Electro-Industrial Stack Vulnerabilities: Surfacing Hidden Huaweis

In 1999, Congress tasked the Department of Defense with publicizing an annual list of Chinese military companies. The task was a concession to those opposed to the hurried – and woefully shortsighted – Clinton-era push to grant China permanent normal trade relations status. But that 1999 tasking proved to be an empty gesture: The Department spent the twenty years that followed ignoring the requirement. It wasn’t until decades later, when the charge to craft the list was reiterated in the National Defense Authorization Act’s Section 1260H, that the Secretary of Defense published an initial set of Chinese Military Companies.

The Department is reportedly preparing to designate a new tranche of Communist Chinese Military Companies. The additions reportedly cover a range of actors, including representatives from China’s “Big Tech” like Alibaba.

Critically, considering the scope of China’s “military-civil fusion” strategy, the set will also include less well-known companies, like dedicated Chinese LiDAR and optical transceiver manufacturers. These companies are the tip of the spear for the PRC’s Made in China 2025 effort. Backed by enormous Chinese government subsidies, they have succeeded in producing at high volumes and low prices, capturing global market share, and, in doing so, seeding Chinese influence and access throughout critical and growing supply chains, infrastructures, and systems.

LiDAR, for instance, is an important component technology with civilian and military applications. China controls some 90 percent of the market. Robosense, a Chinese LiDAR company, is reportedly likely to be included in the newest tranche of Chinese military companies.

The new batch of 1260H companies will reportedly also include Chinese optical transceiver champions like Innolight and Eptolink – which are estimated to control over 60 percent of the global market. Optical transceivers are the backbone of fiber communications in data centers, converting all digital signals into light for ultra-fast transmission. Chinese-made transceivers create a critical national security risk across data centers: Manufacturers can maliciously program the firmware in every device. Those could contain kill switches to shut down data centers, for example, or be made to introduce malicious code into AI training systems.

Identifying these companies as Chinese military-civil fusion contributors would constitute a tremendous step in driving attention to China’s embedded component-level threat – and the underappreciated segments of the value chain that China dominates. 1260H listing would also give the U.S. government grounds to enact new defenses. And it would send a message to the U.S. private sector – thereby driving investment in trusted alternatives.

Innolight, for example, is currently a key supplier to the likes of Google, Nvidia, and other keystones in America’s tech landscape. DoW scrutiny would signal to those American corporates that they risk aiding the enemy – and running afoul of U.S. regulations -- thus pressuring them to generate market opportunity for trusted alternatives. That cueing is particularly valuable in product spaces, like optical transceivers, that, while critical, are relatively unknown, and therefore in which new investment is necessary to scale alternatives.

There lies the point and the strategic utility of the 1260H process. It constitutes a unique mechanism through which the DoW can direct government and private sector supply chain scrutiny toward vulnerabilities -- including niche, under-recognized vulnerabilities -- that carry strategic stakes.

But this listing needs actually to happen – not just be reported. And the listing of these Chinese LiDar and optical transceiver companies should be just the beginning. China has hordes more hidden Huaweis waiting in the wings, backed by the same subsidies and supporting the same military-civil fusion strategy as the known bad actors. That’s true of LiDar and optical transceivers. It also true across other critical supply chains, where China has embedded, and is embedding, itself at the expense of American security, independence, and industry.

The DoW designation process needs to be continuous. China’s military-civil fusion strategy, ambitions, and actors are constantly evolving. The 1260H list should as well.

Moreover, DoW should be empowered not just to raise awareness, but also to follow through on corresponding authorities: immediately to restrict procurement of designated products and restrict U.S. capital from flowing to actors that fuel China’s military modernization.

Entities supporting the Chinese military and military-civil fusion strategy should not be embedded in the Pentagon’s supply chains, critical U.S. infrastructure, or American capital markets. Sage members of Congress and political strategists knew this all the way back in 1999. Today, the risk is all the greater. It demands a continuous and powerful Department of War-led listing process. At a minimum, finalizing and publishing the latest additions to the 1260H list would be a step in the right direction.

Nate Picarsic and Emily de La Bruyere, co-founders, Horizon Advisory; Senior Fellows, Foundation for Defense of Democracies.