A large portion of China’s economic output results from government and policy-directed investments rather than market-based forces. China pursues state-directed investment overseas and encourages mergers and acquisitions. Along with heavy investments in infrastructure and commodities to support its strategic firms, increase economic engagement, and improve economic security, China is investing in technologies that will be foundational for future innovations with both commercial and military applications.
The PRC seeks and obtains foreign technology through the following means: foreign direct investment, overseas acquisitions, legal technology imports, the establishment of foreign research and development (R&D) centers, joint ventures, research and academic partnerships, talent recruitment, industrial, and cyberspace espionage and theft. Investors may be concerned about intensified pressure of technology restrictions on China, which has forced the Chinese government to double down on its efforts to promote innovation and self-sufficiency in key technologies.
Recent legal proceedings highlight numerous cases of China’s efforts to obtain technology and knowledge through theft of trade secrets and economic espionage. In April 2022, a jury in United States federal court sentenced a PRC national to 29 months in prison for conspiring to commit economic espionage. The PRC national had worked as an imaging scientist for a Monsanto subsidiary and was found to have stolen proprietary algorithms, which he brought to the Chinese Academy of Sciences Institute of Soil Science. In November 2021, a federal jury convicted a PRC intelligence officer of attempting to steal industry-leading aviation trade secrets. Court documents show that the PRC officer attempted to steal technology related to GE Aviation’s exclusive composite aircraft engine fan to benefit the PRC state.
The PRC’s recent economic policies have promoted innovation focused on strengthening domestic industry, while placing additional restrictions on foreign firms. Recognizing that some of its initiatives such as Military Civil Fusion (MCF), “Made in China 2025,” and BRI have sparked concerns about China’s intentions, PRC leaders have adopted lower profile rhetoric when promoting these initiatives without altering their fundamental strategic goals.
- Made in China 2025: First announced by the PRC in May 2015, the “Made in China 2025” plan seeks to increase China’s domestic innovation by setting higher targets for domestic manufacturing in strategic industries such as robotics, power equipment, and next-generation information technology by 2020 and 2025. This plan seeks to strengthen China’s domestic enterprises through awarding subsidies and other incentives while increasing pressure on foreign firms to transfer technology to have market access in China. “Made in China 2025” came under criticism from advanced countries for unfairly favoring China’s domestic enterprises at the expense of foreign participants in China’s markets. Increasingly aware and sensitive to these concerns, by June 2018, China began avoiding references to “Made in China 2025” in major policy papers. The PRC government ordered its media outlets to downplay use of the term in June 2018. Key events that PRC leaders use to set strategic directives have also avoided references to “Made in China,” including the 2019 Central Economic Work
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OFFICE OF THE SECRETARY OF DEFENSE
Annual Report to Congress: Military and Security Developments Involving the People's Republic of China
