China's Military-Civil Fusion Funds: Big but Not Necessarily Effective
October 4, 2019
By Audrey Fritz and Scott Kennedy
The world knows that in the wake of “Made in China 2025” the Chinese government has created a series of investment funds for various sectors. The national semiconductor fund, with over $100 billion, is the most infamous. Provincial and city governments have created their own funds for the sector as well. Outside of funds, government subsidies have poured into many industries. In a November 2018 report, we documented that the new-energy vehicle (NEV) sector received $48 billion between 2009 and 2017. We recently updated this data and found that in 2018 NEV-sector subsidies were a whopping $17.6 billion.
But less well known is the huge amount of money flowing into military-civil fusion (MCF). Most view MCF as an ideologically driven campaign, but one that does not necessarily have real support. To the contrary, MCF funding is massive and covers the country. We focused on one aspect of MCF – investment funds created for this initiative. Using a variety of publicly available sources, we found 42 such funds, among them 2 national funds, 27 created by localities, and 13 created by companies. We calculate that these funds collectively total at least $73 billion. This should be seen as a highly conservative estimate, as it does not capture every province, and some provinces where a fund exists does not report the fund’s size. Total spending on MCF is likely multiples of this publicly available figure.
Military-Civil Fusion (MCF) funds encapsulate the concept of China’s MCF strategy. The funds are encouraged, and often initiated, by the Chinese government with the intention for civilian enterprises to invest in them. Local governments are heavily involved in the establishment of MCF funds, which reflects substantial central pressure on local officials to implement MCF. Increased enterprise investment in MCF funds also suggests that the private sector sees potential return of investment in the MCF strategy. Although the provincial distribution of funds does not provide a clear trend, it indicates that actions are being taken to implement the MCF strategy on central, local and commercial levels.
Figure 1: Provincial Distribution of MCF Fund Values ($ billions)
The map depicts the total value of MCF funds within each province. The funds are widely spread across provinces and could serve as a potential indicator of provincial involvement in defense R&D. Although the distribution does not look rational, one obvious standout is Jilin, which has by far the largest fund of any province. Jilin has two funds designated for MCF, with one valuing USD 21.2 billion and the other unknown. Aviation Industry Corporation of China (AVIC) Capital Co., Ltd. invested USD 7 billion into the fund, which is managed by Huihua Fund Management Co., Ltd. The second fund is the Military-Civil Fusion and Aerospace Information Industry Development Fund. Given that the first fund has a large stake from AVIC, and the second fund is dedicated to developing the aerospace industry, it is clear that Jilin province is heavily involved in developing the aerospace industry for MCF.
Audrey Fritz was a research intern at CSIS. Scott Kennedy is Senior Adviser and Trustee Chair in Chinese Business and Economics at CSIS.