Policy Recommendations
- Establish a comprehensive oversight
framework for dual-use technology transfer to facilitate consensus-building and
collective actions within the union.
- Strengthen negotiations and
coordination with the US to
effectively align policies and bridge regulatory gaps.
- Avoid assuming a leading position in
the international technology control regime to hedge against geopolitical risks
from a potential second Trump Administration and an increasingly uncooperative China.
1. Forms and Channels of China's External Acquisition
Over the past
decades, the military capabilities of the People's Republic of China (PRC) have
witnessed remarkable developments. The Chinese People’s Liberation Army (PLA)
has transformed from a large yet outdated force into a modern great power, with
significant advancements in air base attack capabilities, air
superiority, anti-surface warfare, counterspace
operations, cyberwar capabilities, nuclear strength, etc. These achievements
are driven by a concentrated campaign for military modernization with a
reinforced emphasis on technological upgrading. As the
bard chart below illustrates, from 2010 to 2020,
the nation’s annual military equipment expenditure increased from 26.2 billion
US$ to 68.2 billion US$, with the proportion of total military spending
increasing to as high as 41.1%.
Chart 1: China’s Spending on Military
Equipment
Sources: CSIS China Power Project, UN Office for Disarmament Affairs
In addition to
indigenous innovation within the nation's defense industry, the acquisition of
external technology, spanning from military to dual-use (i.e., both military and civilian), has played a
pivotal role in driving this progress.It’s essential to
clarify that the term "external" here refers to acquisitions beyond
the narrowly defined domestic defense industry, which encompasses mainly arsenals
and defense contractors. In this context, China employs two primary forms of
external technology acquisition.
Foreign acquisition
This has long been instrumental
since the founding of the PRC, with the strategy being applied perhaps more
systematically than elsewhere. A joint military-civilian bureaucracy oversees
this process, led by the Central Military Commission's Equipment Development Department (EDD, 装备发展部) and its civilian counterpart, the State Administration for Science, Technology, and
Industry for National Defence (SASTIND, 国防科技工业局). Ten state-owned defence conglomerates, including Poly Tech., China New Era
Tech., and others, are designated for military trading.
Foreign military
technology is primarily obtained through imports and transfers, with Russia being the top supplier. Israel also transferred
technology extensively until the early 2000s. However, its engagement with
China has significantly decreased afterwards due to strong opposition from the
US. Western sources now contribute mainly through dual-use sectors like commercial aviation. Additionally,
collecting and analyzing open-source information allows Chinese researchers to stay
current with global tech advancements. Overseas talent exchange
and recruitment also play an important role, alongside questionable methods such as industrial espionage and cyber spying on both allies and rivals.
Military-Civil Fusion (MCF)
The MCFdevelopment was introduced in 2005 and
gained momentum after Xi Jinping took power. It is a nationwide initiative aiming
to integrate economic growth with security plans to bolster military
modernization across various sectors. The Central Commission for MCF Development (中央军民融合发展委员会), headed by Xi, serves as
the highest policymaking and evaluation authority. Coordinating and
implementing agencies under EDD and SASTIND jointly supervise MCF initiatives. The
civilian end mainly consists of state-controlled and private
commercial enterprises, universities, and other research
institutions.
MCF operates by eliminating barriers
between military and civilian applications, emphasizing dual-use technology
development through investments in homegrown research and development (R&D) and talent acquisition
abroad. It also involves expanding civilian participation in defense industry
R&D by simplifying review procedures, broadening participation scopes, and
subsidizing relevant R&D activities.
2. Strategic Trends Since Xi Jinping's
Power Consolidation
Since ascending to power in 2012, Xi Jinping
has committed to expediting the defense and military modernization process with
bold
reforms in the command structure and robust
investment in military capabilities. With his
consolidation of power across the party-state and the army apparatus, his
strategic visions are progressively manifested into actionable policies and
initiatives, delineating two strategic trends in China's pursuit of
defense-related technology.
Technological Autonomy
The predominant goal is increasingly shifting
toward technological autonomy. Xi and his advisors contend that essential
Chinese technologies in critical sectors remain under foreign influence.
Consequently, his defense reforms emphasize nurturing indigenous,
state-of-the-art technologies
imperative for national security, thus maximizing the utility of local
technologies and diminishing reliance on external sources. Indicative of this
shift is China's reduction in advanced military imports, particularly from
Russia, in favor of domestic development.
Contrary
to perceptions of diminished foreign technology reliance, China remains
actively engaged in acquiring strategically significant technologies that are
beyond its current domestic capabilities. Concurrently, it intensifies efforts
in secondary innovation and reverse
engineering
of imported knowledge and joint technology projects, especially with Russia, expediting the
assimilation of external advancements into localized defense capabilities.
Integrating Foreign Quest with MCF
Moreover,
a secondary trend is the concerted effort to integrate foreign acquisitions
with MCF initiatives. The dual oversight by military and governmental agencies
validates this observation. This involves recruiting overseas talent for dual-use sectors such as artificial
intelligence, quantum communications, and advanced materials. It also includes a dual-phased approach where civilian bodies
procure dual-use technology under international standards and subsequently
channel it into military applications within the domestic MCF framework. This
enables China to leverage civilian technologies' military potential and
circumvent Western restrictions on military technology access. Notable products
include aviation, microchips, advanced computers, and drones, as per a US official briefing.
3. Recent Geopolitical Challenges
The US Tech Restrictions
The
US has responded to China's swift military advancement by labeling it a “pacing
challenge” in the 2022 National Defense Strategy. A series of measures have thus been implemented
to restrict Beijing's access to military-related advanced technologies, the
focus of which is on the dual-use domain as arms transactions with China have long
been prohibited since 1989. Originating during the Trump era, continued and in
some instances intensified under the Biden Administration, these measures
encompass sanctions against specific Chinese entities, legislation to limit
technology-related trade and investment, enhanced scrutiny on cooperation and
exchanges, strengthened anti-espionage actions, and heightened coordination
with allies and partners to collectively address the challenges posed by China.
The
impact of these restrictions remains to be fully assessed, but Washington's
“tech choke” strategy has notably limited China's access to critical
technology, talent, and, to a lesser extent, capital. For instance, US chip
sanctions aim to curb China's progress in emerging technological fields by
blocking access to advanced semiconductor technologies essential for modern
computing and military applications. Consequently, countries, especially those
closely allied with Washington, have grown more reluctant to share advanced
technologies with China, fearing US-imposed sanctions. This hesitancy affects
not only technology transfer but also the recruitment and retention of high-tech industry
professionals, as access to leading-edge technology is crucial. Additionally,
the overall cautious investment climate, especially in areas
directly targeted by US sanctions, signals broader economic implications.
Russo-Ukrainian War
Russia's
invasion of Ukraine in 2022 has further complicated China's geopolitical
environment, exacerbating the US-China rivalry. Although not a direct
participant, Beijing faces pressure from all sides—Russia,
Ukraine, and the West—to declare its stance and support their respective goals.
Russia seeks various forms of support, especially military-capable hardware and
technologies, whereas the US and its European allies expressly demand that
Beijing abstain from aiding Russia in ways that contradict their sanctions,
with warnings of potential secondary sanctions on Chinese entities.
The
ongoing war and deepening West-Russia discord have ripple effect on China's
defense technology strategy. Combined with secondary sanctions and growing
mistrust from the West, there's an acceleration in the de-coupling or de-risking
efforts in technology and essential supply chains, as another EuroHub4Sino policy paper discuses. Additionally,
the war has interrupted China's arms acquisitions from Russia and Ukraine,
historically significant sources of advanced weaponry for the PLA. The use of technologies on the battlefield, such as Ukrainian forces'
employment of Starlink satellite links for communication and the destruction of
expensive Russian military assets with cost-effective drones adapted from
commercial products, has offered Beijing invaluable insights into the future of
warfare shaped by emerging technologies.
4. Tactical Adjustments and
Counter-Measures
Beijing
asserts that its pursuit of advanced defense technology is a legitimate sovereign right and has vowed not to
succumb to external pressures. In response to the intensifying "tech
choke" efforts, particularly since the onset of the Russo-Ukrainian War,
it has adopted a series of tactical adjustments and counter-measures.
Accelerating
Technological Autonomy
Beijing has
promoted five prominent scientists to the second highest decision-making body,
underscoring its commitment to technological self-reliance. From 2018 to 2023, fiscal spending on science and technology saw an annual increase
of 6.4%, reaching 105.67 billion RMB (146 billion USD), while defense spending grew by about 7% annually to 1.58 trillion RMB (0.22 trillion USD). Concurrently,
there's been a notable decline in reliance on Russia, although it remains the
primary source of China's foreign military procurements. The reduction in arms imports by 44% from 2019-2023, compared to the
previous five years, indicates positive results toward indigenous development, particularly
in sectors like software and microchips. That being said, the efficacy of this
strategy remains to be seen, due to Beijing’s stringent governance model, entrenched
military corruption, sporadic purges of generals, and emerging economic
challenges.
Maintaining Strategic
Discretion
Previously
high-profile initiatives like “Made in China 2025” and the “Thousand Talents Plan” have been scaled back in visibility. This
strategic shift to a more covert approach likely serves to minimize
international scrutiny while preserving the momentum of China's technological
advancement undetected. However, it complicates external assessments of
Beijing's intentions and tactics.
Creating Division and
Seeking Cooperation
Beijing exploits
the reluctance of European, Japanese, and South Korean entities to decouple or
de-risk from the Chinese economy, aiming to sow division among US allies and discourage participation in
US-led tech restrictions. Meanwhile it seeks to secure cooperation to access alternative technology and
investment sources, especially from European countries. Yet, this tactic faces limited
success, especially among high-tech producers who are increasingly aligning with Washington's containment strategies.
Enhancing Anti-sanction
Readiness
Despite
unprecedented restrictions, Beijing has cautiously avoided retaliatory measures
by far due to its limited leverage in cutting-edge technologies. Instead, it
focuses on building legal and administrative frameworks to counteract future sanctions more
effectively. This includes regulating critical raw material exports, signaling China's readiness to employ
economic measures as a counterbalance to external pressures.
5. Policy Recommendations to the EU
In
conclusion, China's active procurement of military and dual-use technologies
through foreign sources and its MCF strategy represents a concerted effort toward
defense and military modernization via technological advancement. This
initiative, spearheaded under Xi Jinping’s leadership, faces significant
challenges from US-imposed “tech choke” and the geopolitical complexities
introduced by the Russo-Ukrainian War. To counter these impediments, Beijing is
pushing for technological autonomy, tactically exercising strategic discretion,
leveraging divisions for cooperative gains, and improving measures to
counteract sanctions.
Given
this context, it is imperative for the EU to:
Establish
a comprehensive oversight framework for dual-use technology transfer to Chinese
entities. This
should synchronize policies across member states to prevent technological
exploitation. Acknowledging China’s "divide and cooperate" tactics,
the EU must vigilantly monitor trade interactions with China and endeavor to facilitate
consensus-building and collective actions within the union.
Strengthen
negotiations and coordination with the US on the scope and implementation of
technology restrictions. The goal is to enhance the EU-US
dialog to align policies and bridge regulatory gaps, which is vital to maintain
effective control over sensitive technology and deter China from exploiting transatlantic
differences.
Carefully
calibrate measures to avoid assuming a leading position in the international
technology control regime. Adapting to shifting geopolitical
landscapes is crucial. The EU should prudently evaluate its position,
especially considering the possibility of a second Trump administration reverting
to unilateralism and policy unpredictability. The EU must also consider the
consequences of diminishing influence over China—a critical partner in
addressing issues from the Ukraine conflict to global climate governance.
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Funded by the European Union. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or European Research Executive Agency (REA). Neither the European Union nor the granting authority can be held responsible for them.
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