IFI-SSU-Working Paper No.4 Lim

UTokyo, Institute for Future Initiatives (IFI), Security Studies Unit (SSU)
MOFA Grant Research Project“US-China Competition and Securitization of Critical and Emerging Technologies: Evaluating
Policy-making Process and Impacts on Globalized Economy”
Working Paper Series No. 4 (2021)

Can “China Model” Compete?
Evolving State Capitalism and Military-Civil Fusion Strategy
Jaehwan Lim
Aoyama Gakuin University

Abstract
This article seeks to understand the development of US-China competition over technologicalinnovation by focusing on the Military-Civil Fusion (MCF) strategy strongly pushed by the Chinese
Communist Party. Based on an examination of China’s evolving political economy, this article posits
that the MCF strategy should be understood as a new type of industrial policy which has the primary
aim of enhancing overall competitiveness in high-tech sectors and argues that the current
administration’s approach differs substantially from prior attempts in such critical aspects as theunderlying motivation, range of policy measures, and institutional arrangements for policy
implementation. Regarding policy effects, this study draws on an original dataset of policy documents
to demonstrate that despite wide-ranging efforts to mobilize political, administrative, and economic
resources, the MCF strategy at its current stage has fallen far short of the hopes of promoting
competition and cooperation between defense and commercial sectors, and the prospects fortechnological upgrading and innovation remain uncertain.
1．Introduction
Chinese policymakers, including President Xi Jinping, have recently taken to declaring that
there is a “Chinese way” to development that may hold lessons for other developing countries. The
Chinese people, Xi proclaimed in 2016, “are fully confident in offering a China solution to humanity’s
search for better social systems.” A year later, he declared that China was “blazing a new trial for other1

IFI-SSU-Working Paper No.4 Lim

developing countries to achieve modernization.”1 Such claims come as the Chinese Communist Party(CCP or the party) has been reasserting its dominance over society and the economy, and has been
expanding its influence overseas, causing sharp concerns within the US government, whose
policymakers have come to officially portray China as a peer competitor.
With the escalation of US-China competition, the relationship between domestic systems ofgovernance and interstate relations is gaining renewed attention. Many western observers haveconnected Xi’s stated confidence in a “Chinese way” to the regime’s willingness to spread it,
concluding that the US-China rivalry has taken on the aspect of a system-to-system competition.2 On
the face of it, this observation gives rise to multiple questions: What is distinctive about the Chinese
way and how do the Chinese leaders define it? Are they willing to export it? To what extent does therecent intensification of US-China rivalries result from the dynamics of systemic competition? If asystems competition is taking place, how does it affect the governing institutions of each country’s
political economy?
This article seeks to understand the development of systems competition between the US andChina, with a focus on the Military-Civil Fusion (MCF) strategy strongly promoted by the CCP toenhance competitiveness in high-tech industries. As many observers have noted, if the claim that the
US and China have entered a full-scale systems competition suggests an active proliferation of political
ideology and development model, it does not necessarily fit the actual situation.3 On the other hand, it
is true that both the US and China are respectively setting out new resource mobilization strategies
with a view to competing with each other over technological innovation. And as far as such strategies
are concerned, systems competition has already begun.4 Against this background, the MCF initiative,

1“Secure a Decisive Victory in Building a Moderately Prosperous Society in All Respects,” October 18, Deliveredat the 19th National Congress of the Chinese Communist Party(http://www.chinadaily.com.cn/china/19thcpcnationalcongress/2017-11/04/content_34115212.htm).
2
For example, see Aaron L. Friedberg, “Competing with China,” Survival, 60(3), 2018, pp. 7-64; Hal Brands,“China’s Master Plan: Exporting an Ideology,” June 11, 2018 (https://www.bloomberg.com/opinion/articles/201806-11/china-s-master-plan-exporting-anideology); Odd Arne Westad, “The Sources of Chinese Conduct: Are
Washington and Beijing Fighting a New Cold War?” Foreign Affairs, September/October 2019, pp. 86-95; Thomas
J. Christensen, “There Will Not Be a New Cold War: The Limits of US-Chinese Competition,” Foreign Affairs,
March 24, 2021(https://www.foreignaffairs.com/articles/united-states/2021-03-24/there-will-not-be-new-coldwar?fbclid=IwAR23chDFO2gDk9sod5oEYDhXvkKGDBGJx8QJogvR45FNRnZYCD_2lzAlov0 0)
3
For the ongoing debate over China’s systemic challenge to the existing liberal order, see Alastair Iain Johnston,“China in a World of Orders: Rethinking Compliance and Challenge in Beijing’s International Relations,”
International Security, Vol. 44, NO. 2, Fall 2019, pp. 9-60; Jessica Chen Weiss and Jeremy L. Wallace, “Domestic
Politics, China’s Rise, and International Liberal Order,” International Organization, 2021, pp. 1-30.
4For Washington’s reactions, see The White House, “National Strategy for Critical and Emerging Technologies,”2020 (https://www.whitehouse.gov/wp-content/uploads/2020/10/National-Strategy-for-CET.pdf); “United States
Strategic Approach to the People’s Republic of China.” 2020 (https://www.whitehouse.gov/articles/united-statesstratetegic-approach-to-the-peoples-republic-of-china).

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IFI-SSU-Working Paper No.4 Lim

which has been upgraded as a new national strategy, provides good material for observing this noveland critical aspect of the systems competition between the US and China.5
In situating the MCF strategy in the context of systems competition, I argue that the existing
focus on civilian-military technology transfer and defense modernization has become less effective inunderstanding and explaining the drivers and the actual unfolding of the strategy, as well as inassessing the challenges it confronts.6 More specifically, this article demonstrates that the current
administration’s approach to MCF differs substantially from previous attempts in many important
respects, including the underlying rationale, the key objectives, the range of policies, and institutionalarrangements for policy implementation, which suggests that MCF strategy at its current stage should
be approached from a perspective that brings in much broader elements of Chinese political economy
to the equation.
In addition to offering an appropriate context for assessing the development of MCF strategy,
this article seeks to contribute to existing debates over the evolution of Chinese state capitalism byproviding important observations regarding how growing security concerns influence the way inwhich the Chinese state organizes industrial and market capabilities. Although there is substantial
evidence that recent industrial and technology policies are increasingly reflective of the changing
perceptions of leaders toward the security environment, many questions remain unanswered regarding
its effects on policy processes and the overall system of governance. This study attempts to fill thisvoid.
This article proceeds as follows. First, I briefly discuss the gaps in recent debates about USChinese systemic competition and highlight the need to examine how China has sought to create andleverage resources to fulfil its security and developmental needs, a question in part addressed in theextensive literature on Chinese state capitalism. Discussions on core arguments surrounding state
capitalism in China and their implications for MCF strategy will follow. Second, I examine themotivation, institutional development, and policy processes for MCF strategy, with a particular5

For a more comprehensive review of debates about the US-China systems competition, see Jessica Chen Weiss,“An Ideological Contest in U.S.-China Relations? Assessing China’s Defense of Autocracy,” in Avery Goldsteinand Jacques deLisle, eds., After Engagement: Dilemmas in U.S.-China Security Relations, Brooking Institution
Press, 2021.
6
Some analysts have recognized this point. For example, Cheng and Hagt notes that MCF “moves beyond centrallevel planning to execution within a complex subnational political economy.” Tai Ming Cheng and Eric Hagt,“China’s Efforts in Civil-Military Integration, Its Impacts on the Development of China’s Acquisition System, andImplications for the U.S,” University of California San Diego and Naval Postgraduate School, 2020, p. 1, pp. 1215. For an account attaching particular emphasis to the role of local governments, see Eric Hagt, “China’s CivilMilitary Integration: National Strategy, Local Politics,” PhD Dissertation, Johns Hopkins University, 2019. In a
more critical tone, Kania and Laskai, citing the Trump administration’s definition of MCF as “actions to acquireand divert foreign technologies,” point out that foreign policymakers often fail to recognize the complexities andthe nascent character of MCF. Elsa B. Kania and Lorand Laskai, “Myths and Realities of China’s Military-Civil
Strategy,” Center for a New American Security, 2021, pp. 4-5.

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IFI-SSU-Working Paper No.4 Lim

emphasis on its characteristics as a new type of industrial policy. In the third section, I draw on an
original dataset of policy documents relating to MCF to show whether, and to what extent, theupgraded initiatives have translated into policy implementation and impacted the reality on the ground.
The conclusion summarizes the findings of this paper and their implications for technologicalcompetition.

2．US-China Systemic Competition and Chinese State Capitalism
Unlike largely unproductive discussions about the “new cold war” meme, systemic competition
among states is a central theme in both international politics and international relations theory. Yet
recent debates on US-China rivalries appear to have paid only scant attention to the subject,particularly as regards the systemic determinants of technology competition.
2.1. Does Autocracy Have Merits in Technological Competition?
While not rigorously developed, there is a conventional wisdom which is developing that
democratic political systems will never be able to compete with ruthless and efficient autocraticcompetitors. This developing wisdom that some call “autocratic advantage theory” usually begins
from the assumption that autocracies can set out consistent, long-term strategic courses, while policy
directions in a democracy change with elections. Autocrats worry less about bureaucratic bickering or
public outcry because a strongman can overrule dissent and keep the nation on a steady course. In
addition, autocracies can take big, bold actions in implementing national strategy. When autocratic
leaders make an important decision, they can impose their will on the whole nation, and concentrate
resources behind key policies, while political opposition or potential losers are excluded or coerced
into compliance.7 Globalization, which was initially expected to spread democratic values, has ended
up increasing the tools of autocrats for resource extraction to pursue national goals.8
Such claims of autocratic advantage can readily be found in recent discussions on SinoAmerican competition. For example, Friedberg notes that the failure of America’s China strategy
fundamentally stems from “the resilience, resourcefulness, ruthlessness of the Chinese Communist
Party and the determination of its leaders to retain their monopoly on domestic political power.”9 In
7

Matthew Kroenig, The Return of Great Power Rivalry: Democracy versus Autocracy from the Ancient World to
the U.S. and China, Oxford University Press, 2020, pp. 38-39.
8For example, see Henry Farrell and Abraham L. Newman, “Weaponized Interdependence: How Global Economic
Networks Shape State Coercion,” International Security, Vol. 44, No. 1, Summer 2019, pp. 42-79.
9
Aaron L. Friedberg, “Competing with China,” 2018, p. 12 (emphasis added).

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the realm of technological advances, the party’s resoluteness manifests itself in the state’s “deliberate,
long-term focus” which has successfully lifted China from “a country that largely steals and imitatestechnology to one that now also improves and even pioneers it.”10 Further showcasing China’s strength
in innovation drive, according to many observers, is the MCF policy, a whole-of-society strategy thatwill enable China’s robust manufacturing base and government support to “translate researchbreakthroughs into applications and commercialize new technologies more quickly than the UnitedStates and at a fraction of the cost.”11
Of course, not everyone agrees with the notion of autocratic advantage. When it comes toeconomic governance, a number of scholars have raised doubts about the sources of autocratic strength.
Assuming that a country’s economic institutions are primarily shaped by its political institutions, theyargue that the authoritarian elite have incentives to put in place economic institutions that
disproportionately benefit themselves but fail to enhance the economic welfare of broad sectors ofsociety.12 Such logic holds particularly true for technological innovation. Autocratic governments areless comfortable with the tumult and disruption necessary for radical innovation. Thinking outside thebox and challenging standard practices is generally discouraged because it might threaten their ability
to control society.13 The autocratic resoluteness here turns into a major impediment to technologicalinnovation.
Turning to the context of US-China technology competition, despite the “innovation imperative”
that has forced Beijing to elevate the pursuit of innovation to the status of national interest,14 China
has yet to outperform its major competitors and some of the causes, according to some observers, aresystemic. For instance, the top-down nature of the political system has limited the space for policy

10

Christopher Darby and Sarah Sewall, “The Innovation Wars: America’s Eroding Technological Advantage,”
Foreign Affairs 100, no. 2 (March/April 2021), pp. 142-153. Also see Graham Allison, “Is China Beating America
to AI Supremacy?” National Interest, December 22, 2019 (https://nationalinterest.org/feature/china-beatingamerica-ai-supremacy-106861).
11James Mulvenon, “A World Divided: The Conflict with Chinese Techno-Nationalism Isn’t Coming – It’s
Already Here,” War on Rocks (https://warontherocks.com/2021/01/a-world-divided-the-conflict-with-chinesetechno-nationalism-isnt-coming-its-already-here), January 28, 2021.
12
Most famously, see Daron Acemoglu and James Robinson, Why Nations Fail: The Origin of Power, Prosperity,
and Poverty, Crown Publishing Group, 2012. It is worth noting that Acemoglu and Robinson recognize that by
putting in place inclusive economic institutions, autocrats could fix this economic problem in theory. But theyargue that this is difficult, if not impossible, in practice because it would undermine the autocrats’ own base of
power by enriching individuals and businesses outside of the government.
13
Matthew Kroenig, The Return of Great Power Rivalry: Democracy versus Autocracy from the Ancient World to
the U.S. and China, Oxford University Press, 2020, p. 21.
14
Andrew B. Kennedy and Darren J. Lim, “The Innovation Imperative: Technology and US-China Rivalry in the
Twenty-first Century,” International Affairs, Vol. 94, No. 3, 2018, pp. 553-572. According to the authors, it isimperative that the rising, particularly middle-income, states like China become more efficient though innovation as
they have passed the first stage of industrialization, for which further capital investment faces diminishing returns.

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experimentation, much less for innovative practices on the ground.15 Others point out that due to its
essentially statist and protectionist approach to S&T development, the Chinese government has been,
and will continue to do so, struggling to leverage its massive resources and assets to deliver desired
effects.16
In short, there are seemingly incompatible perspectives as to how well China can compete with
the US, particularly in the sphere of technological innovation. What is missing here, therefore, is thepossibility that the governing system of China has both weaknesses and strengths, some of which are
attributable to its authoritarian character but some of which are not. Though largely overlooked in thecurrent geopolitical context, political economists focusing on China have long discussed whatcharacterizes the state’s approach to formulating strategies for resource allocation and implementing
them, a question recently addressed under the theme of Chinese state capitalism.17 The next section
examines various arguments surrounding China’s political economy and distils some key implications
to be explored in the following empirical sections.
2.2．Shifting the Focus: The Mechanisms and Evolution of State Capitalism in China
For the past few decades, scholars of the political economy of development have recognized arange of productive roles for the state in guiding economic development, with some even heralding
the arrival of “state capitalism” as a viable alternative to market-oriented development.18 Debates on
the relationship between state intervention and a range of important phenomena, from economic
growth and competitiveness to political stability and inclusion, still rage on as scholars attempt toidentify the precise mechanisms of intervention and test the effects they create.
In the case of China, the nature of state involvement in the economy has long been debated,
mainly in an attempt to explain its rapid economic growth during the reform era. For example,
economist Barry Naughton identifies that one of the key factors that led to the dramatic economic

15

Ryan Haas, “China Is Not Ten Feet Tall: How Alarmism Undermines American Strategy,” Foreign Affairs,
March 3, 2021 (https://www.foreignaffairs.com/articles/china/2021-03-03/china-not-ten-feet-tall).
16
Peter Cowhey, et al, Meeting the China Challenge: A New American Strategy for Technology Competition, The
21st Century China Center, UC San Diego School of Global Policy and Strategy, November 16, 2020; Arthur R.
Kroeber, China’s Economy: What Everyone Needs to Know, Oxford University Press, 2016, pp. 64-66.
17
While recognizing the limits of and controversies over state capitalism as an analytic concept, it is beyond thescope of this article to examine the analytic efficacy of the concept across various fields of discipline. For a recent
critique of state capitalism, see Ilias Alami and Adam D. Dixon, “State Capitalism(s) Redux? Theories, Tensions,Controversies” Competition & Change, Vol. 24, No. 1, 2020, pp. 70-94.
18Peter Evans, Embedded Autonomy: States and Industrial Transformation, Princeton University Press, 1995;
Stephan Haggard, Developmental States (Elements in Politics of Development Series), Cambridge University
Press, 2018; Aldo Musacchio and Sergio G. Lazzarini, Reinventing State Capitalism: Leviathan in Business, Brazil
and Beyond, Harvard University Press, 2014.

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development was an authoritarian political system that successfully evolved out of socialist planning.
China’s transition strategy was the “re-purposing” and “incentivizing” of government bodies; repurposing was intended for co-opting existing organizations into the new economic environment, andincentivizing was for aligning government officials with economic growth. 19 In a similar vein,
economist Chenggang Xu attributes China’s spectacular growth to a “regionally decentralized
authoritarian system” in which highly motivated subnational governments “initiate, negotiate,
implement, and resist economic reforms.”20
Looking deeper into the mechanisms of central-local dynamics, which has been the central
theme of reform-era China’s political economy, political scientist Yuen Yuen Ang argues that China’s
economic development was realized as a result of what she refers to as “directed improvisation.” Thatis, central reformers direct (not dictate) by authorizing the boundaries of localization throughnationally issued mandates, but it is the local governments that improvise solutions to locally specificand ever evolving problems.21 The consequence is a whole variety of subnational political economies
within China where the pattern of success varies across time and place. If there is a common groundto the wide-ranging development models, it is the party’s role as a “director,” allowing policy
innovation tailored to changing conditions by providing the bureaucracy with direction andincentives.22
By highlighting the distinctive role of the party, Ang’s argument implicitly sheds light on thecritical aspects of the fragmented authoritarianism often referred to in the context of Chinese policy
processes. Its chief proposition is that the authority for policy formulation and execution in China is
not concentrated at the party center, but instead diffused across a complex structure in which thebureaucratic systems of the party, government and military are intricately woven together bothvertically and horizontally. As such, policy processes in China are more of a negotiation than coercion,and more incremental than sweeping, enabling ground-level actors to effectively adapt to shifting
conditions.23
Meanwhile, more recent debates about Chinese state capitalism have centered on the role ofstate-owned enterprises (SOEs), which, according to many commentators, represent a remarkable
19

Barry Naughton, “China’s Distinctive System: Can It Be a Model for Others?” Journal of Contemporary China,
Vol. 19, No. 65, 2010, pp. 454-456.
20
Chenggang Xu, “The Fundamental Institutions of China’s Reforms and Development,” Journal of Economic
Literature, 2011, Vol. 49, No. 4, pp. 1078-1079.
21
Yuen Yuen Ang, How China Escaped the Poverty Trap, Cornell University Press, 2016, pp. 73-102.
22
Yuen Yuen Ang, “The Real China Model: It’s Not What You Think It Is,” Foreign Affairs, June 29, 2018(https://www.foreignaffairs.com/articles/asia/2018-06-29/real-china-model). For a similar observation, see Kellee
Tsai, “Off Balance: The Unintended Consequence of Fiscal Federalism in China,” Journal of Chinese Political
Science, Vol. 9, No. 2, 2004, pp. 1-27.
23
Kenneth Lieberthal and Michel Oksenberg, Policy Making in China: Leaders, Structures, and Processes,
Princeton University Press, Ch.1.

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IFI-SSU-Working Paper No.4 Limchange in the way the Chinese state intervenes in the economy.24 For example, Naughton and Tsaicontend that since the early 2000s a “stable and mutually reinforcing arrangement of political andeconomic institutions” has emerged in China, with the “state sector” – firms that are majority owned
by various levels of the party-state – as its core element. As a consequence, the position of SOEs has
stabilized, and the role that they play in the overall economy has changed in important ways. Most
notably, political leaders have developed new justifications for state enterprises in which security –including traditional national defense and now “economic security” as well – is increasingly invoked
as a rationale for state ownership.25
However, it is also worth noting that more radical efforts have been made, especially since thestart of the Xi administration, to expand the reach of the party-state with a view to integrating
fragmented elements both within the state and the market. To be sure, some commentators discountthe novelty of recent shifts, noting that similar efforts have been made in the past,26 while others raisequestions about their effectiveness. For example, characterizing the Belt and Road Initiative (BRI) as
a national mobilization campaign, Ye argues that while originating from the need to deal with shifting
domestic and international challenges, BRI and mobilization under its name intensifies fragmentation
and results in the decentralized implementation that diverges from the rhetoric of the strategy.27
Nevertheless, an increasing number of observers are now calling attention to significant changes
to the political and economic architecture that have characterized Chinese state capitalism, whether
the new construct be stylized as a “CCP Inc.”28 or “hybrid capitalism”29 or “the investor state.” For
instance, Chen and Rithmire document the rise of a novel form of state intervention – the expansion

24

Barry Naughton and Kelee Tsai, eds., State Capitalism, Institutional Adaptation, and the Chinese Miracle,
Cambridge University Press, 2015; Yasheng Huang, Capitalism with Chinese Characteristics: Entrepreneurshipand the State, Cambridge University Press, 2008; Li-Wen Lin and Curtis J. Milhaupt, “We Are the (National)
Champions: Understanding the Mechanisms of State Capitalism in China,” Stanford Law Review, Vol. 65, No. 4,
2013, pp. 697-759; Roselyn Hsueh, China’s Regulatory State: A New Strategy for Globalization, Cornell
University Press, 2011; Mark Wu, “The China ‘Inc.’ Challenge to Global Trade Governance,” Harvard
International Law Journal, Vol. 57, 2016, pp. 1001-1063; Chen Li, “Holding ‘China Inc.’ Together: The CCP and
the Rise of China’s Yangqi,” China Quarterly, Vol. 228, 2016, pp. 927-949.
25
Naughton and Tsai 2015, op. cit., pp. 9-11.
26
Kjeld Erik Brødsgaard, ed., Chinese Politics as Fragmented Authoritarianism: Earthquakes, Energy, andEnvironment, Routledge, 2018, Ch. 1.
27
Min Ye, “Fragmentation and Mobilization: Domestic Politics of the Belt and Road in China,” Journal ofContemporary China, Vol. 28, No. 119, 2019, pp. 696-711. A similar observation can also be found in Yuen Yuen
Ang, “Demystifying Belt and Road: The Struggle to Define China’s Project of the Century,” Foreign Affairs, May
22, 2019, where the author attributes the widespread confusion surrounding BRI to Beijing’s policy-making
traditions, including the ‘policy campaign’ and ‘deliberate ambiguity.’
28
Jude Blanchett, “From ‘China Inc.’ to ‘CCP Inc.’: A New Paradigm for Chinese State Capitalism” China
Leadership Monitor, No. 66, Winter 2020, pp. 1- 12. See also Nicholas R. Lardy, The State Strikes Back: The End
of Economic Reform in China?, Peterson Institute for International Economics, 2019; Elizabeth C. Economy, The
Third Revolution: Xi Jinping and the New Chinese State, Oxford University Press, 2018.
29
The Economist, “Blooming for the Glory of the State,” August 15, 2020.

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IFI-SSU-Working Paper No.4 Limof state capital beyond ownership of state firms. The investor state, as they argue, is different from theexisting model in its introduction of new agents to distribute state capital to firms and new mechanisms
through which states monitor and influence business actors.30 More fundamentally, Milhaupt andZheng challenge the standard dichotomy between SOEs and private enterprises by arguing that thecurrent institutional environment results in virtually all large firms – irrespective of ownership –having close connections to state actors and agencies, access to state largesse, and a role in carryingout the policies of the party.31
In short, at the most basic level, it is apparent that understanding Chinese state capitalism as aunitary control of economic entities by the central government may lead to a misunderstanding ofChina’s policies. Yet this does not mean that policy implementation is rarely aligned with theintentions of the central leadership, because the carefully designed incentive mechanism based on theparty’s power over personnel decisions has functioned to ensure consistency for policy processes.
Simultaneously, debates continue over whether and how state capitalism has transformed itself
as China finds herself in a different stage of development, and faced with an increasingly competitive
international environment. Key questions include: Does the party still define and practice its role as adirector rather than a dictator? Will the same incentive mechanism, which successfully instructed local
bureaucrats to achieve rapid growth, be equally effective in responding to more complex
developmental needs such as technological innovations? To what extent are Chinese SOEs functioning
as the agents of transformation, and what has been the focus of SOE reforms? What policy instruments
and resources has the new administration mobilized in order to enhance industrial competitiveness?
The MCF strategy, provided the assumption that it is an integral element of the whole-of-society
approach to building a technologically advanced and militarily powerful state is correct, will provide
fertile ground for exploring these questions, particularly with regard to the evolving character andmechanisms of Chinese state capitalism. Furthermore, examining the structure and processes of MCF
policy development will advance our understanding of how effectively new actors and methods areoperating in resource allocation and management. The next section begins by providing a definitionof the MCF strategy and discussing some of the main underlying drivers.

30

Hao Chen and Meg Rithmire, “The Rise of the Investor State: State Capital in the Chinese Economy,” Studies in
Comparative International Development, 55, 2020, pp. 257-277.
31
Curtis Milhaupt and Wentong Zheng, “Beyond Ownership: State Capitalism and the Chinese Firm,” Georgetown
Law Journal, 103, 2015, pp. 665-722.

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3．The Political Economy of Military-Civil Fusion Strategy
3.1．What is MCF?
Before exploring the institutional arrangements and policy processes of the MCF strategy, I
would like to clarify as a starting point that MCF is one of the most ambitious industrial policies that
the Chinese state has put forward in recent years to reform the sectoral structure of the economy.32
Specifically, the aim of the initiative is to strengthen the competitiveness of selected industries,
particularly in high-tech sectors, by means of a wide range of military-civilian cooperation andcompetition. Hence, as far as the principal motive is concerned, a commonly-held view of MCF as a
strategy designed to advance weapons production by promoting private injections – particularly in theform of capital or technology – into the defense sector represents only part of the whole picture. As
will be shown below, the MCF strategy targets a range of strategic sectors, with a focus on efforts forreforming R&D, production, and procurement systems within those sectors.33
Still, simply stating a desired or expected outcome is not enough to indicate the extent of
ambition associated with the MCF initiative, as well as its novelty, even if that statement is issued byan authoritative entity. To be considered as an industrial policy, there has to be a costly intervention
into the real economy with significant resource efforts, including the direct cost of subsidies andpreferential taxation, or the indirect cost of regulatory barriers and protectionist policies used to nurturea targeted sector. Furthermore, as discussed in the previous section, the Chinese state appears to havemade significant efforts to recalibrate party-state relations, restructure its bureaucracy, and evenmobilize private agents to respond to emerging developmental and strategic imperatives.34 As will be
32

Here I adopt a narrower, more clearly specified, definition of industrial policy as “selective, targeted government
intervention that attempts to change the sectoral structure of the economy that are expected to offer better growththan would occur in the (non-interventionist) market equilibrium.” For a brief discussion over the definition ofindustrial policy, see Barry Naughton, 2021, The Rise of China’s Industrial Policy, 1978-2020, Universidad
Nacional Autonoma de Mexico, pp. 18-20.
33
Some may object to characterizing MCF as an industrial policy. For example, Naughton, despite acknowledging
that MCF “will be a long-term trend in China’s military industrial management system,” discounts that “on balance,
it makes sense to treat the defense sector as a special case, driven primarily by non-economic considerations.”
Naughton 2021, Ibid., p. 26 (emphasis added). Yet, as will be shown below, challenging – even negating – thespecial status of the defense sector is precisely the proclaimed goal of key MCF policies, and it is hardly simple todistinguish between non-economic and economic factors that may affect China’s recent industrial policies, whichmakes them even more distinctive from previous policy efforts. For the latter point, see, for instance, Loren Brandt
and Thomas G. Rawski, eds., Policy, Regulation, and Innovation in China’s Electricity and Telecom Industries,
Cambridge University Press, 2019, pp. 21-22.
34
This “political” cost of an industrial policy has been overlooked or underexplored in the existing economic andmanagement literature. Yet, given the ‘negative externalities’ generated from, for instance, Xi’s efforts at
centralizing policy processes, this lack of attention may lead to misunderstandings of the staying power ofassociated initiatives.

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shown in the next sections, the MCF strategy entails a substantial amount of political, administrative,and economic resource efforts, resulting in a gradual upgrading of related industries that otherwise
would not have occurred.
3.2．Why MCF?
The MCF strategy is a groundbreaking move, but the Xi administration was not the first toconceive the idea of enhancing manufacturing and R&D capabilities through military-civilian
spillovers. As many commentators have noted, efforts at restructuring military-civilian relations
toward economic development can be traced back to the early years of the reform era, and the SOE
reform policies of the late 1990s share a motivation to boost the competitiveness of the defense
industry.35 In addition, most of the individual policy measures currently being implemented were
proposed by the Hu Jintao administration under the then new slogan of “military-civil fusion.”36
However, this continuity with previous administrations and their policies does not undermine
the groundbreaking nature of the MCF policies driven by the Xi administration. Of particular noticeis that barrier-free cooperation and competition between the defense and civilian sectors fortechnology innovation are positioned as a new development model that binds the military andeconomy together.37 Behind this new positioning, along with the present leadership’s intention todifferentiate its policies from previous administrations, lies an important change in the strategic
environment, specifically the intensification of strategic competition with the US.
A related and equally important factor is the sputtering Chinese economy. Growing strategiccompetition with the US has made it an urgent priority to construct a national defense system capableof coping with perceived changes in the strategic environment, such as the advancement of militarytechnologies and changes in the forms of war, which require an investment of resources exceeding35

For Deng Xiaoping’s earlier initiative at reforming the defense industry, see Tai Ming Cheng, Fortifying China:
The Struggle to Build a Modern Defense Economy, Cornell University Press, 2009, Ch. 3; National Institute for
Defense Studies, NIDS China Security Report 2021: China's Military Strategy in the New Era. For the efforts atreforming the defense industry in the Jiang Zemin era, see Evan S. Medeiros, et al, A New Direction for China’s
Defense Industry, Rand Corporation, 2005, pp. 22-49.
36
For the contents of and specific challenges faced by the MCF policy in the Hu-era, see National People's
Congress Financial and Economic Affairs Committee, ed., A Study on Military Civil Fusion Development Strategy,
China Financial and Economic Publishing House, 2010 (NPC Study on MCF thereafter). Although titled as a study,
the book is a collection of exceptionally candid reports about the challenges of MCF policy implementationcompiled by the responsible entities across the government and the military.
37“Opinion on the Integrated Development of Economic Construction and National Defense Construction” (July
2016) was published as a theoretical basis to upgrade the military-civil fusion policy into a national strategy as
discussed below.

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previous levels in terms of both quality and quantity.38 On the fiscal front, however, preferential andadditional allocations of resources to national defense construction cannot be expected, due to slowing
economic growth and increased social welfare costs. In addition, the patterns of budget allocation
within the military indicate that efforts at reducing costs through personnel downsizing, among others,
are not enough to meet the expanding needs for equipment modernization.39
However, this growing financial pressure confronted by the People’s Liberation Army (PLA)
represents only a part of the challenge that current strategic competition with the US poses to Beijing.40
Given that China’s defense R&D expenditure, for instance, comes from mostly non-military andgradually diversified sources of funding,41 more fundamental issues stem from the changed nature ofmilitary technology and innovation. Recent studies on military innovation claim that militarytechnology has become dramatically complex, so much so that copying advanced weapon systems andreplicating their performance have not become easier, as many believe, but rather have become moredifficult.42 Citing the case of China’s decades-old endeavor to copy fifth-generation jet fighters, Gilliand Gilli show that China has struggled enormously to replicate some of the most advanced militarytechnology (in this case, turbofan engines and avionics), even with its expanding domestic investment
and global access to foreign technology.43 Although few studies have explicitly suggested that this38

National Institute for Defense Studies, NIDS China Security Report 2021: China's Military Strategy in the New
Era, p. 59.
39
The State Council Information Office (2019), China's National Defense in the New Era (p. 23).
40
Another explanation for MCF focuses on the perceived shift in the form of warfare from “informatized” (信息化xinxihua) to “intelligentized” (智能化 zhinenghua) war. For example, Richard A. Bitzinger, “China’s Shift from
Civil-Military Integration to Military-Civil Fusion,” Asia Policy, Vol. 16, No. 1 (January 2021), pp. 5-35; NIDS
China Security Report 2021, p. 58.
41
For an evidence-based discussion on China’s defense expenditure, see Nan Tian and Fei Su, A New Estimate of
China’s Military Expenditure, SIPRI, January 2021; Meia Nouwens and Lucie Beraud-Sudreau, “Assessing
China’s Defense Spending: Proposal for New Methodologies,” IISS, March 20 2020.
42
Michael C. Horowitz, The Diffusion of Military Power: Causes and Consequences for International Politics,
Princeton University Press, 2010; Peter J. Dombrowki and Eugene Gholz, Buying Military Transformation:
Technological Innovation and the Defense Industry, Columbia University Press, 2006; Andrea Gilli and Mauro
Gilli, “The Diffusion of Drone Warfare? Industrial, Infrastructural, and Organizational Constraints,” Security
Studies, Vol. 25, No. 1 (Winter 2016); Yu-Ming Liou, Paul Musgrave, and J. Furman Daniel III, “The Imitation
Game: Why Don’t Rising Powers Innovate Their Militaries More?” Washington Quarterly, Vol. 38, No. 3 (Fall2015), pp. 157-174; Eugene Gholz, “Systems Integration for Complex Defense Projects,” in Guy Ben-Ari and
Pierre A. Chao (eds), Organizing a Complex World: Developing Tomorrow’s Defense and Net-Centric Systems,
Center for Security and International Studies, 2009, pp. 50-65.
43
Andrea Gilli and Mauro Gilli, “Why China Has Not Caught Up Yet: Military-Technological Superiority and theLimits of Imitation, Reverse Engineering, and Cyber Espionage,” International Security, Vol. 43, No. 3 (Winter2018/2019), pp. 141-189. Instead, scholars have pointed out that China’s performances in “absorbing” foreign
military technology have been uneven across different sectors but overall brought significant success. See Tai Ming
Cheng (ed), Forging China’s Military Might: A New Framework for Assessing Innovation, Johns Hopkins
University Press, 2014; Tai Ming Cheung (ed), The Chinese Defense Economy Takes Off: Sector by Sector
Assessments and the Role of Military End Users, Institute on Global Conflict and Cooperation, University ofCalifornia, 2013.

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IFI-SSU-Working Paper No.4 Lim

technological challenge has led to Beijing’s increased interest in integrating military and civilian
sectors, the discussion below clearly indicates that growing complexity of military technology
provides the CCP leadership with powerful imperatives to further the development of MCF.
3.3．Politics of MCF Strategy
As an initial response to worsening economic and strategic situations, the previous
administration under Hu Jintao rolled out a set of MCF policies from a number of directions. However,
due to structural problems inherent both in policy implementation and the defense industrial system,
Hu’s new policy initiatives were not able to bring a sufficiently broad range of changes to deliver
outcomes as expected. To be sure, this is not to say that the Hu administration’s attempts to further
boost MCF policy failed to make any difference. Rather, they laid bare what constituted the core
impediments to implementing the urgent task of enhancing the innovative capacity of China’s defense
industry among others, and what measures must be taken to overcome them. This was the starting
point from which Xi began to grapple with the new and old issues of MCF.
In order to reinvigorate the momentum of MCF policy to carry out specific reforms, the Xi
administration came up with two institutional innovations. First, Xi presented an ideational foundation
on which relevant actors share the goal of MCF and coordinate their preferences on policy priorities
and means. Secondly, Xi made significant changes to the organizational structure for policy
implementation by strengthening the party’s coordinating capacity, which culminated in theestablishment of the Central Commission for Military-Civil Fusion Development (CCMCFD) in
January 2017. In short, Xi’s innovations are clearly intended to address and overcome the fragmented
nature of China’s policy processes, a necessary condition to ensure that an industrial policy of thisscale can deliver results as expected.
3.3.1．Redefining Purpose
Various reports note that prior to 2012, it was widely believed among policymakers that a major
obstacle to implementing MCF was the lack of a shared understanding about the long-term goal,
priorities, and implications of the initiative. Even after recognizing this as a (somewhat natural) resultof a growing conflict of national and sectoral interests, internal observers stressed the need to entwine
MCF policy into the overall socio-economic development strategy, thereby creating a shared sense of13

IFI-SSU-Working Paper No.4 Lim

purpose across the bureaucracy.44 More specifically, they proposed to elevate MCF policy to a national
strategy, and draw up comprehensive and specific plans in tandem with the national Five-Year Plan.45
Since he took office in late 2012, Xi frequently mentioned in public his willingness to inheritand develop Hu’s initiatives on MCF. For instance, speaking at an expanded meeting of the CMC in
December 2012, a critically important event in which a new commander-in-chief assesses the previous
leadership’s achievements and states his overall policy agenda, Xi noted that “we have only justemerged from an initial phase of MCF-style development.”46 It was as early as March 2014 that Xi
referred to MCF as a national strategy, explaining that MCF development concerns both national
security and China’s overall development. Further, at the plenary meeting of the PLA delegation at
the session of the National People’s Congress held in March 2015, Xi remarked that he ponders how
to balance development and security in the formulation of the overall national strategy, and that theelevation of MCF development into a national strategy represents an answer.
The watershed moment for MCF policy came on July 2016 when the Opinion on the Integrated
Development of Economic Construction and National Defense Construction (2016 Opinion) was
released by the CCP Central Committee, the State Council, and the Central Military Commission(CMC). Two points deserve special attention. One is that the issuing authority encompasses the party,
the state, and the military, which represented a significant departure from the preceding years during
which Xi’s remarks on MCF were primarily directed at a military audience. It now became apparent
that MCF policy was placed on the list of tasks for which the party is responsible.
Another related and notable feature of the 2016 Opinion is its content. First, it attaches a special
importance to MCF policy by positioning it as a new strategy for governing the relationship between
economic and military development. It may have reminded policy insiders of Jiang Zemin’s attempt
to redress the relationship between economic and military development in 1997, which signaled aradical reform of the defense industry. Secondly, the 2016 opinion not only proclaimed the upgradedstatus of MCF as a national development strategy but also specified the main domains for policy
formulation and implementation.47 Thirdly, it is also noteworthy that the document used the term goal

44

Examples of conflicts of interests in the realm of MCF include the fear of the defense enterprises that theincreased entry of civilian entities may lead to encroachment of the concentrated, monopolized structure of the
defense industry, as well as concerns on the part of the military about the possibility of losing posts due to the“outsourcing” of various military services. NPC Study on MCF, 2010, p. 7.
45
NPC Study on MCF, 2010, p. 23.
46
Zhongguo Renmin Jiefangjun Zongzhengzhibu [The People’s Liberation Army General Political Department], Xi
Jinping Guanyu Guofang he Jundui Jianshe Zhongyao Lunshu Xuanbian [Collection of Xi Jinping’s Important
Speeches on National Defense and Military Construction], 2014, p. 50, 52.
47
Six key domains were identified, which include fundamental (基础 jichu), manufacturing (产业 chanye), scienceand technology (科技 keji), education resources (教育资源 jiaoyu ziyuan), social services (社会服务 shehuifuwu), and emergency and public safety (应急和公共安全 yingji he gonggong anquan).

14

IFI-SSU-Working Paper No.4 Lim(目标 mubiao) to denote a navigational point toward which effort should be directed, rather than theintended effect from deepening MCF.48 In short, the 2016 Opinion is believed to be the only public(partial summary) authoritative document on MCF development to date. Since then, MCF has cometo the fore and entered a stage of rapid development.
3.3.2．Making Bureaucracy Work
Another institutional innovation that Xi put in place to promote MCF policy was thestrengthening of the party’s role in guiding and coordinating policy implementation.49 Prior to 2012,nearly all policymakers and commentators pointed out that a lack of high-level guidance (“top-level
design” in Chinese terms) and overall coordination represented the biggest impediment in the push for
the MCF strategy. Contrary to the conventional view that Hu Jintao lacked both the will and the skills
to coordinate the competing interests of China’s increasingly fractious bureaucracy, Hu made some
important moves intended for doing this. Of particular relevance regarding MCF was the establishmentof the Ministry of Industry and Information Technology (MIIT), a new cabinet-level ministry in 2008,
and a bureau-level agency specializing in civil-military integration within it.
This administrative reform merits emphasis in two respects. First, it suggested that MCF had
already begun to be considered as an independent policy area that requires focused, comprehensive
organizational support. It is worth noting in this regard that the Commission for Science, Technology,
and Industry for National Defense (COSTIND), a ministry-level agency that regulates Chinese defense
R&D and production, was merged into MIIT and renamed as the State Administration for Science,
Technology, and Industry for National Defense (SASTIND). This radical move,50 according to Cheng
and others, inherited an ongoing effort to introduce a more independent regulatory structure for
China’s defense industry, while linking it to broader regulatory frameworks over strategic industries.51
Second, a related issue was the coordination of an increasing number of entities involved in MCF. It

48

Stone and Wood, China’s Military-Civil Fusion Policy, 2021, p. 26.
For discussions on the strengthening of the party’s role in policy processes, see David M. Lampton, “Xi Jinping
and the National Security Commission: Policy Coordination and Political Power,” Journal of Contemporary China,
Vol. 24, No. 95, 2015, pp. 759-777; Barry Naughton, “Shifting Structures and Processes in Economic Policymaking at the Center,” in Sebastian Heilmann and Matthias Stepan, ed., China’s Core Executive: Leadership
Styles, Structures, and Processes under Xi Jinping, Mercator Institute for China Studies, June 2016.
50
As a result of reform, COSTIND’s status was demoted by two administrative ranks from a state commission to astate administration subordinate to MIIT.
51
Tai Ming Cheng, “An Uncertain Transition: Regulatory Reform and Industrial Innovation in China’s Defense
Research, Development, and Acquisition System,” in Tai Ming Cheng (ed), Forging China’s Military Might: A
New Framework for Assessing Innovation, Johns Hopkins University Press, 2014, pp. 50-51; Yeo Yukyung,“Remaking the Chinese State and the Nature of Economic Governance? The Early Appraisal of the 2008 ‘Super
Ministry’ Reform,” Journal of Contemporary China, Vol. 18, No. 62, 2009, pp. 729-743.
49

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is conceivable that at the time of the reform, MIIT as a “super ministry” was expected to play acoordinating role, minimizing turf wars that had previously stymied policy-making and enforcement.
Along with this government restructuring, the Hu administration also launched a process forenacting a national law especially designed to promote MCF. The idea behind the initiative to draft a“MCF promotion law” [军民融合促进法 Junmin Ronghe Cujinfa] was that such a law would act asan effective coordination mechanism by giving clear guidelines about the policy priorities andresponsibilities of relevant agencies and departments, among others.52 These efforts to provide a legal
foundation for MCF were inherited by the Xi administration in which the law-drafting processes weretaken over by the National Development and Reform Commission (NDRC) and the PLA’s Strategic
Planning Department.53
Compared to Hu’s approach, Xi’s solution to the issue of overall coordination was innovativein two ways. First, he created a new national-level coordinating body, the CCMCFD and placed itwithin the party hierarchy. This represents a marked break with the Hu-era (and the early years underXi) when the main coordinating authority was vested with MIIT, a government entity within the StateCouncil.54 Second, by becoming the chair of the body, Xi demonstrated his personal commitment toenforcing the MCF strategy, according it much-needed “central” authority. To be clear, however, thecreation of CCMCFD was not unique given the proliferation of party-based coordinating mechanisms
in the Xi-era.55 As Lampton notes in his explanation for the establishment of the Central National
Security Commission, Xi sought to “make the party the key instrument in both developing andimplementing policy.”56
In addition to exhibiting the central leadership’s commitment, the creation of CCMCFD served
to signify which organizations were to play a leading role in policy coordination. For example, leaders
were present at a CCMCFD meeting in October 2018 from the following entities: NDRC, State-owned
Assets Supervision and Administration Commission (SASAC), All-China Federation of Industry andCommerce, the CMC Strategic Planning Office (SPO), Tsinghua University, Shaanxi Province,
52

NPC Study on MCF, 2010, pp. 23-26.
Guofang Daxue Guofang Jingji Yanjiu Zhongxin, Junmin Ronghe Fazhan Baogao 2013 [Report on theDevelopment of Military-Civil Fusion 2013], Guofang Daxue Chubanshe, 2013, pp. 5-6, 14-15; Elsa B. Kania,“Strategic Planning in China’s Military: Which organizations are responsible for the PLA’s high-level thinking onreform and innovation?” The Diplomat, June 7, 2017. The PLA’s Strategic Planning Department was established in2011 as a second-level department subordinate to the General Staff Department.
54
Specifically, starting in late 2012, an inter-governmental (including relevant military entities) coordinating organ(军民结合部际协调小组 Junmin Jiehe Buji Xietiao Xiaozu) was established with the MIIT head as the groupleader. Guofang Daxue Guofang Jingji Yanjiu Zhongxin 2013, op. cit., p. 17.
55
For the formation of “cross-system” small leading groups in the Xi-era, see Wen-Hsuan Tsai and Wang Zhou,“Integrated Fragmentation and the Role of Leadership Small Groups in Chinese Politics,” The China Journal, No.
82, pp. 1-22.
56
David M. Lampton, “Xi Jinping and the National Security Commission: Policy Coordination and Political
Power,” Journal of Contemporary China, Vol. 24, No. 95, 2015, p. 779 (emphasis added).
53

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Qingdao City, and Aviation Industry Corporation of China, Ltd. Particularly salient on the list were
NDRC and CMC SPO which jointly replaced MITT as the main coordinating bodies for thegovernment and the military.57 The implication was clear: the authority of overall coordination was
shifted from the government to the party, and the new coordination mechanism contained the muchneeded connection between the government and the military, strengthening its coordinating capacity.58
Taken together, Xi’s approach to revamping the organizational configuration of policy
coordination for MCF shows both his personal agenda and the institutional strategy to realize it.
Following such moves by the party center, a wave of creation of province-level commissions for
Military-Civil Fusion Development has spread across China along with the emergence of various
mechanisms for military-civilian cooperation.59
3.4．Economics of MCF Strategy
With the goals redefined and coordination structure revamped, a series of specific policies wererolled out to enable the “deep fusion” to take place. Though it covers a wide range of issues, MCF
strategy from the onset has stressed its implications for the defense industrial sector. In other words,
the nature of MCF as an industrial policy is obvious given the timing of its emergence and the relative
weight of concrete policy initiatives. This section discusses first where MCF is focused, and then theimplications for the defense industry.
3.4.1．Consolidating and Opening Up Defense Industry
As noted earlier, the origin of MCF strategy can be in part traced back to earlier efforts startingin the late 1990s to transform China’s defense industry. Following these reforms, a general consensus
has emerged that China’s defense industry gained a higher degree of efficiency and competitiveness.
Indicators include overall improvements in the quality of domestically manufactured weapon systems
and a significant drop in the import of weapons, especially from Russia. 60 In their 2005 study,
57

It was after the promulgation of the 2016 opinion that NDRC installed a bureau in charge of coordinateddevelopment between economy and national defense, and this bureau was incorporated into the CCMCFD as adirecting office together with CMC SPO.
58
Brian Lafferty, “Civil-Military Integration and PLA Reforms,” in Philip C. Saunders, et al., eds., Chairman Xi
Remakes the PLA: Assessing Chinese Military Reforms, National Defense University Press, 2019, pp. 627-660.
59
Mei Yang and Ji Jianqiang, “Tiaokuai Zhili: Junmin Ronghe Fazhanzhong de Difang Zhengfu” [Governanceunder Vertical Lines and Horizon Lumps: Local Government in Civil-Military Integration Development]. Journalof Beijing Institute of Technology (Social Science Edition) Vol. 23, No. 3, 2019, pp. 133-142.
60
The U.S.-China Economic and Security Review Commission, “Chapter 4 Section 2 – An Uneasy Entente: ChinaRussia Relations in a New Era of Strategic Competition with the United States,” in 2019 Report to Congress of the
U.S.-China Economic and Security Review Commission, pp. 324-326.

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Medeiros et al. find that “China’s defense sectors are producing a wide range of increasingly advanced
weapons that, in the short term, are relevant to a possible conflict over Taiwan but also to China’s
long-term military presence in Asia.”61 This resonates with the general evaluation of insiders thatefforts to restructure the defense industry resulted in a marked progress in defense R&D andproduction capabilities, which placed the industry at an initial stage of a new “small core, large
collaboration” structure.62
Nevertheless, even prior to 2012, there was a growing awareness that under the newcircumstances of a sluggish economy and intensifying strategic competition with the US, China’s
defense industry required a deeper transformation. Based on interviews with relevant actors in 2012,
Tai Ming Cheng summed up the worries as follows:
There is a real risk that the defense industry could find itself trapped partway through atransition in which key segments are left unreformed or partially reformed because of strong
opposition from various interest groups. The negative consequences from such selective
reform has so far been masked by the abundance of resources that have flowed through thedefense industry and RDA (R&D and acquisition) system since the late 1990s. But any
tightening in budgets because of slowing economic growth could expose the fragility of thisdeeply fragmented and flawed system.63
It is thus no coincidence that central policymakers and scholars have labelled the erection of anadvanced defense S&T and industrial base as the top priority of MCF.64 The principal strategy here isa “deep fusion” with the civilian industrial base. Although key objectives in this domain have not been
well defined, clearly identified priorities include, (1) the restructuring of the defense technologicalindustrial base (DTIB), and (2) the further opening up of the defense market to civilian entities.
One of the problematic features of the Chinese defense industry, which many have claimed isthe biggest obstacle to enhancing innovative capacity, is “sectorization,” that is, the monopolistic
structure of each sector and, more precisely, each conglomerate. The latter controls a host of61

Medeiros et al. 2005, p. 1. For a similar assessment, see Richard A. Bitzinger, 2016, “Reforming China’s
Defense Industry,” The Journal of Strategic Studies, Vol. 39, No. 5-6, pp. 766-768. According to Bitzinger, aside
from a few “pockets of excellence,” the Chinese military-industrial complex by the late 1990s demonstrated little
capacity for designing and producing relatively advanced conventional weaponry.
62
Guojia Guofang Keji Gongyeju Xinwen Xuanquan Zhongxin (ed). Guofang Keji Gongye Kexue Fazhan Wenji[Collected Works on National Defense S&T and Industry Development], Beijing: Renmin Chubanshe, 2010, pp. 310.
63
Tai Ming Cheng, 2014, p. 43.
64
Huang Yusen, Ji Jianqiang, and Guo Qin, “Zhongguo Tese Xianjin Guofang Keji Gongye Tixi Neihan yu
Shixian Lujing,” [The Connotation and Realization Path of the Advanced Defense Science and Technology
Industrial Base], Kexue Jinbu yu Duice [Science & Technology Progress and Policy], No. 15, August 2019.

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subsidiaries, research institutes, and factories within a vertically integrated structure.65 Critics maintainthat this “self-contained system” [ 自 成 体 系 zicheng tixi] has its merits (i.e., fulfilling pre-set
manufacturing goals) but clearly is flawed in generating genuine competition, which, in turn, may leadto a “disruptive” (instead of adaptive) type of innovation. A case in point is the industrial R&D
structure. While essentially forming the “central force” of China’s defense R&D capabilities, a great
number of research institutes nested within individual defense enterprises have proven unable toengage in long-term, foundational research projects due to their prioritization of sectoral (or group)interests and short-term production needs.66
The monopolistic and closed nature of defense enterprises stands out even against the standardsof Chinese state capitalism. As Lin and Milhaupt note, the governance structure of China’s SOEs cangenerally be characterized as a “networked hierarchy.” Each conglomerate tends to be verticallyintegrated and narrowly focused on a particular sector but “individual groups are often linked throughjoint ventures and equity ownership to groups in the same or complementary industries,”67 allowing
them to exploit complementarities to further advance state interests.68 While military experts argue
that China should benchmark against western defense contractors, such as Lockheed Martin, in
pursuing “specialized” development,69 the structural problems the defense industry retains indicatesthat a priority will be placed on bringing the industry more up to the standard practice of Chinese stateowned firms in other strategic industries.70
While intersectoral barriers within the industry remain in place, observers recognize that over the years
the barriers have been somewhat lowered between civilian and defense industrial bases. This is theresult not just of the long-running practices of defense firms that manufacture commercial products(军转民 junzhuanmin), but also of efforts to increase the entry of civilian entities into the defense
market (民参军 mincanjun). It should be noted, however, that the latter attempt has primarily been
65

The state-owned enterprise reforms of the late 1990s created a management structure in which the entire process,from research and development to production of related equipment, is managed by a dozen defense conglomerates.
Such enterprise groups have been formed in each area of the defense industry such as shipbuilding, weapon
production, and aviation.
66
Yan Jianfeng and Tang Bo, “Woguo Jungong Keyan Yuansuo de Gongneng Dingwei ji Fenlei Gaige” [Reformof Our Country’s Defense R&D Institutes’ Functions and Categories] Xibei Gongye Daxue Xuebao [Academic
Report of Xibei Technology University], No. 2, 2018, pp. 88-95.
67
Li-Wen Lin and Curtis J. Milhaupt, “We are the (National) Champions: Understanding the Mechanisms of State
Capitalism in China,” Stanford Law Review, Vol. 65, No. 4, 2013, p. 699.
68
The missile sector, long considered as a “pocket of excellence” within China’s troubled defense-industrial
establishment, differs from other sectors in that not all missiles are produced by the subsidiaries of only two
conglomerates in the aerospace sector. Instead, companies controlled by other sectoral conglomerates, such asaviation and weapon systems, are also involved in missile research, development, and production. Evan S.
Medeiros et al, A New Direction for China’s Defense Industry, pp. 52-53.
69
Jiang et al., Initial Discussion on the Military-Civil Fusion Strategy, pp. 78-79.
70
Indeed, there was a widely-held belief that the narrowness of the industry is much more serious than othersectors. NPC Study on MCF, 2010, pp. 29-35.

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IFI-SSU-Working Paper No.4 Lim

focused on increasing the industry’s efficiency by outsourcing low-efficiency and high-cost elements
to the private sector. Specifically, private enterprises have been mainly involved in parts or auxiliary
products and their input only happens at a later stage of the production process (see Figure 1). As such,there has been little discussion regarding the potential channels through which civilian entities can join
the upper chain of the production, and enhance the industry’s overall innovative capacity.71
Figure 1: Defense R&D and Production Process under the Current Sectorized System

The PLA (军方)Military
ThreatOperational
Efficiency

DemandPrediction

Feasibility Study for Models and Variants

Critical Technology
Pre-research

Research &Development
DefenseIndustry)

Trial Production

Batch and Parts Production

Civilian Input（民口企业）

Delivery to Military
Users(Source: Zeng Li, ed., Zhongguo Tese Junmin Ronghe Guofang Ziyuan Peizhi yu Guanli Tansuo (part I) [Research on the
Military-Civil Fusion National Defense Resource Allocation and Management with Chinese Characteristics], Jingji
Guanli Chubanshe, 2016, p. 200)

71

Zeng Li, ed., National Defense Resource Allocation and Management with Chinese Characteristics under
Military-Civil Fusion (Part 1), p. 176-178.

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What concrete policy measures then have been set forth to further MCF development in thiscritical domain? The most authoritative guiding document was Document No. 91 released by the StateCouncil in November 2017.72 It outlined 29 measures in seven broad areas and called for the formationof a “small core, large collaboration, specialized and open research & production system.” 73
According to the document, “small core” refers to core strategic capabilities that are likely to remainin the hands of state-owned defense conglomerates. “Large collaboration” and “openness”
characterize an approach to essential and general capabilities that entail the joint development of stateand market forces.
At the center of efforts to form a “small core” is the ownership reform of defense conglomerates.
With the exception of industries engaged in strategic weapons development, defense groups and theirsubsidiaries are required to reform their shareholding systems.74 Despite being a core agenda in Hu
Jintao’s MCF strategy, the ownership reform failed to materialize under Hu. It was advanced in earnest
a decade later in July 2017, when the State Council issued an ultimatum ordering a complete transitionof central SOEs from “people-owned” to “wholly state-owned” to be completed by the end of 2017.75
This transition is the prerequisite for subsequent reforms aimed at introducing private capital into thesystem through a variety of channels, often referred to as “market-based diversified financing.” If thetransition happens smoothly, the defense industry landscape, at both the parent company andsubsidiary levels, is expected to shift considerably through a host of activities, including reorganization,
restructuring, privatization, asset sales, and mergers and acquisitions.76
Finally, the key measures for “large collaboration and openness” include an action plan toreduce the number of licenses that are mandatory for civilian companies. In October 2017 the CMC
Equipment Development Department (EDD) announced that two of four licenses had been merged,
reducing the total number to three and reducing the required time to obtain one by roughly six months.
The three licenses include: (1) the Classified Qualification Permit, (2) the Weapons and Equipment
Research and Production Certificate, and (3) the Equipment Manufacturing Unit Qualification Permit.

72

The full name of the document is the “Guanyu Tuidong Guofang Keji Gongye Junmin Ronghe Shendu Fazhan
de Yijian” [Opinion on the Promotion of National Defense S&T Industry’s Deep Development of Military-Civil
Fusion].
73
Tai Ming Cheng and Eric Hagt, China’s Efforts in Civil-Military Integration, Its Impacts on the Development ofChina’s Acquisition System, and Implications for the U.S. Acquisition Research Program Sponsored Report Series.
Monterey, CA: Naval Postgraduate School, 2020, pp. 24-27, 31-32.
74
Categories include wholly state-owned, state-owned absolute control, state-owned relative control, and stateowned equity participation, etc.
75“69hu Yangqi Jituan Rengwei Quanmin Suoyouzhi? Niandi qian Quanbu Gaiwei Gongsizhi!” [Are 69 Central
SOEs still people-owned? All Should be Corporatized by the Year-end!] (www.gov.cn/zhengce/2017).
76
Some analysts in China believe that the current state of China’s defense industry corresponds to the beginning of
the “Golden Decade” of the 1990s in the U.S., characterized by mergers and acquisitions among large defense
contractors.

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Additionally, the 2018 version of the Weapons and Equipment Research and Production License
Catalogue issued by SASTIND and EDD includes 285 items in seven categories, a 62% reduction
compared to the 2015 edition catalog. The 2018 edition reportedly only retained items that have asignificant impact on national security and public safety, thereby dramatically reducing the number oflicenses private companies must acquire before producing certain products.
3.4.2. Let Many MCF Industries Bloom
Despite being a core objective, transforming the defense industry does not represent the whole
MCF project being pushed by the Xi administration. The more ambitious – and more distinctive fromprevious endeavors – element is an initiative to create and develop what is termed as the MCF industry(军民融合产业 junmin ronghe chanye) in the localities. This is ambitious because realizing this goal
not only necessarily requires commitment from local governments to the overall direction of the MCF
strategy, but it also needs their enthusiasm and creativity to be organized in order to deal withexpanding and more complex markets.77 As discussed in the second section, decentralization has beena key feature of Chinese state capitalism which has proven effective in incentivizing local actors to
pursue capitalist agendas. Yet given the challenges specific to MCF policy, most notably of
coordinating military and civilian needs, as well as the seemingly changed dynamics of central-local
relations, past success does not necessarily guarantee future success.
To date, the rationale of fostering the MCF industry across the nation is relatively clear:leveraging the fruits of civilian innovation for the defense industry, or vice-versa, to promote regional
economic development. This is a remarkable shift from the Hu-era when the government mostly
emphasized the importance of taking into account national defense needs when planning, for instance,a regional infrastructure-building project.78 However, unlike the initiative to restructure DTIB, nocentral guiding document has been promulgated in this domain and there does not appear to be any
shared, if not centrally authorized, standards on procedures and priorities in building local MCF
industries. Rather, the central government thus far has been focused on putting in place institutional“platforms” to facilitate communications and collaborations between various public (particularly
military) and private entities.79 A case in point is the emergence of various types of MCF service
platforms (军民融合服务平台 junmin ronghe fuwu pingtai) through which potential participants,

77

The World Bank and the Development Research Center of the State Council of PRC, Innovative China: New
Drivers of Growth, World Bank Group and DRC, 2019, p. 31.
78
NPC Study on MCF, 2010, pp. 81-82.
79
Yan Jiawei, et al., “Difang Zhengfu Cujin Junmin Ronghe Chanye Fazhan Zhuyao Zuofa” [Main Approaches ofLocal Governments to Promoting MCF Industrial Development] Zhongguo Junzhuanmin, pp.82.

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including small and medium-sized private companies, can acquire relevant information regarding
financial benefits, among others.80
Despite the lack of specific action plans and the resulting opportunistic – and messy – behaviors
of local enterprises,81 it can be argued that central planners have been far better positioned to undertake
this novel initiative. First, all provincial governments now have a separate organization for policy
implementation, which stands in contrast to previous years during which central agencies in charge of
MCF affairs (e.g., MIIT bureau of civil-military integration) found it hard to locate local counterparts.
A second element that will profoundly influence the way in which governments, defense companies,
and private enterprises interact is the tidal wave of government industrial guidance funds (政府产业引导基金 zhengfu chanye yindao jijin, or industry funds). Industry funds are initially supplied by thestate at multiple levels, for example, central ministries, provincial or municipal governments, and soforth, but are then matched by private funds and managed by private capital management companies.82
While these efforts encompass a wide range of traditional and emerging industrial sectors, it
consciously links defense and civilian production and R&D capabilities. Indeed, among the now
thousands of industry funds that exist, explicit MCF projects have risen as an important portfolio ofmany local government sponsored industry funds.83
To be sure, the mere creation of another vertical policy system, albeit armed with new financial
resources, does not guarantee that local governmental and private entities can create and develop MCF
industry with efficiency, and show promise for technological innovation. Nevertheless, provided thatthe strengths of China’s economic governance lie in the creative responses taken at local levels, thecentral leadership may be cognizant that it is better not to impose excessive regulations and control
over policy implementation. It is therefore expected to make efforts to align the preferences of local
leadership to the policy intentions of central leadership as far as is possible by providing appropriate
incentives, while preventing the overheating of related businesses.
4．Measuring and Assessing Policy Effect: A First Cut at the Data

80

All provinces have set up similar platforms.
See Guanyu Guifan yi “Junmin Ronghe” Mingyi Kaizhan Youguan Huodong de Tongzhi [Notice on Regulating
Activities Conducted in the Name of Military-Civil Fusion], promulgated by the CCMCDP in December, 2017.
Examples of the messy reality are abundant. For instance, China’s numerous industrial parks and special
development zones help create conditions for the development of industry clusters, such as major initiatives for
artificial intelligence and high-performance computing in Tianjin. However, these local initiatives can beinconsistent despite efforts for greater standardization.
82
Chen and Rithmire, “The Rise of the Investor State,” 2020, pp. 261-262.
83
For some figures of MCF GGF, Cheng and Hagt, “China’s Efforts in Civil-Military Integration,” 2020, pp. 1819.
81

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A comprehensive evaluation of an industrial policy is generally hard to make, and impossible
in the case of China given the paucity of available information. The same holds particularly true for
MCF strategy given the nascent nature of its policy development. Thus, in this section I will mainly
be concerned with showing the current state of policy processes, particularly by identifying how Xi’s
institutional innovations have changed bureaucratic structures and processes for policy formulationand implementation, and assessing the impact on key priority areas identified in the previous section.
In doing so, I use an original dataset of MCF-related policy documents promulgated during theyears of Xi’s leadership (2013-2020). During this period, more than 30 different central organizations
affiliated with the party, government, and military issued, independently or jointly, no less than 150
policy documents pertaining to the promotion of MCF.84 These documents take a whole variety offorms, ranging from decisions to opinions to formal laws, and they represent the diversity of policy
instruments as well as the scope of the resources Beijing seeks to leverage. To be sure, most policy
documents do not directly address an evaluation of the policy effect on, for example, the behaviors ofground-level actors, or the innovation capacity of target industries.85 Nevertheless, these documents
do contain information regarding the status of policy implementation at various levels, including many
forms of civil-military interactions around the country, which, under close scrutiny, enables us to getsome grasp of the development of MCF.

84

The data collection took place in two steps. First, we searched for and obtained policy documents that containeither an explicit reference to or a separate clause about MCF through government-affiliated official databases: 国家法律法规数据库 (https://flk.npc.gov.cn/index.html) and 北大法宝 (https://www.pkulaw.com). Second, we
checked the homepages of both provincial commissions and information platforms in charge of MCF affairs toensure that the web-based databases cover the whole range of central and local policy documents. Each observationin the dataset consists of (1) the title of the document, (2) the text content of the document, (3) the issuing agency,and (4) the year and date of issuance. In collecting documents and building the dataset, we extend on the method
used in the following articles: Yu Dongping and Mao Zhen, “Zhongguo Junmin Ronghe Shendu Fazhan Zhengce
Wenben Lianghua Yanjiu” [A Quantitative Study on the Policy Text of the In-depth Development of Civil-Military
Integration in China], Beijing Hangkong Hangtian Daxue Xuebao, No. 2, 2020, pp. 1-9; Cheng Zhuo, “Woguo
Junmin Yitihua Chuangxin Tixi Gainian, Yanjin he Jucuo Yanjiu: Jiyu Zhengce Wenben de Lianghua Fenxi” [AStudy on the Concept, Development, and Policy of the National Military-Civil Innovation System: Quantitative
Analysis of Policy Text], Junmin Liangyong Jishu yu Chanpin, No. 6, 2019, pp. 30-34.
85

As Cheng and Hagt point out, the notion of output for a MCF economy must differ “because one is not justlooking at technological innovations emerging from the system, but the level of collaboration and integration
between the civilian and defense sectors that generated the output.” Cheng and Hagt, 2020, p. 42.

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4.1．Policy Process Transformed?
It is true that Xi’s attempts to repurpose the pre-existing MCF initiative and establish a national
level coordinating body, or CCMCFD, represent a remarkable institutional development in their own
right, which has led many observers to forecast a forceful execution – and success – of MCF strategy.
The arguments over Chinese state capitalism, however, express some reservations on such optimistic
forecasts. Significantly, there remains a question concerning the extent to which this institutional
breakthrough can resolve the fragmentation of authority in policy processes, or enhance the Chinesestate’s coordinating capacity for promoting an industrial upgrade. Given the inertia of pre-existingarrangements, together with the increasing number of stakeholders in MCF, it is hard to presume thatthe conflicting interests and behaviors of government and military organizations can easily becoordinated toward maximizing policy effects.
Figure 2 shows that the number of policy documents increased steadily during the first four
years of the Xi leadership and that there was a sharp hike in 2017 and 2018, which was followed by asignificant drop, a trend that has continued to date. The surge in 2017 and 2018 can be attributed tothe promulgation of the 2016 Opinion and the establishment of the CCMCFD in January 2017. This
interpretation is supported in part by Figure 3 which indicates that the CCMCFD itself constituted an
important source for policy documents issued in those years.

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However, the central coordinating role of the CCMCFD seems to have lessened in more recent
years. Most notably, as Figure 4 shows, the new commission ceased to issue policy documents after
2019 – at least publicly. Moreover, since its second meeting in October 2018, no official statements
have been publicized regarding the CCMCFD’s activities, including on new formal meetings. Whataccounts for the CCMCFD’s sudden “disappearance” from the MCF policy scene? A possible
explanation is that now that central guiding mandates have been promulgated, the MCF strategy hasentered into a new phase of policy implementation, with coordinating authority delegated to otheragencies, for instance, NDRC and CMC SPO that have been designated as new secretariats of the
CCMCFD. In other words, it is possible that other agencies may have taken over the CCMCFD’s role.
In which case, which organization is now taking a leading coordinating role?

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Figures 4 and 5 demonstrate the structures of organizational linkages before and after 2017,
which are constructed by drawing on the fact that many policy documents are issued jointly by multiple
agencies.86 Prior to 2017, it appears that the MIIT served as the main coordinating body, illuminating
the significance of the 2008 administrative reform as discussed above. The centrality of the MIIT isespecially salient in linking relevant entities from the government and the military. However, since theestablishment of the CCMCFD in January 2017, the MIIT seems to have been somewhat marginalized
and instead, the NDRC has apparently played a larger role in coordinating government agencies. On
the military side, there seems to be no central actor as yet who connects PLA actors involved in MCF.87
In short, the formation of the CCMCFD has spawned a central bureaucratic environment in which anincreased number of government and military agencies are creating more diverse policy coalitions,reflecting a substantial expansion both in scope and resources for the MCF strategy.
This diffuse nature of policy processes is also reflected in the type of policy documents. As
Figure 6 shows, there are as many as 23 different types in which MCF-related policy documents havebeen promulgated. The most common types include Opinions [意见 yijian], Notices [通知 tongzhi],
Lists [目录 mulu], and Methods [办法 banfa], which in total account for about 60 percent of the typesof documents. This variation in document forms is in part due to the large number of agencies involved
in MCF, as well as the different administrative rank of issuing agencies. That said, as Figure 6 also
indicates, there is no direct relationship between a document type and the authority level of the issuingentity, as is evidenced by the documents issued under the title of Opinion. In this connection, it is also
important to note that only 1 MCF-related law has been promulgated thus far. Given the emphasis thatpolicymakers have consistently put on the enactment of a national MCF law, its delay strongly
suggests the difficulty with coordinating the conflicting interests of relevant stakeholders.

86
87

About 60 percent of the policy documents are issued by multiple agencies.
This is mainly due to ongoing military reforms in which pre-existing general departments were dismantled.

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4.2．The Defense Sector Upgraded?
If coordination is a problem that is hard to resolve because of the potential stakes in a policychange, one of the biggest stakeholders in implementing MCF strategy would be the defense industry.
As discussed earlier, central planners have made it clear that state-owned defense firms are both themain targets as well as the key enforcers of the MCF strategy. Indeed, as Figure 7 exhibits, the industry
domain has been dominating the MCF policy scene, a trend that has further stood out since 2017.

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Despite the heightened attention, the policy effects on the defense industry have been limited.
First, when it comes to the formation of “small core,” there has been little progress in consolidating
individual sectors, much less breaking up sectoral barriers for the upgrading of the entire industry. For
example, the process of reforming the ownership structure of defense firms as a prerequisite forconsolidation has been slow, with, according to a government report, the combined rate of asset
securitization stalled at 49 percent as of 2018.88 This rate, despite being a marked increase from 22
percent in 2007,89 is still remarkably low compared to the level of the overall central SOEs. A greater
opening to the capital markets offers the potential both for a large, new source of financing and,perhaps more importantly, the introduction of greater accountability and competitiveness into a closed
defense enterprise system.
Second, the reform of the R&D structure of the defense industry has also encounteredconsiderable difficulty. In July 2017, SASTIND issued an Opinion announcing the initiation of

88

Shangwubu Touzi Cujin Shiwuju [The Investment Promotion Bureau of the Chinese Ministry of Commerce],
2018, “Junmin Ronghe Keji Zhuangbei Chanye Touzi Cujin Baogao” [Report on Investment Promotion in
Military-Civil Fusion S&T and Equipment Industry], p. 11. A different source estimates the industry’s rate of asset
securitization at 33 percent. Cheng and Hagt, p. 231.
89
NPC Study on MCF, 2010, p. 23.

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ownership structure reforms for the first group of 41 defense research institutes.90 As noted earlier,this is another sensitive area where similar efforts were initiated by previous administrations but had
resulted in little concrete progress. A SASAC researcher pointed out that these institutions wereformerly classified as “public institutions” dependent on state financing and which largely operated
outside of the market economy, leading to low rates of commercialization. SASTIND had hoped tocomplete the first round of reform with a group of 41 institutions by the end of 2018, but progress has
been slow. China South Industries Group’s Automation Research Institute, which is also known as No.
68 Institute, appears to be the only one in the group to have actually begun the process in 2018.91
In short, the Xi administration is facing significant challenges in restructuring the defense
industry as the top priority of, and as a necessary pre-condition for, a successful pursuit of MCF
strategy. To be sure, as far as the goal of technological upgrading and innovation is concerned,
ownership structure reforms, and the “financial fusion” that it desires to achieve, represent only a partof the broader spectrum of MCF-related policy options. Indeed, after 2017 when the central
bureaucratic structure was reorganized, massive mergers of defense conglomerates took place in the
nuclear and shipbuilding sectors. While conducted under the rubric of sectoral consolidation, thesemergers entailed a significant process of asset reorganization by which some private companies withtechnological resources were incorporated into the industry.92
4.3．MCF Industry Blossomed?
As for promoting MCF industry in local regions, while GGFs represent another huge potential
source of funding for MCF, their effectiveness as stimulants to the innovation economy has several
caveats, particularly in their design to support the SMEs and startups that the traditional venture capital
market was failing to do. In the first place, many of the funds have failed to meet their targets.
Moreover, as local governments establish many of the funds, they are geographically restricted,
skewing investment incentives toward regional favoritism. This can lead to national redundancy, waste,

90“Guanyu Jungong Keyan Yuansuo Zhuanzhi wei Qiye de Shishi Yijian” [Opinion on the Corporatization of the
Defense Research Institutes], 7 July, 2017(http://www.sastind.gov.cn/n152/n6759510/n6759511/c6793425/content.html).
91“Diyu Yuqi? Shoupi 41jia Jungong Keyan Yuansuo Gaizhi Shangbannian Nanwancheng” [Lower than
expected? The corporatization of the first 41 group of defense research institutes will be unlikely to be completed in
the first half of this year], 24 February, 2019.
(https://baijiahao.baidu.com/s?id=1626358690683142358&wfr=spider&for=pc).
92
Meia Nouwens, “Is China’s Shipbuilding Merger on Course?” The International Institute of Strategic Studies,
Military Balance Blog, 4 September, 2020 (https://www.iiss.org/blogs/military-balance/2020/09/chinashipbuilding-merger).

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and overcapacity on the one hand, and an underutilization on the other as many localities do not havethe projects to invest in, which in turn creates difficulties for attracting social capital investment.

5．Conclusion
This article has offered a new perspective on the MCF strategy. Shifting the focus to Chinesestate capitalism and its evolving institutional ecology exposes the connection and similarities between
the MCF initiative and new industrial policies underway under the current party leadership. This
perspective suggests that MCF strategy accompanies a wide range of policy efforts for resource
mobilization and allocation – some of which are groundbreaking and some of which are more
traditional – aimed at technological upgrading and innovation. Much attention has been directed at thereorganization of the defense industry, particularly centrally controlled conglomerates, with no less anemphasis placed on incentivizing private and commercial entities to join and fostering various typesof MCF industry in localities.
At the same time, this study demonstrates that this accelerated pursuit of MCF strategy has comeat a high cost and that its prospects for successful execution remain uncertain. Politically, in addition
to finding a broader rationale that elevated the significance of the initiative, the central leadership has
put significant efforts into creating a new organizational constellation for policy implementation inwhich the party, or Xi himself, took over the role of both overall coordinator and forceful enforcer.
This move certainly constitutes an institutional breakthrough but thus far has fallen far short of theinitial hopes of bringing effective coordination – particularly between government and military
bureaucracies – to policy processes. Economically, while a wide range of financial and institutional
resources have already been leveraged to incentivize interactions among state-owned defense firms
and private and commercial entities at multiple levels, the outcomes largely diverge from the rhetoricand the goals stated in policy documents.
Will then the MCF strategy, in the long run, be able to make China a more competitive or evendominant player in high-tech industries? Obviously, we cannot predict the consequence of strategiccompetition just by analyzing the endeavor of one of the competitors, because the outcomes of China’s
policy will differ depending on the responses taken by the US, among others. At the same time, as thisarticle argues, the MCF strategy is now being pursued as a part of an ambitious, long-term plan tocreate a national innovation system, suggesting that its genuine prospects for success can only beevaluated with reference to broader systemic variables, which includes the nature of leadership politics,
bureaucratic capacity, and state-business relations. In this sense, MCF will continue to serve as anexperimental field for validating the true value of Chinese state capitalism.
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