On the Pentagon’s recently updated list of “Chinese military companies,” several entries seem strangely out of place. A few lines above the Aviation Industry Corporation of China (AVIC), the state-owned conglomerate that builds the country’s fighter jets, now sits the e-commerce giant Alibaba, for instance.
AVIC has appeared on every version of the list since the first was published in June 2021. Its placement is irrefutable. It is “directly owned and controlled” by China’s state asset regulator. The Pentagon’s two-sentence rationale for why Alibaba is a “military-civil fusion contributor to the Chinese defense industrial base” is much flimsier. It is, allegedly, “indirectly affiliated” with that same asset regulator and “affiliated” with China’s technology ministry. The Pentagon cites no military customer, no defense contract, and no specific conduct whatsoever. Alibaba rejected the designation and promised legal action.
On the Pentagon’s recently updated list of “Chinese military companies,” several entries seem strangely out of place. A few lines above the Aviation Industry Corporation of China (AVIC), the state-owned conglomerate that builds the country’s fighter jets, now sits the e-commerce giant Alibaba, for instance.
AVIC has appeared on every version of the list since the first was published in June 2021. Its placement is irrefutable. It is “directly owned and controlled” by China’s state asset regulator. The Pentagon’s two-sentence rationale for why Alibaba is a “military-civil fusion contributor to the Chinese defense industrial base” is much flimsier. It is, allegedly, “indirectly affiliated” with that same asset regulator and “affiliated” with China’s technology ministry. The Pentagon cites no military customer, no defense contract, and no specific conduct whatsoever. Alibaba rejected the designation and promised legal action.
Uncomfortably, for both the Pentagon and the Chinese companies newly on its blacklist (including the tech company Baidu and the car-making conglomerate BYD), there’s truth to both the designations and the denials. At one time, Washington understood this nuance. In December 2024, Congress amended the statute behind the list, Section 1260H, to capture China’s military-civil fusion system as it actually operates: an incentive architecture rather than a direct chain of command. Then, however, it crammed that correct diagnosis into a company-by-company blacklist, an instrument the diagnosis does not fit. With a Pentagon contracting ban taking effect on June 30 and Chinese President Xi Jinping scheduled to visit Washington in September, the cost of the mismatch is coming due.
In China, military-civil fusion does not require corporate consent, or even corporate knowledge. It is a property of the system firms inhabit, not a decision firms make. Beijing does not order Alibaba’s engineers to serve the People’s Liberation Army. It maintains an award system under which commercial success and defense utility converge. Among the system’s instruments are honors conferred by the Ministry of Industry and Information Technology (MIIT): “Little Giant” status, for specialized small and mid-sized manufacturers, and “Single Champion” titles, for firms that dominate a single product niche. Both bring subsidies, easier procurement access, and tax preferences. They are general industrial-policy awards, not defense programs.
The Chinese system converts market winners into defense assets without requiring a single directive. The amended statute absorbed this insight almost verbatim. Receiving a Little Giant award now counts as statutory evidence of military-civil fusion, and being “affiliated” with state institutions satisfies the law’s threshold test. Nineteen entries on the new list cite one of these industrial-policy awards as evidence of fusion.
But the designation problems arrive immediately. Virtually every Chinese technology company is “affiliated with” the MIIT because the ministry regulates the sector. More than 14,000 firms hold Little Giant status; over 1,000 hold Single Champion titles. Lawyers for Hesai, a Nasdaq-listed lidar maker, told a federal court that the Little Giant cohort includes sellers of clothing, watches, cotton textiles, and animal husbandry services. Bloomberg’s judgment was blunter: The Pentagon “could theoretically justify designating almost any Chinese company” with a presence in the United States. That is overly broad—closer to a census of Chinese tech than a list of specific firms.
The June update expanded the list from 134 entities to 188. When a nearly identical blacklist surfaced in February, it was withdrawn within minutes, without explanation. The June version restores two memory chipmakers, ChangXin Memory Technologies and Yangtze Memory Technologies, that the February version had quietly dropped. Bloomberg later reported that dropping the two chipmakers was a key reason the February list was pulled, out of concern that it would give Chinese firms a market advantage against U.S. and South Korean competitors.
Markets have so far shown little concern for the update. When the decision became official in June, shares of Alibaba and Baidu slipped only slightly in Hong Kong.
In the blacklist’s five-year history, the few firms that have come off did so only through the Pentagon’s annual updates. This year, the update removed 10 entities, including COSCO Shipping Finance, because they no longer operate in the U.S. market, the statute’s jurisdictional requirement. They were not cleared of military suspicion but simply moved out of reach. An instrument meant to protect U.S. supply chains thus rewards the firms that leave them and keeps its grip on the firms that stay.
No court has ever ordered a company’s removal. Judge Paul Friedman of the federal district court in Washington, D.C., who has decided both challenges to reach judgment, upheld Hesai’s designation last July on the narrowest of grounds: It had built or was building facilities in two industrial parks the government classifies as military-civil fusion zones. Hesai argued in court that the same logic could implicate Volvo or Amazon Web Services. In September, Friedman upheld the drone-maker DJI’s listing on a single ground: DJI had been named a “National Enterprise Technology Center,” a civilian science designation the court tied to China’s military-industrial planning.
A comparison of these judicial opinions against the newly expanded list reveals the actual legal fault line. The court accepted sweeping qualifying criteria for Hesai and DJI, including ministry affiliation, fusion-zone residence, and state science awards. Yet it imposed one strict boundary. The Pentagon must prove a firm contributes “to the Chinese defense industrial base” through a product or technology of substantial military application. In both rulings, the government met this burden on the public record—in DJI, the court said expressly that it did not need the classified portion at all. The two-sentence public rationales for Alibaba and Baidu (whose entire public rationale rests on affiliation alone) lack this evidentiary link entirely. If these designations are vulnerable, it is here—in the missing proof of actual military utility.
As one of us has argued, export controls cannot reach the incentive architecture that pulls Chinese firms toward state priorities. The blacklist fails because of a similar dynamic, presupposing that “Chinese military companies” are a discrete set of firms that can be found, named, and punished. The keystone achievement of China’s incentive architecture is to spread military relevance across the commercial economy until the state’s claim on every firm is total and deniable at once. That is why Alibaba and the Pentagon can both be telling the truth. It is also why a list that must include every successful Chinese firm to stay accurate does not record Washington’s progress against military-civil fusion. Instead, it records the progress and success of military-civil fusion.
To some in Washington, none of this is a flaw. If the ultimate goal is full separation from China’s technology ecosystem, the list’s boundlessness is the point, a means of eventual decoupling, one designation at a time.
Decoupling by blacklist, however, has a price. The list has become load-bearing law for the United States. The Pentagon contracting ban arrives this month; a supply-chain purge follows in 2027. The demand of Rep. John Moolenaar, who chairs the House select committee on the Chinese Communist Party, to expel all listed firms from U.S. stock exchanges shows where the ladder could lead. Every downstream U.S. contractor and drugmaker (such as Eli Lilly, which has sourced a key ingredient for its weight-loss drug from the newly listed WuXi AppTec) must now engineer 188 entities out of their operations while Chinese markets shrug. Meanwhile, China is minting thousands of new award winners every year, faster than any court can adjudicate the old ones.
There are cheaper and sturdier ways to do the measuring. Washington could treat Beijing’s published awards rosters as screening inputs across export controls, investment review, and procurement. It could require firms raising capital in U.S. markets to disclose participation in those programs, putting the burden of truth on the firms themselves, under securities law.
Beijing’s predictable countermove is concealment. When U.S. scrutiny made the Thousand Talents Plan—Beijing’s flagship program for recruiting overseas scientists and engineers with grants and titles—a liability, China scrubbed it from the public record and kept recruiting through a quiet successor that does not publicize its awardees. China could make a similar move with its Little Giant and Single Champion awards (although an honor that cannot be named loses much of its pull).
But none of this stops military-civil fusion. For the United States, the problem is not identifying which firms Beijing can conscript; all Chinese firms fit that criterion while U.S. supply chains, capital, and research still run through them. Until Washington firmly decides how much it will allow itself to be exposed to China’s commercial technology ecosystem, the 1260H list will remain the U.S. government’s most rigorous description of military-civil fusion. The mistake is treating it as a response at all.
