Using techno-economic intelligence to understand China’s Military-Civil Fusion ecosystem

China’s Military-Civil Fusion (MCF) strategy is central to its efforts to advance its manufacturing and technological capabilities, while creating a competitive military force. The strategy is emblematic of many of China’s central policies, which strive to harness the relative strengths and capabilities of various actors within the country – from state-owned and private enterprises, to military entities and academic institutions – to support the goals of the Chinese Communist Party (CCP). The CCP’s ideal outcome for the MCF strategy is to leverage the industrial and research and development (R&D) capabilities of civilian enterprises to support military development while these companies also continue to carry out their core civilian operations. Similarly, the military ecosystem’s relative advantages in funding, manufacturing capabilities, and R&D may be harnessed in support of civilian commercial operations.

Variations of MCF thinking have existed in China for decades, but the concept has gained traction during Xi Jinping’s tenure. In 2015, the alignment of civil and defence technology development was included in China’s national strategic priorities, and in 2017, the Central Commission for Integrated Military and Civilian Development was established. The Commission’s position in the Chinese dual party-state structure is significant because it was formed as a part of the CCP’s Central Committee and reports to the Politburo — the highest party organ. Equally significant is the fact that Xi Jinping himself heads the Commission, part of a more general tendency to gather important defence portfolios under his direct leadership. The emphasis placed on MCF within Chinese policy circles means that it is critical that allied governments understand the goals and complexities of this strategy to guide their own decision-making.

A large part of the efforts by data providers and analysts to identify actors involved in MCF in China has relied on sources like the work of the U.S. government in releasing blacklists. It is difficult, however, for these lists to capture the scope of China’s MCF ecosystem in all its complexity. Two of the U.S. government’s lists are the U.S. Department of Defence’s 1260H list of “Chinese Military Companies Operating in the United States,” which at the time of writing has 46 publicly identified entities plus a limited number of subsidiaries, and the U.S. Department of Commerce’s Military End User (MEU) list, which captures more than 70 entities. Given the size of the Chinese economy and its corporate landscape, it is almost certain that these numbers fall far short of capturing the full scope of the MCF ecosystem. Additionally, these lists are often compiled based on methodologies that focus on a few central areas of operations, or on specific factors (for example, being placed under a certain key ministry).

Datenna has developed new, innovative methodologies based on subject matter expertise of in-house China experts, combined with advanced big data and AI tools, to more effectively identify entities involved in MCF. These methodologies are rooted in the belief that a comprehensive understanding of MCF requires a higher degree of granularity and a consideration of various aspects of an entity’s operations, many of which may not be immediately apparent. Access to much larger and more comprehensive volumes of data is needed.

Datenna’s proprietary software automatically assesses various data points tied to a given entity and flags when a company or academic institution has potential defence or military ties. This flag can be triggered for a variety of reasons, such as an entity’s participation in domestic military procurements or if its patent portfolio involves defence-related or dual-use technologies. With Datenna’s techno-economic intelligence platform, users can see at a glance the entities that have been flagged for their potential involvement in the defence sector. Our platform also contains millions of additional data points that allow users to track cross-institutional ownership structures and links to other military organisations, as well as possible connections that an entity’s management personnel hold in other organisations.

Such granularity in data is essential since a core objective of MCF is to integrate organisations at different levels (e.g., factories, companies, research institutes, industry parks, conglomerates) in support of China’s military development goals. Additionally, a predominantly civilian company may still possess military links through, for example, its participation in defence procurements. These are all indicators which could be missed by a traditional approach focused on known conglomerates and existing blacklists.

To demonstrate the power of Datenna’s methodology, we produced the Datenna Defence Radar (request a demo here) — a compelling visualisation of the complex networks between Chinese state-owned defence conglomerates and an entire network of subsidiaries, suppliers, and personnel. By tracking investments, management personnel, and defence procurements, Datenna’s analysts discovered 600,000 individual links for just one defence conglomerate to other entities with potential ties to the MCF ecosystem. Many of these entities and individuals could easily be missed by a more traditional approach that manually tracks public designations and widely-known defence industrial companies. Datenna’s approach shows that international sanctions and export screening lists only capture a fraction of China’s highly complex defence industry.

In addition to the Defence Radar, Datenna also tracks data on academic institutions, including patents, research projects, and the investment activities of the commercial arms of universities – a ubiquitous feature of the country’s university landscape. Datenna analysts have discovered that at least 2,000 Chinese universities are involved in varying levels of defence-applicable research, reaching far beyond widely-known defence universities such as the Seven Sons of National Defence.

Given the wide-ranging scope of MCF and the increasing difficulty of accessing precise information on China, new tools are required to accurately identify risks and make informed judgements regarding a particular company or research institution. Information access is crucial for striking a balance between a narrow reliance on existing blacklists, and indiscriminate targeting of companies based on inaccurate, overly broad criteria. While the challenges facing policymakers are undoubtedly complex, Datenna’s rigorous data collection and intelligent systems can be instrumental in effectively addressing them.