Greater integration will spur innovation and cultivate new engines of growth

China has embarked on an ambitious strategic endeavor to deepen military-civil integration, a move formalized by a recent State Council guideline designed to catalyze innovation, foster new economic growth drivers, and bolster national defense capabilities. The comprehensive directive, issued by China’s Cabinet, underscores a national commitment to leveraging advanced military technologies for civilian applications and opening the defense sector to broader participation, thereby propelling economic transformation as part of the nation’s supply-side structural reforms.

The Strategic Imperative: Fusing Military and Civilian Strengths

The guideline, which was released on a Monday in early December 2017, outlined seven pivotal tasks aimed at enhancing military-civil integration within the defense technology industry. At its core, the policy seeks to strengthen innovation by fostering the development of high-tech industries that originate from military technologies. This holistic approach is not merely about dual-use technologies but represents a fundamental shift in how China conceptualizes its national development, intertwining security interests with economic prosperity.

President Xi Jinping elevated military-civil fusion (MCF) to a national strategy in 2015, recognizing its critical importance for both economic modernization and the comprehensive enhancement of the People’s Liberation Army (PLA). This strategy is built on the premise that a more integrated ecosystem will reduce redundancies, improve efficiency, and accelerate technological breakthroughs by drawing on the strengths of both state-owned defense enterprises and the burgeoning private sector. The latest State Council guideline serves as a critical policy instrument to translate this high-level strategic vision into actionable directives for the defense technology industry.

Key Pillars of the Integration Policy

The State Council’s guideline articulates a multi-faceted approach to achieve its objectives. A primary focus is on the systematic sharing of technological innovation bases and facilities between military and civilian sectors. This directive aims to break down traditional silos, allowing civilian researchers and enterprises access to advanced military research infrastructure, and conversely, enabling defense innovators to benefit from civilian-led advancements.

Moreover, significant efforts are mandated to facilitate the application of military technologies to non-military areas. This includes a wide spectrum of applications, from advanced materials and manufacturing processes to sophisticated sensor technologies and communication systems. The policy specifically targets key strategic domains for this integration, including space, cyberspace, and maritime sciences. These areas represent frontiers of both national security and economic opportunity, where breakthroughs can yield significant dual-use benefits.

A crucial aspect of the guideline is the encouragement of private capital to enter military industries. This marks a departure from a historically state-dominated defense sector, signaling a desire to inject market dynamism, efficiency, and fresh innovative perspectives. By inviting private investment, China aims to diversify funding sources, foster competition, and tap into the agility and innovation typically associated with private enterprises.

Streamlining Access and Reducing Barriers for Innovation

The implementation of such an ambitious integration strategy necessitates significant administrative reforms. Shi Haiming, an associate professor at the National University of Defense Technology, highlighted that the guideline is poised to bring substantial benefits for both private and military enterprises. A key reform mentioned by Shi is the shift from pre-entry approvals to post-entry reviews for enterprises seeking to engage in the defense sector, with the exception of those involving strategic weapons. This change is designed to streamline administrative processes, reduce bureaucratic hurdles, and accelerate market entry for qualified private firms.

Furthermore, Shi noted that the guideline explicitly lowers the access threshold for enterprises looking to enter the field of weaponry and equipment. This, coupled with a commitment to greater transparency in the entry process, aims to create a more level playing field and encourage broader participation. The document also emphasizes building better platforms to promote military-civil integration, which Shi believes will further reduce institutional costs for private enterprises, making collaboration and participation more attractive and feasible. These reforms are crucial for overcoming the institutional inertia that has historically separated the two sectors.

Economic Rejuvenation and Supply-Side Reforms

The push for military-civil integration is intrinsically linked to China’s broader economic strategy, particularly the ongoing supply-side structural reform. This reform aims to shift China’s economy from a quantity-driven model to one focused on quality, efficiency, and innovation, addressing issues such as industrial overcapacity and a reliance on lower-value manufacturing. By unlocking the potential of high-end military technologies for civilian applications, the government seeks to create new industries, foster high-value production, and drive sustainable economic growth.

Jiang Luming, a professor at the National Defense University of the People’s Liberation Army, pointed out a significant untapped resource: China possessed approximately 290,000 national defense intellectual property rights that remained unused due to the historical separation of military and civil industries. This vast reservoir of dormant innovation represents a substantial economic opportunity. Breakthrough technologies in areas such as advanced engines and aluminum alloy materials, originally developed for defense purposes, can be repurposed to ease production overcapacity in civilian industries and contribute to the transformation of China’s economic structure. Jiang emphasized that these new technologies have the dual benefit of boosting economic growth and strengthening national defense capabilities.

Global Precedents and Comparative Advantages

The concept of military-civil integration is not unique to China; it is a worldwide trend, as noted by Professor Jiang Luming. Many developed economies have long relied on varying degrees of such integration to enhance both their defense capabilities and economic competitiveness.

The United States, for instance, provides a prominent example. Aerospace giants like Boeing, while renowned for their advanced military aircraft and defense systems, also dominate the global civil aviation market, selling billions of dollars worth of commercial aircraft annually. Other major U.S. defense contractors such as Lockheed Martin, Raytheon, and Northrop Grumman, while primarily focused on defense, often develop foundational technologies with significant civilian spin-offs or dual-use potential in areas like satellite communications, cybersecurity, and advanced materials. The Silicon Valley ecosystem itself has deep historical roots in defense research and development, with numerous technologies now ubiquitous in civilian life having originated from military projects (e.g., the internet, GPS).

Similarly, in Japan, multinational conglomerates like Toshiba and Mitsubishi, despite the country’s pacifist constitution, maintain robust departments that take military orders, often focusing on advanced components, electronics, and specialized materials that also have extensive civilian applications. In European nations like the United Kingdom and Germany, the integration is also pronounced. Companies like Airbus, while a leading civil aviation manufacturer, also has a significant defense and space division. Thales, a French multinational, operates across aerospace, defense, security, and transport markets, epitomizing the dual-use model.

Professor Jiang Luming further elaborated that in countries such as the U.S., the U.K., and Germany, less than 15 percent of military technologies are solely for military purposes, with more than 80 percent finding applications in civilian sectors. This global context underscores the economic and strategic rationale behind China’s intensified focus on military-civil integration, aiming to catch up and even surpass these precedents.

Tangible Benefits and Industry Perspectives

The practical benefits of this integration are already being observed and projected. Lu Guangshan, chairman of the Avionics System Co under the Aviation Industry Corporation of China (AVIC), highlighted the military industry’s inherent priority in applying cutting-edge technologies and driving breakthrough innovations. He offered a compelling example: virtual reality headsets, now a burgeoning civilian market, were first developed and utilized in helmets for fighter jets. Lu’s own company, leveraging its defense expertise, has successfully diversified into six civilian industries, including virtual reality, drones, robotics, and smart wearable technology, demonstrating the direct economic spillovers.

Long Hongshan, chief engineer at the State Administration of Science, Technology and Industry for National Defense (SASTIND), emphasized the collaborative aspect of the initiative. Military companies are actively encouraged to work with local governments to promote their advantageous expertise and develop a large number of new high-tech industries. These localized high-tech clusters are expected to play a vital role in stimulating regional economic growth and creating new employment opportunities, thereby contributing to broader societal benefits.

Long also provided insightful statistics on the current and projected state of China’s military-related economy. Currently, approximately 30 percent of products manufactured by China’s military companies are for military purposes, while the remaining 70 percent cater to civilian needs. This already significant civilian contribution is slated for further expansion, with Long projecting that in the future, high-tech industries will cover half of the military-related economy. This ambitious target underscores the government’s commitment to transforming the defense sector into a major engine of overall economic and technological advancement.

Chronology of Policy Evolution

The State Council’s guideline represents a significant step in a longer strategic timeline for military-civil integration in China:

• 2015: President Xi Jinping officially elevates military-civil fusion to a national strategy, establishing a central commission to oversee its implementation. This marked a formal top-down push for comprehensive integration.
• October 2016: Professor Jiang Luming’s observations regarding the 290,000 unused national defense intellectual property rights highlight the vast potential awaiting activation.
• June 2017: The General Office of the State Council releases a guideline on civil aviation development, a precursor to broader integration efforts, which notably included opening airspace less than 3,000 meters in altitude to civilian use, alongside encouraging development in industries such as cybersecurity and satellite navigation.
• Early December 2017: The core event of this article: The State Council issues its guideline on deepening military-civil integration in the defense technology industry, providing detailed directives for implementation.
• Ongoing and Future Projections: SASTIND and other government bodies continue to roll out specific policies and initiatives to facilitate military companies’ collaboration with local governments and drive the expansion of high-tech industries within the military-related economy, aiming for the ambitious 50% high-tech share.

Broader Implications and Outlook

The intensified drive for military-civil integration in China carries profound implications for both its domestic economy and its global standing. Economically, it promises to unleash a new wave of innovation, drive industrial upgrading, and create high-value jobs, helping China transition to a more knowledge-based economy. By tapping into the vast technological reserves of its defense sector, China aims to enhance its indigenous innovation capabilities and reduce reliance on foreign technologies in critical areas.

From a national defense perspective, the integration ensures that the PLA benefits from the dynamism and innovation of the civilian sector, potentially leading to more rapid development and deployment of advanced military capabilities. It also fosters a more resilient and adaptable defense industrial base, capable of responding swiftly to evolving technological landscapes.

However, the success of this strategy hinges on effective implementation, particularly in fostering genuine collaboration, ensuring fair competition for private enterprises, and protecting intellectual property rights. The challenge lies in overcoming institutional barriers, cultural differences between the military and civilian sectors, and ensuring that the integration process is truly reciprocal and beneficial for all stakeholders. Nevertheless, the State Council’s guideline marks a decisive step towards a future where China’s military and civilian sectors are synergistically linked, driving innovation, economic growth, and national strength in an increasingly competitive global environment.