American companies are building the Chinese war-machine

The U.S. Department of Defense recently released its annual report on China’s military power, which shows that China’s military has made astounding advancements to “modernize its capabilities and improve its proficiencies across all warfare domains” in a relatively short period. The report also made it clear that one of the main objectives of the Chinese military’s modernization is to fight and win wars “against a strong enemy,” a not-so-subtle reference to the United States.

The most significant advancement of the Chinese military is its navy, which was almost non-existent four decades ago and now is the largest in the world, “with an overall battle force of approximately 355 ships and submarines, including approximately more than 145 major surface combatants.” By contrast, the U.S. Navy has a battle force of 293 ships as of early 2020. The DOD report also highlights that the Chinese People’s Liberation Army (PLA) has heavily invested in advanced technologies such as artificial intelligence (AI).

The PLA’s goal is to “make weapons systems and military operations more networked and autonomous” and change “the future of warfare faster than expected.” Some military experts believe China is already surging ahead of the United States in the arms race for AI.

How did the PLA manage to modernize at such an astonishing speed? Besides heavy investment from the Chinese government, western companies have played a crucial role. Here are three examples.

German Engines Powered the Chinese Navy

German media recently disclosed that several types of Chinese navy warships are “powered by engines that were either developed or built by German manufacturers.” MTU, one of the German manufacturers, “was a regular supplier of engines for Luyang III class missile destroyers through a licensed production plant in China.” Luyang-class destroyers are equipped with state-of-art weapons systems and can launch land-attack cruise missiles, long-range surface-to-air missiles, and anti-submarine missiles.

Additionally, MTU supplied “engines that were used in China’s Song-class submarines.” A strong navy has enabled China to expand its territorial claim in the South China Sea, intimidate neighboring countries, disrupt standard commercial and exploration activities, and strengthen its ability to invade Taiwan.

MTU insists it didn’t directly supply the Chinese navy with its engines. It simply engaged in commercial transactions with Chinese companies that are supposedly purchasing its engines for civilian usage. However, MTU engines are so-called dual-use technologies that don’t require either export licenses or government scrutiny. Knowing these legal loopholes, the Chinese government has pursued a military-civil fusion development strategy, which “integrates and leverages science and technology innovations across military and civilian sectors” and “blends military and civilian expertise and knowledge.”

In practice, the Chinese military relies on Chinese civilian companies to acquire advanced dual-use equipment and technologies for military development, while evading both the European Union’s and U.S. exports controls. That approach has significantly helped the Chinese military’s development in AI and semiconductors, often with eager cooperation from western firms.

Americans Help Speed Up the Chinese Military’s AI

A team of researchers at the Center for Security and Emerging Technology at Georgetown University released a report last month that highlights the crucial role U.S. companies play in supplying China with data, software, and funding for the nation’s AI development. The report finds that western firms have provided various Chinese military PLA units with commercial, off-the-shelf autonomous drones and AI-enabled surveillance software — AI tools that are ready for use.

The report also reveals that most of the advanced computer chips at the heart of China’s military AI systems are designed by U.S. firms such as Intel, Nvidia, and Xilinx. Furthermore, U.S.-based venture capital companies are financing Chinese companies that supply the Chinese military with AI-based battle management and cybersecurity software.

The most troubling aspect is that since most Chinese military suppliers also sell equipment and technologies to civilian companies, many are not blacklisted by either the U.S. Treasury Department or the Defense Department. These companies have practically had free rein to acquire sensitive technologies and equipment with little to no restrictions.

U.S. Companies Help China Develop Chips

Like AI, the semiconductor industry is another area where western companies have lent China’s military a helping hand. Semiconductor chips are essential components of almost all electronic devices, from computing to health care to the military and more. According to the Chinese government’s Made in China 2025 initiative, the semiconductor sector is one of the top ten industries that the government has heavily subsidized, hoping to make China self-sufficient in chip manufacturing and dominant in global high-tech manufacturing.

Out of concern for national security, the Trump administration imposed strict restrictions on exporting American semiconductor chip technology to Chinese companies that supply the Chinese military. China’s Semiconductor Manufacturing International Corporation (SIMC) is one such Chinese company on the U.S. export control list.

SIMC is a national champion identified by Beijing to lead China’s semiconductor chip development. It has received large government subsidies and is backed by several Chinese state-owned enterprises that also are suppliers of the PLA. The Biden administration expanded the export control list, banning Americans from investing in 59 Chinese companies with alleged ties to defense or surveillance technology sectors.

U.S. Companies Invested Despite China’s Atrocities

Despite these restrictions, the Wall Street Journal reports that Silicon Valley venture-capital firms such as Sequoia and chipmakers such as Intel and their Chinese affiliates have been helping build China’s semiconductor industry by exporting sensitive technological know-how, investing in Chinese chip-making firms, and raising money from foreign investors to fund Chinese chip making start-ups.

Companies such as Intel have been very vocal in their home countries, taking a stand against what they claim is systemic racism and racial injustice. Yet, at the same time, they have shown little concern as they assist Beijing with its military development, even though Beijing has committed gross human rights violations against its own people, poses a threat to liberal democracy, and has the ambition to spread authoritarianism around the world.

Thanks to these American companies, Chinese firms have made significant progress in key technologies and are quickly narrowing the gap with western chip makers in technology and manufacturing. These technological advancements have helped make the Chinese military a powerhouse and give the Chinese Communist Party powerful tools to advance its geopolitical ambitions and disrupt the liberal world order.

Passing Laws May Come Too Late

In a statement, Sen. Bob Casey (D-Pa.) criticized these American companies for prioritizing “their bottom lines without regard to the broader American economy or our national security.” He and Sen. John Cornyn (R-Texas) are working on legislation that would “screen outbound U.S. investments and the offshoring of critical supply chains and tech-industry resources to adversaries like China and Russia.”

While such legislation is a welcome move, it may not be the most effective and timely solution because a bill takes months of deliberation. By the time it becomes a law and actually goes into effect, it may be too late because technological advancement takes place daily, and China may have already acquired all it needs to be technically self-sufficient before the bill becomes law.

Since western companies are more interested in fattening their bottom line than national security, stopping their continuing assistance to the Chinese military requires market-oriented solutions, in addition to legislation.

For example, Microsoft’s LinkedIn recently pulled out of China because it finally realized that it could not straddle between two opposing political and value systems and be successful. The increasing censorship Beijing demands has threatened the company’s reputation and subjected it to enormous legal risks back home, eventually hurting its profit worldwide. Patriotic shareholders of western companies should point to LinkedIn as an example to demand management to be accountable for subjecting their company to the risks of assisting the Chinese military’s modernization.

Another way to get the attention of western companies is for some of their most essential domestic customers, such as the Department of Defense, to put their foot down and demand companies pick a lane between liberal democracy and China’s authoritarian regime. A company that engages in helping the Chinese military at the expense of America’s national security doesn’t deserve to have millions or even billions of dollars worth of contracts with the U.S. government. Such a company shouldn’t be allowed to profit from U.S. taxpayers. Hopefully, western companies will finally change their behavior when management realizes they are hurting their bottom line if they continue business as usual. Helen Raleigh, CFA, is an American entrepreneur, writer, and speaker. She’s a senior contributor at The Federalist. Her writings appear in other national media, including The Wall Street Journal and Fox News. Helen is the author of several books, including “Confucius Never Said” and “Backlash: How Communist China’s Aggression Has Backfired.” Follow her on Parler and Twitter: @HRaleighspeaks.