From Military Dominance to Military-Civil Fusion: China’s National Defence in the Semiconductor Industry

Key Takeaways

• From the Mao Zedong to Xi Jinping eras, China’s semiconductor industry has evolved from a military-dominated sector into a largely civilian-led industry.
• The military and defence establishment has remained a structuring force in the sector, but its role has evolved from direct patronage to relative decline, and more recently to strategic steering.
• The ongoing military-civil fusion (MCF) strategy has re-securitized semiconductors by building a more centralized party–military–government system to channel civilian capabilities toward defence use.
• Under MCF, China’s emerging defence–semiconductor nexus is characterized by stronger defence steering, a renewed whole-of-nation approach, and the rise of a national team of largely civilian firms.
• It remains uncertain whether MCF can overcome the industry’s “chokepoint” problems and deliver sustained technological breakthroughs.
• Europe needs to examine the Chinese model more closely, as either its success or failure could have major implications for its economic competitiveness and strategic security.

Introduction

As the backbone of the digital-driven society, semiconductors—also known as integrated circuits (ICs) or simply (micro-)chips—enable nearly every modern industrial, commercial, and military system. For national defence, they are indispensable to information systems, command-and-control architectures, sensors, communications networks, and advanced weapons platforms. Semiconductor capability therefore affects not only the performance of individual weapons systems, but also the wider transformation of military organization, information processing, and operational effectiveness. Conversely, the military and defence establishment has exerted significant influence on the development of semiconductors, as seen in the United States (U.S.) where the industry first emerged. It has played a foundational and catalytic role as military demand helped enable the industry’s rise by providing early markets, funding, and technological direction. Although the industrial advancement is now largely driven by the market, the military remains a key strategic partner by catalyzing commercial innovation, sustaining technological superiority, and converting civilian technological advances into defence capabilities.

One of the most striking developments of the past two decades has been the rapid growth of China’s semiconductor industry, which was reflected in its emergence not only as one of the most capable chip manufacturers but also as the world’s largest market for chip consumption. Despite the tightening of U.S. export controls and sanctions since 2018, the nation’s semiconductor sector has demonstrated considerable resilience, as Chinese players have been accelerating efforts toward domestic substitution, technological upgrading, and expansion in alternative markets. At the same time, China’s military capabilities have developed rapidly, as the People’s Liberation Army (PLA) has transformed from a large but technologically outdated force into a modern great-power military, with major weaponry advances that depend heavily on sophisticated electronics and advanced chips. It is therefore clear that China’s semiconductor rise and military modernization are advancing in parallel, reflecting an increasingly close link between industrial-technological upgrading and military transformation.

Against this backdrop, this research aims to clarify the role of China’s defence establishment in the country’s semiconductor development: its significance to the industry relative to civilian actors, its strategic orientation and posture toward semiconductors, and the decision-making and implementation system through which this role is exercised. While the analysis traces how these dimensions have evolved across different periods, it places particular emphasis on the present.

Understanding how China links defence to semiconductor is directly relevant to European debates on a range of critical issues the continent is faced with: economic and technological competitiveness, supply chain resilience, renewed arms race, and not to mention Europe’s strategic dilemma posed by China. The debates nowadays often focus on what Europe should do—whether to tighten export controls, strengthen indigenous innovation and production, or reduce strategic dependencies. Yet such choices cannot be made effectively if the Chinese system and policies are understood only in broad and vague terms. Moreover, China represents a distinct pathway to the defence–semiconductor nexus, one that neither copies the U.S. model nor replicates the obsolete Soviet approach[6]. A more precise understanding of the Chinese model is thus increasingly urgent for formulating effective policy responses.

Before Xi Jinping: Defence Origins and Civilian Ascendance

China’s semiconductor industry emerged in the Mao Zedong era (c.a. 1950s-1970s) as a small but strategically important part of the broader electronics and telecommunications complex. As such, semiconductors developed not so much as a civilian industry but a component of a state-led defence industry. Its early development followed the Soviet model characterized by centralized planning, state monopoly, administrative allocation, and the separation of research from production. The logic was self-reliance, as the policymakers sought to sustain essential capabilities under technological isolation—especially after Sino-Soviet split—and domestic political disruption.

The defence establishment shaped the industry primarily through defence supply requirements and strategic priorities. Although semiconductors had not yet become an independent industrial sector, electronic components were increasingly needed for defence communications, radar, computing, missiles, aircraft, naval platforms, and other advanced weapons systems. As a result, military demand gave the sector political importance and resource priority, while the broader defence-industrial apparatus embedded semiconductor development within the logic of national security and self-reliance.

This period laid the institutional foundations of China’s defence-centred semiconductor system, many features of which have persisted to the present.The main actors included party-state apparatus responsible for planning, resource allocation, and coordination; state-owned research institutions and factories for research, development and production; and the PLA as the end user. Their relationships were organized through vertical bureaucratic chains of command. Horizontal coordination between research, production, and military users remained weak and segregated, mainly through administrative planning rather than autonomous collaboration.

During the Deng Xiaoping era (c.a. 1980s and early 1990s), the industry began to shift from a closed and defence-centred system toward civilian use and commercialization. As central planning declined, semiconductors increasingly took on a dual-use character. The nation’s Reform and Opening policies also enabled selective access to foreign technology and investment, and the global market, which became important channels for upgrading China’s weak domestic capabilities.

The defence establishment lost the privileged position in the industry as defence production was reduced, procurement became more constrained, and many factories shifted their focus to civilian output. As a result, civilian demand gradually surpassed military demand to become the main driver of China’s semiconductor development. Institutionally, this era saw limited reforms within the system and a broader weakening of the vertical structure of the Maoist defence economy. Defence enterprises gained greater autonomy, civilian agencies became more important, and foreign firms and local governments entered the system. Yet the transition was far from clean: although channels of horizontal coordination improved, military–civilian linkages remained limited and the military core retained many features of the old defence economy.

Between the mid 1990s and early 2010s (roughly Jiang Zemin and Hu Jintao eras), the semiconductor development was increasingly shaped by informatization demands, foreign technology absorption, dual-use applications, and industrial upgrading. Rapid growth in civilian demand and marketization pushed the sector beyond its earlier defence-centred role and embedded it into the global supply chain.Beijing no longer regarded semiconductors merely as a defence supply base but as a strategic sector with growing significance for the country’s economy. Unlike in previous eras, civilian firms now played the leading role in industrial upgrading and technological innovation, rendering military modernization increasingly dependent on advances generated in the civilian sector.

Consequently, the defence establishment transformed from that of a direct industrial patron to that of an increasingly demanding customer. But this did not mean that the role of defence continued to decline as it had in the previous period; on the contrary, its importance revived after Beijing—facing sanctions after the 1989 Tiananmen incident—renewed its emphasis on self-reliance. As semiconductors became more central to weapons modernization, the PLA’s demand shifted from basic supply to advanced capabilities,often through procurement from civilian suppliers. Meanwhile, vertical coordinating institutions that had once been weakened were strengthened, and defence enterprises were reorganized into large state-owned conglomerates that combined research and production more closely than before.