Screening Is Not Enough: Mapping Supply Chains in China’s Military-Civil Fusion Landscape

Since 2012, the Chinese Communist Party (CCP) has expanded its Military-Civil Fusion (MCF) strategy, which is aimed at turning China’s People’s Liberation Army (PLA) into the world’s most technologically advanced military by 2049. The Party-state leverages China’s commercial sector, including private firms, to support the MCF program. The U.S. government has adopted measures targeting the MCF program, including restricting access to critical U.S. technologies by PRC companies associated with China’s defense industries. However, the connections between China’s private sector and the PLA and China’s defense industries are often indirect, making it difficult for multinational corporations (MNC) to comply with U.S. rules.

China's MCF and U.S. Response

The MCF program exemplifies the operationalization of China’s “call-and-response” system, which involves the mobilization of government agencies, state-owned enterprises (SOE), research institutes, universities, and private enterprises to support the CCP’s strategic objectives. In this system, all elements in China’s society are incentivized to align their concrete efforts with the Party-state’s top-level plans. Incentives to PRC civilian entities include subsidies, preferential loans, state-directed venture capital, and other means of state financial support. These mechanisms of state support aim to strengthen civilian research in China and build up “domestic champion” firms, particularly in key science and technology sectors. In turn, PRC companies, both state-owned and private, are expected to share their technology and expertise with the PLA—even technology that is developed with foreign partners.

The U.S. government has taken steps to restrict PRC companies identified to be associated with the MCF program from accessing dual-use technologies developed by U.S. entities. The Department of Commerce’s Bureau of Industry and Security (BIS), for instance, continually updates licensing rules to prevent PRC military end-users from accessing U.S. dual-use technologies, notably semiconductor and AI. The Department of Defense also maintains and updates the 1260H list to ensure that the Pentagon does not procure goods or services from PRC companies identified to be supporting the MCF program. The BIOSECURE Act, which was signed into law in December 2025, stipulates that every PRC entity on the 1260H list is automatically deemed a “biotechnology company of concern” (BCC). This law prevents U.S. federal agencies and recipients of U.S. federal funds from procuring or obtaining equipment and services provided by any entity with a BCC designation.    

Hidden PRC Institutional Ties Challenge Corporate Compliance: the Case of CETC

Compliance with these regulations is not easy, and it is made more challenging by the indirect ties—often mediated by China’s SOEs—between PRC private companies and China’s defense industrial sector. The situation is further complicated by the fact that the true corporate identities of many subsidiaries of PRC SOEs tied to China’s military are often undisclosed. The state-owned defense conglomerate China Electronics Technology Group Corporation (CETC) exemplifies this pattern.

In 2002, the Party-state established CETC with the explicit goal of creating a pathway between China’s commercial electronics industry and the PLA’s military modernization objectives. Today, CETC owns over 400 subsidiaries, making it one of China’s largest defense conglomerates. It produces a wide range of electronics across numerous dual-use industries and helps the PLA develop and adopt new technology for military use. CETC also controls over 45 defense-industrial scientific research institutions, which act as intermediaries between the PLA and private corporations and academic institutions. In 2012, for example, CETC’s 15th Research Institute advertised itself as Huawei’s commercial representative to the PLA.

Many MNCs conduct business with Huawei and most are aware of Huawei’s ties to the PLA. However, they may not be aware that CETC organizations act as the intermediaries between Huawei and the PRC military. It is also likely that MNCs are unaware that other PRC private firms have similar ties with the PLA, and that CETC research institutes or other state-owned commercial entities play similar matchmaking roles for those Chinese private firms.

Further complicating the landscape is the fact that most CETC subsidiaries operate under aliases that are not widely disclosed. Many CETC subsidiaries are on the Department of Commerce’s Entity List, but it does not account for all corporate aliases. The Department of Defense’s 1260H list is similarly incomplete. With CETC’s organizational structure becoming less transparent, the lack of published information about these institutions puts MNCs at greater risk of failing to comply with U.S. sanctions and export control rules.

Move from Blacklist Screening to Supply Chain Mapping

The current situation necessitates a pivot from simple blacklist screening to deep, network-based supply chain mapping by MNCs. Those operating in dual-use sectors—AI, semiconductors, biotechnology, and advanced electronics—must map out not just their direct PRC suppliers, but their suppliers' institutional relationships, research partners, and ultimate state-owned parent organizations.

With China’s civilian and defense technology industries increasingly intertwined, it is essential for MNCs to understand the implications of their Chinese partners’ ties to the PLA and the CCP’s broader national security establishment. These considerations must be factored into not only the strategic planning of every company that operates in China, but also the consideration of MNCs operating in dual-use industries that are likely targets of CCP industrial and MCF policy throughout the world.