Chairman Borochoff, Chairman Fiedler and members of the commission, thank you for the opportunity to testify today on the subject of China’s military-civil fusion (MCF; 军民融合) and its implications for the United States. In plainest terms, China’s MCF development strategy is a holistic approach to national development that ensures that new advancements and innovations simultaneously advance the country’s economic and military development.¹ As President Biden’s administration and the 117th Congress continue to develop and shape China policy, I believe that understanding the goals and ambitions under China’s MCF strategy is crucial to making informed decisions about the future of U.S.-China relations.

Since the founding of the People’s Republic of China (PRC) in 1949, Chinese leaders have sought to compel or mobilize the commercial sector in support of the People’s Liberation Army (PLA). However, since Xi Jinping’s ascension to power in 2012, he has prioritized MCF and the role of the military as key aspects of China’s overall national development strategy. Xi has also worked to develop tools designed to bridge the gap between the civilian and defense spaces. Although the concept of leveraging civilian and military resources itself is not new, Xi’s MCF strategy takes a new approach, albeit one based on past industrial policies. Moreover, Peter Wood and Alex Stone argue that Xi’s MCF strategy supersedes those of his predecessors.² This presents a number of challenges and implications for U.S. policy, both domestically as well as in exchanges and interactions with Chinese entities.

MCF is a process, and remains far from completion. Estimates from within the Chinese government acknowledge that they are still in the nascent stages of implementing MCF.³ However, even if implementation is incomplete, Beijing’s vision is clear. Moreover, outside attempts to cripple or incentivize change within China’s system have thus far proven unsuccessful. In order to counter the growing challenge posed by China’s MCF efforts, the United States should focus on improving and growing our own system and capabilities. The United States can no longer afford to waste time and effort trying to incentivize or coerce change within China. Instead, understanding that the U.S. and Chinese systems are inherently different, the United States should work to develop a strategy that can mitigate threats and challenges while supporting ongoing collaboration with China where it falls within U.S. interests.

Policy Recommendations:

• Establish an interagency working group within the U.S. government to increase awareness of China’s MCF efforts and ensure that various departments and agencies are equipped to make effective policy within their individual jurisdictions.
• Create a repository of open-source due diligence materials and guidelines that can be used by academic institutions and industry to allow them to make more informed decisions about collaborations and interactions with Chinese counterparts.
• Provide the Securities and Exchange Commission (SEC) and its Public Company Accounting Oversight Board (PCAOB) with Chinese language and area studies resources to assist in auditing and assessing Chinese firms listed on U.S. stock exchanges.
• Improve the U.S. government’s ability to audit supply chains and establish industry reporting guidelines to identify significant chokepoints and ensure compliance with requirements, as articulated by the China Strategy Group.⁴

1. “Military-Civil Fusion and the People’s Republic of China,” U.S. Department of State, May 2020, https://www.state.gov/wp-content/uploads/2020/05/What-is-MCF-One-Pager.pdf.
2. Alex Stone and Peter Wood, “China’s Military-Civil Fusion Strategy: A View From Chinese Strategists,” China Aerospace Studies Institute, 2020, https://static1.squarespace.com/static/5e356cfae72e4563b10cd310/t/5ee37fc2fcb96f58706a52e1/1591967685829/CASI+China%27s+Military+Civil+Fusion+Strategy-+Full+final.pdf.
3. “Suggestions on the development of the military-civil fusion innovation system” [对我国军民融合创新体系发展的建议], Academy of Ocean of China [中国海洋发展研究中心], January 11, 2019, https://perma.cc/D72F-5FLA.
4. “Asymmetric Competition: A Strategy for China & Technology,” China Strategy Group, Fall 2020, https://assets.documentcloud.org/documents/20463382/final-memo-china-strategy-group-axios-1.pdf.