Modernizing a giant: assessing the impact of military-civil fusion on innovation in China’s defence-technological industry

Alexandre Dupont-Sinhsattanak

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: In light of China’s objective of achieving complete military modernization by 2035 and becoming a world-class military by 2049, whether it will successfully modernize its military or not is a crucial question for the 21st century. Historically reliant on foreign technologies, China now faces challenges in developing indigenous innovation capabilities. Utilizing a mixed-methods approach, combining quantitative analysis of financial data from Chinese listed companies with case studies, this paper assesses the impact of military-civil fusion (MCF) on innovation in China’s defence-technological industry. Findings indicate that MCF pushed state-owned enterprises (SOE) to be more efficient and to recentre on core businesses, while encouraging the gradual entry of private firms into the industry. Yet, several limitations exist. SOEs continue to enjoy greater subsidies and better integration into the national innovation system, cementing their advantage over their private counterparts. Private companies function as suppliers of large conglomerates, which remain the only ones capable of assembling advanced weapon systems. By examining the interaction between market dynamics and state-driven strategies, this paper explores the evolving role of China’s private sector in military modernization and underscores the synergies between government support and market interests in fostering innovation.

Keywords: China; defence-technological industry; Innovation; military modernization; military-civil fusion (search for similar items in EconPapers)
JEL-codes: L64 O31 O38 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2025-02-05
New Economics Papers: this item is included in nep-sbm and nep-tid
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Published in Defence and Peace Economics, 5, February, 2025. ISSN: 1024-2694

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