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U.S. State Department, The PRC’s Military-Civil Fusion Strategy, March 12, 2020

This is a transcript of a background press briefing done at the U.S. State Department in Washington, D.C. The briefing comes amidst heightened tensions in the U.S.-China relationship.

March 12, 2020
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MODERATOR:  Everybody, this is on background, attribution to a senior State Department Official.  We’re joined by , and is here to talk about a concept called “military-civilian fusion.”  So I’ll just hand it off to you and let you go ahead.

SENIOR STATE DEPARTMENT OFFICIAL:  Great.  Thank you very much.  Thank you.  Apologies, I’m not going to shake anyone’s hands.  (Laughter.)  I’m practicing social distancing to the extent that we can in this room.  So I appreciate everyone who called in.  So I will just read out my prepared remarks, and then answer some questions.

So I’m here to talk about an issue that has serious ramifications for our National Security Strategy that the People’s Republic of China calls “military-civil fusion,” or MCF for short.  Secretary Pompeo said in January to the Silicon Valley Leadership Council, military-civil fusion is a technical term for a very simple idea.  The People’s Republic of China is targeting emerging and advanced technologies to develop the most technologically advanced military in the world.  Its efforts include outright technology theft, the obfuscation of true intentions in collaborative research and development, and a diversion of technology acquired through civil trade to military programs.

PRC’s acquiring and diverting foreign technologies, specifically advanced and emerging technologies, and particularly those related to artificial intelligence to incorporate them into its next-generation military capabilities.  It is doing so through a strategy that eliminates the barriers between China’s defense industrial complex and the civilian economy.  It is a strategy that they call military-civil fusion.

In practice, this means that private companies and research and academic institutions anywhere in the world that engage in joint R&D with the People’s Republic of China are at risk of unwittingly contributing to the development of PRC’s military capabilities.  China-based partners in joint ventures are required under penalty of law to share useful technologies with the PLA.  The Chinese Government is also persuading individuals and entities of multiple nationalities – not just individuals of Chinese citizenship or descent – to participate in its military-civil fusion efforts.  It is doing so through a host of incentives and inducements while also often masking the fact that technologies will be diverted to military end-use.

The Chinese Communist Party recognizes that the world is on the cusp of a technology revolution, and that AI-enabled technologies will deeply impact the development of future military capabilities.  Under MCF, the Chinese Communist Party is determined to be the first to weaponize these technologies, and it is targeting international collaborations to do so.

Now, many countries, including the United States, leverage the talents of the civilian sector and academia for military modernization.  However, there is a huge difference between our approach and the PRC’s approach.  The United States and our partners around the world have made commitments to transparency and provided assurances through international agreements and norms that dual-use technologies will not be diverted to military end-use.  But with MCF, the PRC flouts these norms and is in fact explicitly working to divert dual-use technology to military end-uses, and often without the knowledge of all the parties involved.

A central component of MCF is a diversion of dual-use technology towards military ends.  And here at the State Department we are working to address the risks that MCF poses to our national security, and we remain committed to supporting fair and reciprocal trade, the free flow of capital, and a collaborative exchange of ideas through our global research enterprise.  We all benefit from open collaboration among our most talented scientists, scholars, and innovators, and Secretary Pompeo has been very clear that any concerns we have are with the CCP, not the Chinese people.

That said, openness requires reciprocity, respect, and trust, and military-civil fusion violates that trust and exploits the openness on which our open market economy and academic research depends.  These are the challenges that we are grappling with right now, as are many other advanced technology-producing countries around the world.

That is why I’m glad to have this opportunity to be here with you today and to talk about MCF and the risk it poses in more detail, and I look forward to your questions.

MODERATOR:  Matt.

QUESTION:  Yeah, so you know this is happening, you seem to think it’s a threat, but why – so why are you still studying the potential threat, and what are you going to do about it?  That’s – I guess that’s the main thing.

SENIOR STATE DEPARTMENT OFFICIAL:  Yeah.  So we’ve undertaken a lot of actions as a government to do something about it.  We have certainly looked at our export controls in more – with a more jaundiced eye towards this.  We have expanded our investment screening processes.  Cases of IP theft are being prioritized.  We are also engaging diplomatically with countries.  Again, it’s a global economy; it’s a global supply chain.  And so we have to work with our partners internationally to try to get ahold of this challenge.  So we have been engaged diplomatically, both bilaterally and multilaterally as well.

QUESTION:  There was a recent – I think maybe last week – that the investment board rejected Chinese purchase of something.  Is that related to this?

SENIOR STATE DEPARTMENT OFFICIAL:  Are you talking about the CFIUS case?

QUESTION:  Yeah.

SENIOR STATE DEPARTMENT OFFICIAL:  I’m not familiar with that particular case; I think there’s been a few.  But in general, I think that as a government we are now looking at this diversion in a way that we haven’t in the past.

MODERATOR:  Humeyra.

QUESTION:  Hi.  When you say we’re also engaging with countries diplomatically, does that mean you’re telling some of your allies and you’re discouraging them to go into partnerships as such with the Chinese private companies?

SENIOR STATE DEPARTMENT OFFICIAL:  I think how I would characterize it is, just based on our experience, our eyes are open to what China’s doing in a way that our eyes weren’t open to before.  It was a process of learning for us to get to this point of awareness.  And so now we’re working with our partners internationally to try to help them open their eyes as well.

QUESTION:  Who would be the main countries that you’re working with on this?

SENIOR STATE DEPARTMENT OFFICIAL:  We don’t really reject any country from working with us.  This is part of our regular diplomacy.  I’m not going to name any particular countries, but of course producers of advanced technologies are critical.

MODERATOR:  Yeah, Carol.

QUESTION:  Why are you bringing this up now, because we’re in the midst of this coronavirus crisis with China?  Is this part of some grander scheme or strategy?  And do you know how many Chinese students are studying at American universities?  Are you going to try and get them to cut back even more?

SENIOR STATE DEPARTMENT OFFICIAL:  Thank you for that.  The reason we’re talking about this now has nothing to do with the coronavirus.  This is an issue that, like I said earlier, our eyes have been slow in opening, but now they are and now we’re taking action.  We are – Secretary Pompeo gave a speech on this topic maybe a month ago, or a month and a half or so, in Silicon Valley.  He followed up with a second speech to some – Governors Association.  So it is part of our awareness raising.  Again, this is subterfuge for practical purposes and we’re trying to make people aware.

Regarding the question of how many Chinese students are in the United States, I do not know the number off the top of my head.  The intent here is not to cut off our interactions with China, whether it’s trade or research.  That’s not what we’re trying to do.  One, it’s a fool’s errand to try to do that.  Two, we benefit greatly from both our economic exchanges, our business exchanges with China, as well as our research with China.  But my responsibility is for national security, and we have to look out for that aspect of it as well, and so that’s what we’re trying to do.

MODERATOR:  Okay.  Said.

QUESTION:  Thank you.  In your response to Matt’s question on retaliatory measures, what can be done about it – could you explain that again?  What measures are you taking now to counter this?  And is that part of any particular institution in China, like the army or any other governmental institution?

SENIOR STATE DEPARTMENT OFFICIAL:  So I wouldn’t – I would take exception to you characterizing as retaliatory.  This is not retaliatory.

QUESTION:  Okay.  I mean countermeasures.

SENIOR STATE DEPARTMENT OFFICIAL:  This is – these are steps that we are taking to protect or safeguard our national security, our foreign policy interests.  Every country has a right to revise and review its export controls and investment screening procedures.  So that’s what we’re doing.  Your second question was?

QUESTION:  My second question:  With this military-civil fusion, is it part of, let’s say, the Chinese army, part of – which government institution?

SENIOR STATE DEPARTMENT OFFICIAL:  This is a – this is a strategy that the Chinese, as I understand it, they started in 2009.  They elevated it to a national-level strategy under a very high direction in about 2014.  And it was – the objective of this – of military-civil fusion strategy is twofold: develop the Chinese military capability at the same time as you develop the Chinese civil sector, high-tech sector.  The idea is that you create a way for these two sectors to comingle and to leverage each other’s capability.

In so doing, the aim is for China to have – I’m trying to make sure I use the right word here – to have maybe dominance of certain high-tech sectors, and they have timeframes to do this.  There’s a program called China 2025 that everybody should probably know about.  It’s out in the open; I’m not making any of this up.  Chinese military, for their purposes, have a desire to have a very advanced military capability by, I think, 2050 or 2049 is their target date.  So they created a system where both sectors feed off of each other.  That is a significant concern to us for the reasons I stated.  It fundamentally violates the norms of international trade, the assurances that countries supply and provide in terms of where dual-use technology is going to end up.

QUESTION:  Can you give us, like, a down-to-Earth example of where we see this?

SENIOR STATE DEPARTMENT OFFICIAL:  Yeah, so I’ll give you one example, and this is a company called CGNP, which stands for Chinese General Nuclear Power Corporation, I believe.  This is a company that was indicted – I want to say maybe in 2016 or so – for stealing nuclear-related trade stuff.  This same company is currently working on a project that – it’s a small modular reactor, and without getting overly technical, in essence it’s a nuclear power reactor that you can scale up or down to suit the size or the purpose you need, right.  You can scale it way, way, way down and put it, for example, on a floating nuclear power plant in the South China Sea.  You could scale it even more down and put it somewhere.  You could scale it up and put it on a land base.  So there’s many things that you can do with this technology.

This was a technology that the Chinese military was working on that they gave the project over to CGNP so that then they could develop it.  They are the civilian experts on this, and this company is now going out there looking for international partners to help develop this.  So that is one down-to-Earth example of how this works and what the potential national security ramifications and foreign policy concerns would be.

Yeah, Michele.

QUESTION:  Question from the phone?

MODERATOR:  Michele, and then we’ll turn to the phone.

QUESTION:  Just going back to Carol’s question, I wonder if this extra scrutiny over research cooperation with the Chinese is affecting at all U.S.-Chinese cooperation on health issues, like dealing with coronavirus.

SENIOR STATE DEPARTMENT OFFICIAL:  I – so that’s not my remit.  I don’t do health issues.  I would go back to the point that I made earlier, though, that our – again, our intention is not to not have any collaboration or cooperation with the Chinese Government.  It’s a multifaceted relationship.  It’s a very complex relationship.  Where our interests converge, we are more than willing to work together.

QUESTION:  So but in biotech and this kind of stuff, those are obviously also —

SENIOR STATE DEPARTMENT OFFICIAL:  Yeah, they’re —

QUESTION:  — might touch into things that you’re focused on.

SENIOR STATE DEPARTMENT OFFICIAL:  They are dual-use, and again, to your specific point here, if it’s a biotech technology, it’s a biotech transfer that we have national security concerns with, we’re going to try to do something about it.

MODERATOR:  On the phone.

QUESTION:  Hey, it’s Lara Jakes.  So I was wondering if maybe another example of this would be Huawei, and this – because it kind of – from where I’m sitting, it sounds like a veiled warning to allies against using Huawei.  And I was wondering, relatedly, if there’s – what evidence, if any, is there that Huawei is a branch of the PLA?  I know that was something that’s been alleged in the past, although I don’t think the NSA ever found evidence of it as part of Operation Shotgiant.

And I was also wondering if you could speak to Unit 61398 and whether it’s been moved out of the military and into the intel channel, and if so, if that’s had any impact on what you’re seeing.  And I’m going to put you guys back on mute so you don’t have to listen to my home background noise.

SENIOR STATE DEPARTMENT OFFICIAL:  So on Huawei and is it a part of the Chinese military – so on their MCF there are two laws in China, a national security law and a national intelligence law.  The combination of those laws compel any Chinese person or entity to collaborate with Chinese security and intelligence services.  They’re compelled by law.  They have to do it if the Chinese Government seeks that cooperation.  So is there a commander in Huawei and does he have a platoon?  No, I don’t know that.  I don’t think they’re that type of integrated, but Huawei cannot escape Chinese law, and if the Chinese Government and if their security service ask Huawei to provide them access to data or information, then Huawei is compelled to provide that data and information.

And regarding your other question, I don’t want to get into it because I’m not exactly sure what it is that that unit does or what you’re referring to.

QUESTION:  That’s the unit that was responsible for the OPM hack, I think, and then later, relatedly, to the Marriott and the Equifax hack.  And then before I put you back on mute, do you dispute the assumption that some of these issues that you’re talking about would relate to Huawei or would serve as kind of a warning to allies against using Huawei?  Thanks.

SENIOR STATE DEPARTMENT OFFICIAL:  I would not dispute that.

MODERATOR:  Yeah, Nike.

QUESTION:  And then the OPM unit, since I gave you that clarity?

SENIOR STATE DEPARTMENT OFFICIAL:  Yeah, no.  Yeah, that’s not in my wheelhouse.  That sounds more like a counterintelligence thing and that’s not what I do.

QUESTION:  Got it.  Thank you.

QUESTION:  Thank you for this.  Is there any personnel change or rearrangement in U.S. consuls or embassies in China to respond and to counter the dual technology being used by – for Chinese military?  Meaning – the reason I ask is because if I’m correct, in past years there was more personnel in charge of the commercial and business ties, to promote bilateral business.  Are there now more personnel or diplomats or more employees from the U.S. Intelligence Community working in the embassies and consulates in China to respond to such?

SENIOR STATE DEPARTMENT OFFICIAL:  So I – I’m not going to comment on Chinese intelligence or American intelligence postures, but I will say that, again, our intent here is not to not do business with China.  Our intent is to make sure that sensitive technologies are not diverted to military purposes.  And so we’re not necessarily changing the amount of personnel, but we are engaged in this military-civil fusion awareness raising, and I would assume that a lot of representatives in China at the embassies are aware of military-civil fusion and are probably accounting for that as they do their engagements.

MODERATOR:  Next?  Yeah, Courtney.

QUESTION:  Thanks.  You talked about the diplomatic engagement with allies to make sure that they are similarly aware of this military-civil fusion issue.  What kind of reception are you getting from allies, particularly those high-tech-producing countries you mentioned?

SENIOR STATE DEPARTMENT OFFICIAL:  So I think I can say that everyone has concerns with this.  These are fundamental nation-state concerns – the diversion of advanced technologies to military purposes going to countries that don’t necessarily share your same national security and foreign policy objectives.  So from that perspective I think a lot of the countries we’ve engaged have understood what’s going on.

I would say, not to be repetitive, but it took us a while to fully open our eyes.  So I think it would be premature to expect all of our partners to have their eyes just snap open suddenly and know what to do.  So it’s a process of engagement, awareness raising, followed by more engagement followed by more awareness raising.

QUESTION:  Is there a – sorry, is there pressure that the U.S. is applying?  I think that has been the impression from a lot of allies on the Huawei issue, so for this —

SENIOR STATE DEPARTMENT OFFICIAL:  So I would – I guess I understand how the Huawei thing is kind of fitting into this.  Just keep in mind that Huawei was indicted for racketeering.  They have been put on the entity list for evading sanctions.  The Huawei issue – just on its own apart from military-civil fusion it’s a significant issue, and we’re addressing that using tools that we have available.  That is slightly different than the broader military-civil fusion challenge.

(Chatter.)

That is different from the military-civil fusion challenge, which I view as a little bit kind of broader, more strategic, in a sense.

MODERATOR:  Yeah.  One more, anyone?  Jennifer.

QUESTION:  Can you talk about any guidance you’ve given to research institutions about the threat or if there’s been any warning that if they continue with certain projects, they could lose federal funding, for example?  Any sort of countermeasures you’re taking within the research institute community?

SENIOR STATE DEPARTMENT OFFICIAL:  I kind of talked just generally about it, not in that much detail, but we have been engaging with research organizations and universities at a pretty extensive clip.  We also do this internationally, by the way, as part of our multilateral and bilateral engagements.  The – a lot of these emerging and sensitive technologies are being produced at labs, whether they’re private labs or whether universities.  So it’s incumbent, I think, upon governments to reach out to that community as well, and we have been doing that and a lot of our other partners have been as well.

MODERATOR:  Cool.  Thanks.

QUESTION:  Thank you.

SENIOR STATE DEPARTMENT OFFICIAL:  Thank you, guys.

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