This article provides an overview of the People’s Republic of China (PRC) ‘s use of foreign technology and its efforts to build military capabilities in support of China’s national security objectives.
The report is intended to help readers recognize the means by which China’s government, affiliated firms, and/or individuals attempt to access sensitive Western technologies and knowledge in ways that undermine the security and commercial interests of the U.S., Australia, the UK, Germany, Spain, Italy, France, Sweden, Canada, Switzerland, Japan, South Korea and Taiwan.
Chinese entities directly linked to the People’s Liberation Army obtain sensitive Western technologies and knowledge from the U.S., Australia, the UK, Germany, Spain, Italy, France, Sweden, Canada, Switzerland, Japan, South Korea and Taiwan.
Some of the dual-use technology, microelectronics, software and hardware are directly used to manufacture air-to-air missiles (PL-15, PL-21, PL-12), surface-to-surface missiles (YJ-81, YJ-83, DF series ballistic missiles), drones, fighter jets (J-10, J-16, J-35, J-20), helicopters (Z-10, Z-20), aircraft (Y-20), warships and satellites.
The Chinese missile’s seeker components, gyroscope, stabiliser, temperature-sensitive microelectronics, and temperature-sensitive turbofan blades are directly imported from the EU and America.
China also exported these dual-use technologies, microelectronics, software, and hardware to Iran, North Korea, Russia, and Venezuela.
Semiconductor imports
China is the world’s largest consumer and importer of semiconductors, buying massive amounts of chips and chipmaking equipment (such as from ASML, Applied Materials, and Tokyo Electron) primarily from Taiwan, South Korea, Japan, and the US, despite aggressive government efforts to achieve self-sufficiency and foster domestic innovation.
Imports surged in 2024 due to stockpiling ahead of tighter US restrictions, with significant spending on advanced AI chips and manufacturing equipment, even as China pushes to reduce reliance on foreign tech through massive investments and domestic development.
China consumes over half the world’s chips but relies heavily on imports for advanced components, with 2024 chip imports valued at around $386 billion.
Significant sources for finished chips include Taiwan, South Korea, Japan, and Malaysia, while equipment comes mainly from the Netherlands, Japan, and the US.
Import volumes surged in 2024 as Chinese firms anticipated further US export controls, leading to increased purchases of both finished chips and manufacturing equipment.
China’s demand is driven by its massive tech sector (EVs, AI, data centers), seeking advanced chips like HBM, despite US restrictions.
Around $386 billion, sourced heavily from Taiwan, South Korea, Japan, and Malaysia. Significant spending on machinery (HS 848620), with Japan and the Netherlands dominating the supply.
China’s acquisition of Silex Microsystems, a Swedish firm, provides one example of how the PRC uses indirect investment techniques to target specific foreign companies in the service of publicly stated PRC national strategic goals. This example also illustrates the challenges of regulating dual-use technology.
In 2016, an apparently private Chinese company, NAV Technology Company Limited (NavTech), acquired the Swedish-based Silex Microsystems. Silex specializes in developing and manufacturing micro-electromechanical systems (MEMS), a crucial component inside the chips embedded in most electronic devices.84 Although not immediately apparent, NavTech maintains close ties to the Chinese state and military. Thus, in agreeing to this acquisition, “Sweden may inadvertently assist the Chinese military in modernizing its capabilities.”
Military applications
China imports significant dual-use technologies, focusing on AI chips, advanced software, aerospace components (like engines), and automation/robotics, often leveraging civilian channels to bolster both its commercial tech sector and the People’s Liberation Army (PLA) for military modernization, despite facing increasing international scrutiny and export controls from countries like the US. Key import areas include semiconductors, data centers, and specific minerals crucial for high-tech manufacturing, all while China simultaneously develops its own indigenous capabilities through reverse engineering and internal R&D, sometimes leading to a dual-track strategy of acquiring foreign tech and restricting its own sensitive exports.
Open secret
China has legally purchased weapons systems and components from abroad to create a foundation for developing indigenous capabilities. Historically, China has relied on Russian arms purchases to fill gaps in its defense capabilities. Although Russia remains China’s largest arms provider, the overall patterns of China’s arms purchases are shifting.
When arms embargoes or other restrictions mean that outright purchase of arms is impossible, China has increasingly been able to exploit dual-use technologies to further the development of the PLA’s next-generation military capabilities.21 China’s purchase of dual-use technology has helped it to develop many of its key defense technologies, including artificial intelligence, aerospace, unmanned aerial vehicles, nuclear, and aviation capabilities.
China is moving from purchasing whole systems to buying individual parts and components from a variety of countries. Such purchases are focused especially on parts such as engines and sensors, which China is not yet able to produce indigenously.
China is increasingly purchasing commercially available dual-use technology, such as autonomous vehicles. Because some items are not considered dual-use in their countries of origin, they are not necessarily subject to export control restrictions.
China used American car parts for the armoured vehicle and reverse-engineered the technology for Chinese armoured vehicles.
Reverse engineering
Reverse engineering is the connective tissue bridging China’s acquisition of foreign weapons or technology to building an indigenous capability. China’s acquisition of technology and knowledge from abroad are only the starting point for building a new or improved military capability. Technology acquired from foreign countries provides a model for the People’s Liberation Army (PLA) to study, test, learn from, and eventually reverse engineer. The end result may be a weapon or technology that is a near-replica of the original, but with “Chinese characteristics.” As this report will show, PLA has made near-replicas of foreign models and also acquired parts and components to help fill gaps in China’s indigenous capabilities.
China’s deliberate integration of military and civilian sectors through government policies such as the 13th Five Year Plan and MIC 2025 creates an even easier pathway for technology from abroad to make its way into the PLA since commercial products may not trigger export controls or other restrictions on military technology.
Reverse engineering, although at times considered illegal depending on the licensing agreement, can be entirely legal when authorized under appropriate agreements. When legal methods are combined with illicit activities, such as hacking and other forms of data breaches, the information gained can enhance PRC military capabilities. We focus on the legal pathways, but the combination of activities all have the potential to contribute to indigenous production. The rest of this report identifies and describes the main legal pathways.
Legal purchase before the 1989 Tiananmen Square Massacre
According to 2019 Stockholm International Peace Research Institute (SIPRI) data, since the 1950s, Russia/the USSR has accounted for 87 percent “We should seize the opportunity to make a substantial study of all kinds of foreign machines and weapons in order to learn their secret completely of China’s arms imports.Examples of weapons and systems purchases from Russia that have contributed to significant improvements in China’s defense technological base include the following:
- Su-30MKK multirole fighter aircraft
- Kilo-class submarine
- SS-N-22/Sunburn supersonic antiship cruise missile (ASCM)
- S-300 air-defense system
- Buk missile system
- Sovremenny-class destroyers
- French AS 365N
- Italian APSIDE missile
- Israeli Python missile
China has also purchased military equipment and technology directly from a variety of other countries, including France, Israel, Italy, and even the US. During a brief window from 1981 to 1989, the US and the European Union (EU) contributed to China’s defense capabilities by selling it an array of arms and military equipment, including transport helicopters, gas turbine engines, and antisubmarine warfare (ASW) torpedoes.
In the wake of the 1989 Tiananmen Square Massacre, this window for arms purchases largely closed when the US and the EU imposed arms embargoes on China. However, the embargo did not represent a complete cessation of arms sales from the West. The EU allows each individual member state to determine the definition of “arms embargo” and set its own national regulations, leading to a variety of interpretations.
The table below shows Chinese imports from other countries for reverse-engineering purposes.
Some nations do not consider all technologies with potential military application to fall under the embargo. Thus, they have continued to export arms to China in the post-1989 period, including French ASW helicopters and UK airborne early warning radar.
In the past, China has used favorable offset agreements from foreign companies to build indigenous capabilities, both commercial and military. For example, the PLA’s indigenous helicopters are based on technology accessed via a 1980 offset agreement with France to co-produce the French AS 365N in China.
By 1992, China had used the knowledge gained from that partnership to release the Z-9B variant, which was built with more than 70 percent Chinese-manufactured parts.56 In 1994, the Z- 9B entered service in the PLA.
Chinese imports from other countries
PLA linked and financed semiconductor production facility Technology licensing may have allowed a PRC firm with military ties to acquire advanced microchip designs from the US.
In early 2019, Sugon, a PRC-based high-performance computer manufacturer with ties to the PLA, built its next-generation supercomputer based on US semiconductor technology. The process by which it did so illustrates two tools that China uses to access foreign technology:
technology licensing and Chinese investment in foreign firms (discussed in the next section of this report). In simplified form, the sequence of events was as follows:
In 2016, AMD, a US semiconductor company, created two joint ventures with a Chinese holding company, Tianjin Haiguang Advanced Technology Investment Co. Ltd. (THATIC). One of these joint ventures, Chengdu Haiguang IC Design, is majority- owned (70 percent) by THATIC, and 30 percent owned by AMD.
AMD provided THATIC, through Chengdu Haiguang IC Design, with the technology license for AMD’s x86 chip designs.48 Market observers conjectured that AMD did so to earn revenue to compete with other chip design firms, such as Intel.
Sugon is a shareholder in THATIC, and it appears that Sugon gain ed access to AMD chip designs through this pathway. In early 2019, Sugon showcased its next-generation supercomputer, Nebula, which contains more than 300 AMD x86 central processing units (CPUs) made in China.
In June 2019, the US Bureau of Industry and Security labeled these Chinese companies a risk to national security, noting that Sugon supplies high-performance computers to the Chinese government, military, and aerospace industry.
Thus, technology licensing enabled THATIC to develop AMD CPUs domestically and, in turn, enabled THATIC’s parent company Sugon to obtain the CPUs necessary for its next-generation high-performance computer.
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