WASHINGTON ― Though Washington has restricted trade against more than 40 companies identified by the Pentagon as linked to the Chinese military and operating in the United States, they’re just the “tip of the iceberg,” according to a report the Foundation for Defense of Democracies published Thursday.
The report argues that while the Defense Department’s blacklist is a “critical resource” to counter China’s military-civil fusion strategy, there are additional Chinese military-linked companies operating in the U.S. themselves or through subsidiaries that aren’t being tracked. It recommends steps to broaden the scope and prioritize within the Pentagon’s blacklist.
Recent trade restrictions against U.S. dealings with Chinese firms have seen retaliation from Beijing against American firms and pushback from Wall Street, which sees a risk to its bottom lines in an escalation of tensions between the two economic giants. Though more aggressive restrictions might alienate the business community, FDD argues they’re needed to protect national security.
“Many centrally state-owned military-industrial companies, builders of global infrastructure for Chinese power projection, and pillars of Beijing’s military-academic complex are not on the [DoD] list,” the report reads. “Those ... companies also operate through subsidiaries, joint ventures, and investment vehicles that are difficult to identify and may evade the scrutiny sparked by the DoD list.”
The report, “Defusing Military-Civil Fusion: The Need to Identify and Respond to Chinese Military Companies,” was authored by FDD senior fellows Nathan Picarsic and Emily de La Bruyere, who co-founded the firm Horizon Advisory.
Citing open-source reports, they point to the China Poly Group Corporation, which owns the world’s third-largest art auction house and an arms exporter to troubled spots such as Myanmar or Zimbabwe. While the parent company has run partnerships with Yale, Columbia, Lincoln Center and The Metropolitan Museum of Art, a subsidiary, Poly Technologies, exports missile equipment.
The Chinese Academy of Sciences isn’t a company and isn’t on the list itself, but the report says it’s the largest shareholder of Sugon, which is on the DoD list and that CAS is “at the center of center of China’s R&D ecosystem, with operations in civilian as well as military and dual-use domains.” DoD could better “focus on CAS in prioritizing and structuring documentation of military-civil technology transfer in the Chinese system.”
The authorities for the list stem from the 1999 National Defense Authorization Act, but the 2021 NDAA weighed in with a more detailed definition of a Chinese-military linked firm. Still the FDD report calls for an expanded definition that would include “spin-off MCF actors, which generate revenue for the MCF apparatus by commercializing technology transferred from the military to private actors,” among other criteria.
FDD recommends in part that to match the scope of Beijing’s military-civil fusion strategy, the Pentagon needs a fuller definition of a military-linked company; an expanded scope to capture entities that may not operate on U.S. territory but still impact the U.S., and a prioritization framework to allocate resources and attention strategically. The report offers detailed recommendations for a more robust DoD documentation effort that would tee up interagency action to build positive alternatives to suppliers with Chinese military ties.
The authors point to DoD efforts like its Trusted Capital program, Defense Innovation Unit, and the AFWERX and its AF Ventures program, as examples of how the government can foster public-private collaboration to support the U.S. industrial base and “reach the best and brightest in dual-use technology.”
Under the Trump administration, Chinese technology companies such as drone maker DJI and telecommunications equipment supplier Huawei were put on a trade blacklist out of concerns such companies might be security risks.
U.S. companies and individuals are banned from dealing with companies on such lists or in some cases must seek special permission in advance.
Companies like Huawei and DJI have both denied that they send any data to China, but China hawks say that such companies may be obliged to assist espionage efforts as stipulated in China’s national intelligence law.
Smartphone maker Xiaomi Corp. seemed to prevail recently in its legal battle with the U.S., after federal judge ruled Washington lacked “substantial evidence” that Xiaomi is owned or controlled by China’s military. This month, the U.S. agreed with Xiaomi to set aside an investment ban and struck it from DoD’s blacklist.
The Associated Press contributed to this report.