Amid growing tensions with the United States over technology and trade, China is elevating civil-military fusion (军民融合) to the center of the country’s cybersecurity and informatization agenda (New America, April 30). “We must grasp the historical opportunity of the current information technology transformation and new transformation of military affairs [and] deeply understand the immanent relationships of productivity and fighting capability, the market and the battlefield,” Xi stated during an important speech at the Cybersecurity and Informatization Work Conference last month. Civil-military fusion (CMF) in cybersecurity and informatization, Xi said, “is a focus area and an area for advancement.” It is also the area within CMF with “the most dynamism and potential.”
After years of false-starts and empty sloganeering, China’s leadership appears to be getting serious about fusing the development of the hi-tech economy and military. The inclusion of CMF in an important speech on ICT work signals that CMF will be central to China’s strategy of building a ‘cyber superpower’(网络强国) in a contested technological landscape. While Xi‘s speech did not directly address U.S. Section 301 trade action against China or the recent ZTE blacklisting, Xi was more direct in the days that followed: In the face of a “foreign blockade,” Xi said, China is ready to “cast aside illusions and rely on itself” (Xinhua, April 26). CMF will be critical to bolstering China’s technological independence, especially with research to ‘core technologies’ (核心技术) like semiconductors, operating systems, and big data analytics—many of which have equally important commercial and military functions.
Building a Lean Defense Industry Base
Even with the added urgency in the aftermath of the ZTE blacklisting (covered elsewhere in this issue), the obstacles to CMF remain the same: China’s sclerotic state-owned defense industrial base and byzantine regulations, which have long kept private enterprises away from defense-related work. At a press conference in December 2017, SASTIND Chief Engineer Long Hongshang (龙红山) summarized the main challenges facing the CMF as the “four insufficients” (四个不够): insufficient top-level planning; insufficient liberalization of military industry base; insufficient sharing of military resources and information; and insufficient ‘spin-off’ of defense technology (Cyber Civil-Mil Fusion Mag, January 31 via Wechat). China’s leadership understands that rectifying these shortcomings and pave the way for greater fusion through long-term reforms that create the legal and regulatory foundation for private sector involvement in the defense industrial base.
In December 2017, the State Council issued the most in-depth and comprehensive opinion to date on reforming the defense industrial base through promoting CMF. The opinion called for further marketization of state-owned defense conglomerates on the principle of ‘survival of the fittest’ (优胜劣汰); establishing quantitative indicators for the openness of state-owned enterprises and participation in defense conversion; revising the restrictive stock shareholder system of state-owned defense conglomerates; and other reforms to ‘lower the bar’ for private enterprises (降低了进入门槛) (JRJ.com, December 5 2017).
In addition, SASTIND and key agencies within the Central Military Commission (CMC) have undertaken incremental reforms like simplifying the permit process for private firms to contract with the military, declassifying defense patents for private sectors use, and opening more contracts for private company participation (Cyber Civil-Mil Fusion Mag, March 18 2018 via Wechat; IISS, January 2018; SCMP, April 20 2017).
The success of these reform will come down to whether new regulation lowers the entry cost for private firms contracting with the PLA and incentivizes defense conglomerates to collaborate with the private sector. In order to simplify regulation already on the books and unify CMF efforts, in February 2018, the CPC, State Council, and CMC issued a rare high-profile edict that empowers the CCMIDC to clean up old law and regulation. State-media hailed the move as ushering in a “springtime” for CMF (军民融合‘春天’) (China Court, February 23).
Local Development with CMF Characteristics
In part through the inclusion of CMF in major state development initiatives, China’s leadership has impressed upon local officials the importance of prioritizing dual-use industries as a means of economic development . Accordingly, a number of provinces and municipalities have heeded the call, integrating CMF into their development plans . Often this has taken the form of ‘cluster development’ (集群发展) that involves promoting collaboration between defense conglomerates, research institutes, and private enterprises that are located in near proximity. Notable examples include:
- Foshan has included CMF as a major component of a proposed “S&T corridor” linking Guangzhou and Shenzhen, China’s premier hub for software and hardware development, and is relying on guidance from experts the Chinese Academy of Science, Chinese Academy of Military Science, and a number of large defense enterprises to establish ten CMF pilot projects in key emerging industries (Southern Daily, September 11 2017).
- Shanghai’s Minhang district has touted itself as an “intelligent cluster” and has jointly established a research institute for CMF applications of AI and robotics in collaboration with the Harbin Institute of Technology (Reference Times, March 21).
- In Xi’an, officials have established a chamber of commerce for CMF enterprises and a dual-use robotics industry alliance in partnership with CASIC’s 16th Research Institute and Xi’an Jiaotong University (Shaanxi Daily, July 25 2017; West Net, July 13 2017).
Several municipalities like Tianjin also have released companion plans to the 13th Five Year Plan and New Generation Artificial Intelligence Development Plan (AIDP). Like the AIDP, which aims to turn China into a global leader in AI by 2025, these companion plans focus on boosting regional competitiveness in specific ‘frontier technologies’ with military applications. That includes efforts to create the R&D infrastructure for the next generation of dual-use technology. Several examples are worth nothing:
- The 2nd Research Institute of China Aerospace Science and Industry Corporation (CASIC) has reportedly developed a deep-learning software for self-driving cars that rivals industry leaders, and is developing dual-use applications in collaboration with commercial firms (China Economy Daily, March 26).
- In March 2018, Tianjin University and the Chinese Academy of Launch Vehicle Technology(CALT) established the “joint-lab for human-machine melding intelligent Innovation” 机混合智能创新联合实验室, which is dedicated to pooling together expertise in neuroscience, artificial intelligence, and aerospace to progressing research on human-machine hybrid research with aerospace applications (China News Service, March 24).
- In December 2017, following the guidance of the CCIMCD office, China’s largest cybersecurity company 360 established the Cybersecurity Civil-Military Fusion Innovation Center 网络空间安全军民融合创新中心 in Mianyang, Sichuan in order to provide solutions to national cyber defense . The center will also collaborate with the National Engineering Laboratory for Big Data Collaborative Security Technology 大数据协同安全技术国家工程实验室 to provide big data security analytics solutions. (China Net Science, March 29).
Funding CMF Development
Helping along these local developments in CMF are a number of state-backed venture funds that have sprung up over the past few years. While much attention has been paid to the main fund behind China’s semiconductor push, the National Integrated Circuit Industry Investment Fund (National IC Fund), several major national and regional CMF funds also command notable sway and are currently driving investment in dual-use industries. The size of the top CMF seven funds, according to publicly available information, is a combined RMB 362 billion ($56.85 billion). The powerful National Development and Reform Commission (NDRC) has also established its own CMF fund, though details about the fund’s size and scale have not been forthcoming (Cyber Civil-Military Fusion Magazine accessed via Wechat, March 21).
|Central Enterprises National Innovation Investment Fund|
|07/01/17||RMB 113.9 billion||National||https://www.most.gov.cn/kjbgz/201705/t20170519_132869.htm|
|Foshan Civil-Military Innovative Industries Fund|
|09/01/17||RMB 200 billion||Foshan, Guangdong||https://www.ce.cn/cysc/ny/gdxw/201709/17/t20170917_26037639.shtml|
|Guohua Civil-Military Fusion Industry Development Fund|
|08/01/16||RMB 30.2 billion [first phase]||Guangzhou, Guangdong||https://www.spacechina.com/n25/n144/n206/n224/c1423620/content.html|
|Shaanxi Civil-Military Fusion Industry Investment Fund|
|12/01/16||RMB 10 billion||Xi’an||https://www.sohu.com/a/193173694_99917590|
|Chengdu Civil-Military Fusion Industries Development Fund|
|04/21/2018||RMB 5 billion||Chengdu, Sichuan||https://e.chengdu.cn/html/2018-04/21/content_622423.htm|
|Mianyang S&T Wall Civil-Military Fusion Results Conversion Fund|
|09/01/16||RMB 2 billion||Mianyang, Sichuan||https://zdb.pedaily.cn/pe/show32219/|
|Military Fusion Electronic and Aerospace Industries Fund|
|12/01/16||RMB 1.5 billion||Xi’an||https://www.sohu.com/a/193173694_99917590|
Like the more prominent National IC Fund, these CMF funds are investing in production facilities, supporting research, and funding overseas mergers and acquisitions in a wide range of dual-use industries like aviation, aerospace, and robotics. At least on paper, some CMF funds, like the Foshan Civil-Military Innovative Industries Fund, are nearly as well capitalized or better capitalized than the National IC Fund. While analysts should not read too much into the stated capitalization—how that capital will be deployed will be more important to watch—it’s clear that the CMF is on its way to become a nationwide effort comparable to China’s semiconductor push.
A New Strategy for a New Tech Cold War?
As has become abundantly clear, Xi has a muscular vision of “self-reliance” in digital and emerging technologies that involves turning inward to harness internal capacity for innovation and production for objectives like turning the PLA into a ‘world class fighting force.’ Analysts, however, should contextualize CMF as part of a larger trend of the state imposing control over China’s tech sectors.
More broadly, with private sector innovation increasingly powering advances in military technology, China’s leadership sees the interweaving of the two domains as a national priority.
Xi’s vision also includes greater control over China’s hi-tech unicorns through internal party committees and privileged access to capital, which goes hand-in-hand with involving private sector firms in sensitive defense work (see New America, April 17). As the chances of a U.S.-China tech cold war grow more likely, it’s increasingly clear that CMF is here to stay.
Lorand Laskai is a Research Associate at the Council on Foreign Relations. Follow him on Twitter @lorandlaskai.
 CMF has been included in nearly every major strategic initiative during Xi’s tenure, including Made in China 2025 and Next Generation Artificial Intelligence Plan.
 SASTIND has been engaged in coordinating and implementing CMF at the local level through signing “strategic cooperation framework agreements” with provincial-level and country-level officials. For more, see Greg Levesque and Mark Stokes, “Blurred Lines: Military-Civil Fusion and the ‘Going Out’ of China’s Defense Industry,” Pointe Bello, December 2016.
 Mianyang is home to the Chinese Academy Engineering Physics 中国工程物理研究院, which is responsible for developing and testing China’s nuclear weapons.