The Reach of China’s Military-Civil Fusion: Coronavirus and Supply Chain Crises

March 04, 2020
X
Story Stream
recent articles

On Thursday, the FDA announced the first Coronavirus-related drug shortage in the United States. The Surgeon General has asked Americans to stop buying face masks – not because they don’t work, but because medical professionals need them and there is simply not enough supply.

These are not just symptoms of an unexpected epidemic. They are symptoms of an epidemic in a time of dependence and weaponized cooperation. The U.S. has allowed its medical industry to become reliant on China –    also to be coopted by China.

The same is true of most American industry. This asymmetry is no accident: It is the product of a decades-long, deliberate Chinese strategy, one enshrined in dedicated national science and technology programs, in State initiatives, in comprehensive subsidy programs.  Beijing’s centralized industrial planning targets critical American resources, supply chains, and infrastructures – first to ensure their dependence, next to siphon their resources and technology.

The United States battles an epidemic with its arms tied. Every effort to free itself risks only tightening the ropes.

China supplies 95 percent of U.S. ibuprofen imports and 80 percent of U.S. antibiotics. Heparin is made out of pig intestines: China produces 80 percent of the global supply. Critically, the U.S. cannot just turn around and fix this. At the first level, after decades of hollowing out, the U.S. simply does not have the capacity: The last American penicillin factory closed in 2004. But at a more pervasive level, much of the capacity that the U.S. does have has been co-opted – co-opted so that short-term measures risk only locking in the longer-term bind.

Leveraging the promise of its growing market, Beijing has integrated traditional U.S. industry into its incentive structure and industrial program. Partnerships with China become not the “win-win cooperation” that Beijing advertises at the UN, but a one-sided flow of resources that supports a larger, geo-economic, competitive agenda.  Immediate U.S. stimuli generate reciprocal gains for Beijing; attempts to restore dwindling U.S. capabilities fuel the asymmetric relationship.

Take medical equipment. Large global surgical face mask producers include household names like 3M, Honeywell, and Kimberly Clark. All have significant operations in China. And all are jockeying for access to China’s growing market for high-margin medical products. The U.S. should want these Western firms to meet domestic demand for face masks. But they are global firms, not strictly American ones: Their short-term profit motives require that they balance U.S. demand against their varied Chinese interests.

At first glance, that sounds fine. It sounds like burden sharing, like cooperation in the face of international crisis, like the normatively and practically advantageous behavior in a globalized world. And if Beijing were operating by the same rules, that would be the case.

But Beijing isn’t. China’s companies are Chinese national actors. 3M’s CEO has publicly asserted his company’s intent to meet China’s demand: “We have started full capacity production 24 hours a day, seven days a week to guarantee the supply of masks." No Chinese company is pledging the same to the United States – just as no Chinese airline is chafing at government requests to hand over passenger tracking information. China’s champions are following Beijing’s guidance. Chinese champions don’t have to choose between demand signals from the U.S. and Chinese markets: They don’t have a choice.

So U.S. resources flow across the border into China and don’t come back. This one-way flow is not just inefficient. It is, in fact, self-defeating: The closed system into which U.S. resources head is targeted at overtaking the United States.

This much is codified in Beijing’s military-civil fusion program – a national-level strategy designed to break down the borders separating military from civilian; to integrate the cooperative with the competitive; to turn the commercial domain into a geopolitical battlefield.

This strategy gives the Chinese military access to commercial technology. More dangerously, military-civil fusion propels Beijing's bid to proliferate global information systems and build global data repositories, with those, to claim global control. The Chinese social credit system is part of this. So is the passenger tracking information that Beijing obtains from Chinese airlines. So is the larger Chinese global transportation information network – already in place internationally – that means Beijing would likely have had access to that data, with or without the excuse of an epidemic.

Wittingly or not, U.S. companies operating in China support military-civil fusion: The incentives are such that they have little choice – or don’t want to take what choice they have. Many U.S. medical supply and pharmaceutical companies have China-based subsidiaries or joint ventures that operate in military-civil fusion industry zones, Chinese industrial areas designed to ensure the transfer of technology and information between military and commercial. Kimberly Clark China declares on its Chinese website that “the company promotes military-civil fusion.”

The Coronavirus crisis reveals, glaringly, Beijing’s subversive positioning as it plays out in medical and pharmaceutical fields. But China’s gambit does not end there. The same story applies in transportation where Chinese State-backed champions have seized critical positions in U.S. infrastructure – fueled by technology and influence that they acquire from partnerships with U.S. players. It applies in Chinese dominance over commercial drones, telecommunications, battery technology. Beijing has weaponized cooperation.

The Coronavirus epidemic is a crisis. Washington and Beijing should work together to face it – and they should do so in concert with those affected across the globe. That is the normative and pragmatically advantageous behavior. But Washington should also learn from the dangerous reality that this crisis uncovers: The one-sided dependence in critical supply chains, the co-option of American players, the subversion of the U.S. system writ large.

The U.S. should recognize the objective, and reality, of Beijing’s military-civil fusion program. Private sector actors should begin to take responsibility for their role in it. And markets should recognize the risks – supply chain, fiscal, and reputational – stemming from military-civil fusion exposure and hold publicly-listed companies to task for these exposures.


Emily de La Bruyère and Nathan Picarsic are co-founders of Horizon Advisory, a strategy consultancy focused on documenting the military, economic, and technological implications of China’s approach to global competition.



Comment
Show comments Hide Comments