “Open Arms: Evaluating Global Exposure to China’s Defense-Industrial Base,” C4ADS, September 25, 2019, https://static1.squarespace.com/static/566ef8b4d8af107232d5358a/t/5d8e412039dbfd5d18242d63/1569603954898/Open+Arms; and Elsa Kania, “In Military-Civil Fusion, China is Learning Lessons from the United States and Starting to Innovate,” Strategy Bridge, August 27, 2019, https://thestrategybridge.org/the-bridge/2019/8/27/in-military-civil-fusion-china-is-learning-lessons-from-the-united-states-and-starting-to-innovate.

[3] “The Central Committee Political Bureau Holds a Meeting” [中共中央政治局召开会议], Xinhua, January 22, 2017 at https://www.xinhuanet.com//politics/2017-01/22/c_1120363831.htm. In December 2017, Long Hongshan, chief engineer at the State Administration of Science, Technology, and Industry for National Defense (SASTIND), outlined four main impediments to MCF implementation. Dubbed the “Four Insufficients,” these include: 1) Insufficient top-level coordination; 2) Insufficient opening; 3) Insufficient sharing; and 4) Insufficient transformation. See: “SASTIND Holds Press Conference on the Situation of Military-Civil Fusion in the National Defense Science and Technology Industry” [国防科工局举行国防科技工业军民融合发展情况发布会], State Council Information Office website, December 6, 2017, https://www.scio.gov.cn/xwfbh/gbwxwfbh/xwfbh/hfkgw/Document/1612885/1612885.htm.

[4] Policies include the Strategic Doctrine of Military Civil Fusion Development [军民融合发展战略纲要] and the Law for Managing National Defense Requirements and Joining Programs in Economic Buildup and National Defense—Trial Version [经济建设与国防建设密切相关的建设项目贯彻国防要求管理办法-试行].

[5] “Zhejiang Province Military-Civil Fusion Industry 13th Five-Year Plan Plan” [浙江省军民融合产业“十三五” 规划], Zhejiang Provincial Government website (undated), at https://www.zjjxw.gov.cn/module/download/downfile.jsp?classid=0&filename=80a04fdc0dbd4ab18c32f1e623e53857.pdf;  “Guizhou Province Military-Civil Fusion Industry 13th Five-Year Plan” [贵州省军民融合产业发展“十三五”规划], Guizhou Provincial Government website, May 4, 2018; www.guizhou.gov.cn/zsyz/cyfzzy/201805/t20180515_1120149.html; and “Hunan 13th Five Year Plan for Deepening National Defense Science and Technology Industry Development” [湖南国防科技工业军民融合深度发展“十三五”规划], Yongzhou City Information and Industry Technology Department, July 20, 2019,  jxw.yzcity.gov.cn/jxw/0304/201707/a4eceee6ce0d4bae8e523d3b5089cc33.shtml.

[6] For additional information on Liu Ruopeng and his role in diverting metamaterials research from Duke University see: “FBI Counterintelligence Note: Chinese Talent Programs,” Florida International University website, September 2015 at https://compliance.fiu.edu/documents/SPIN%20-%20Chinese%20Talent%20Program.pdf.

[7] See: “Xiong’an New Area Industrial Development Strategy Begins to Emerge, Attracts Shenzhen Kuang-Chi to Promote Military-Civil Fusion” [雄安新区产业规划战略浮现 引入深圳光启力推军民融合], China Economic Net website, September 21, 2017, https://finance.ce.cn/rolling/201709/21/t20170921_26154366.shtml; and “CASIC Aerostat Industrialization Project Settles in Yueyang Economic and Technology Development Zone” [航天科工浮空器产业化项目落户岳阳经济技术开发区], SASAC website, March 27, 2015 at https://www.sasac.gov.cn/n2588025/n2588124/c3793585/content.html.

[8] It is likely that Kuang-Chi acquired a controlling interest in HyalRoute. References to HyalRoute as being “Shenzhen-based”, a “Chinese firm”, and “Kuang-Chi HyalRoute” in Chinese media, as well as the fact that Kuang-Chi executive Li Tao serves as Co-CEO and Director support this assessment. See: Jeremy Page, Gordon Lubold, and Rob Taylor, “Deal for Naval Outpost in Cambodia Furthers China’s Quest for Military Network,” The Wall Street Journal, July 22, 2019, https://www.wsj.com/articles/secret-deal-for-chinese-naval-outpost-in-cambodia-raises-u-s-fears-of-beijings-ambitions-11563732482; and “KuangChi Science Announces Singapore-Based Innovation HQ”, PR Newswire, May 31, 2016 at  https://www.prnewswire.com/news-releases/kuangchi-science-announces-singapore-based-innovation-hq-300276731.html.

[9] For more information, visit HyalRoute’s company profile at: https://www.hyalroute.com/aboutus/company-profile/.

[10] For more information on the AAE-1 cable network, see: https://www.submarinenetworks.com/systems/asia-europe-africa/aae-1.

[11] Sketch maps of HyalRoute fiber optic networks in Cambodia are available at https://www.hyalroute.com/cambodia/. The accuracy or timeliness of the maps is unclear.