Security Risks: Dual-Use Technology in Europe
By Nicholas Nelson and Lauren Speranza this article was originally published in the Strategic Studies Institute (SSI) - US Army War College in May, 2022.
Chinese penetration of Europe’s growing technology sector is on the rise. Despite initial dips in other types of Chinese investment in the wake of the coronavirus disease 2019 (COVID-19) pandemic, the volume of Chinese technology investments in Europe increased 25 percent from the fourth quarter of 2019 to the first quarter of 2020.1 The rising demand for virtual innovation during lockdowns created new openings for technology investors in Europe, but China has long been pursuing such strategic opportunities as part of its climb to great-power status.
Emerging and disruptive technologies such as artificial intelligence (AI), autonomous systems, Internet of Things (IoT) components, and space -enabled capabilities have been the targets of many Chinese state-backed investors in Europe seeking to sharpen China’s competitive edge with foreign technology and know-how.2 Many of these dual-use technologies have both civilian (that is, commercial) and military applications, increasing their value to Beijing. The risks would grow for European governments and their allies if these technologies ended up in the wrong hands or became subject to foreign, malign influence.
As strategic competition between China and the West has intensified, many European governments have introduced new measures to limit Chinese investment in sensitive technologies—particularly, those that have explicit security and defense implications.3 But as Europe’s preventative measures have advanced, so too have China’s investment practices for accessing foreign intellectual property (IP) and technological capabilities. Beyond simple state-owned investment and acquisitions, China is leveraging commercial companies, complex webs of venture capital (VC), and even international research and talent programs to benefit from European dual- use technology without detection. China is also manipulating critical supply chains to control access to key raw materials, such as rare-earth elements (REEs), required to produce and operate such technologies.4 These actions by China could result in significant consequences for the security of Europe; its closest ally, the United States; and the NATO alliance that binds them.
This chapter explores the primary risks to allied security posed by Chinese investment in dual- use technologies and related materials in Europe. Beginning with China’s approach to technology investment in Europe, this chapter outlines sevenpriority dual-use technologies at risk: AI, quantum information technology (IT), semiconductors, space and space-enabled capabilities, additive manufacturing (AM), robotics, and unmanned and autonomous systems. These technologies were identified based on two key factors: (1) China’s significant focus on these technologies through its policies, investments, and related activities in Europe; and (2) the transformative potential of these technologies for the strategic and military capabilities of both China and the transatlantic alliance. The chapter also looks at China’s efforts to influence and control access to the REEs necessary to make and use these technologies.
This analysis details China’s activities and tactics for acquiring IP, penetrating supply chains, and manipulating these technologies in Europe, offering the following five primary categories for conceptualizing and monitoring China’s influence in this space.
Direct investments and acquisitions in Europe by Chinese state-owned entities
Investments and acquisitions in Europe by commercial Chinese companies not directly linked to the government
Investments in VC, especially in European start-ups, by Chinese VC firms and Chinese limited partners in non-Chinese VC firms
The penetration of raw material supply chains (particularly REEs)
Research and development collaborations and talent programs between Chinese and European companies and academic institutions
The chapter then illustrates examples of these Chinese activities across six key European countries as case studies: the United Kingdom, Germany, France, Italy, the Netherlands, and Poland. These cases were selected because of their advanced defense technology industries, manufacturing bases, talent pools, and related raw materials as well as their strong track records of deploying or partnering with the United States for security and defense operations through NATO. The chapter concludes by highlighting three primary risks to allied security posed by China’s dual-use technology investment activities in Europe.
China’s Approach to Dual-Use Technology in Europe
As discussed in chapter 3, Beijing views technological innovation and eventual supremacy as key pillars of China’s rise as a great power. For the Chinese Communist Party (CCP), technology is necessary to support an advanced economy, government control of society, and a capable military, all of which the party views as being interconnected.5 To facilitate the achievement of these goals, the government has initiated a series of top-down, whole-of-government policies and programs at home, such as Made in China 2025, that are designed to jump-start the development of dual-use technologies and achieve military-civil fusion. Military-civil fusion is a strategy designed to build China into an economic, technological, and military superpower by fusing the country’s military and civilian industrial, science, and technology resources.6
The state has orchestrated sector-specific industrial and innovation plans, targets for productivity and market shares, domestic market protection policies, the creation of national champions, and large-scale R&D programs. One key tool is the Five-Year Plan for national economic and social development, which the Chinese government adapts incrementally to shape commercial and technology goals for China’s advancement through 2035.7 Another tool is China Standards 2035, a 15-year blueprint for China’s government agencies and technology companies aimed at driving international standards for next- generation technologies and increasing China’s global technology clout.8 Still another tool is China’s military modernization strategy that involves efforts to increase the innovation and global competitiveness of large, defense state-owned enterprises and to work with the civil and commercial sectors for inspiration.9 This strategy underscores the importance of dual-use technologies for future battles, which are increasingly playing out through unconventional means in the cyber and information domains.
Though China prioritizes technology independence and indigenous innovation, the extent to which the country can generate dual-use technology domestically to achieve its goal of leapfrogging the United States as a technological superpower is limited. Some of the limits China faces are time, difficulty, cost, infrastructure, and talent.
Priority Dual-Use Technologies at Risk
This study identifies seven advanced, dual-use technologies as priority risk areas based on two key factors: (1) China’s significant focus on these technologies through its policies, investments, and related activities in Europe; and (2) the transformative potential of these technologies for the strategic and military capabilities of both China and the transatlanticalliance. The technologies include AI, quantum IT, semiconductors, space and space-enabled capabilities, AM, robotics, and unmanned and autonomous systems. The following sections examine the relevance of these technologies.
Most recently, in its 14th Five-Year Plan for 2021–25, the Chinese government outlined seven “frontier technologies” that heavily characterize its investment activities in Europe.10 Four of these dual- use technologies are particularly transformative for defense and pose significant risks for European allies’ security and technology.
Artificial Intelligence
According to IBM Cloud Education, “AI leverages computers and machines to mimic the problem- solving and decision-making capabilities of the human mind.”11 Though AI has numerous commercial applications, including e-commerce, workplace communication, and health care, the technology is a potential game changer, affecting a wide range of military capabilities. The technology can empower autonomous and high-speed weapons and defensive systems across the land, air, sea, space, and cyber domains. The technology also provides stark advantages in logistics; exercising and training; target recognition; situational awareness; data processing; planning; and, for China, population surveillance and control.12
China has an ambitious set of policies and national initiatives that have fueled its indigenous leaps forward in AI. But China continues to benefit from international R&D partnerships and underrated AI-related investments in Europe.13 As it refines its AI and AI-enabled technologies, China could be positioned to sell them for security cooperation and other geopolitical purposes that could undercut alliance capabilities. China is also leveraging these advances to set global AI standards and terms of use in its favor, which could affect allies’ ability to apply the technology in operations.14 China manipulates standards through its large-scale physical control of production, exchange, and consumption of AI productsas well as its foothold in international governance bodies like the UN’s International Telecommunication Union and the World Trade Organization.15 As underscored by its National Security Commission on Artificial Intelligence, the United States and its allies are at risk of losing AI leadership to China in the next decade.16 Given the close and high-stakes competition between the alliance and China in AI, the technology represents a key risk area for allied security.17
Quantum Information Technology
Quantum IT provides new forms of computing, sensing, and communications to revolutionize the processing and transmission of data.18 In the commercial space, quantum IT could be applied to enhance everything from engineering and medicine to banking and environmental science. Across military missions, these capabilities can provide significant advantages in sensing, timing, detection, synchronization, data encryption, and even precision navigation.19 The navigation capability is particularly critical to future operations, which are likely to take place in denial-of-service environments in which space-based Global Positioning Systems are disrupted or disabled. Quantum IT can also provideadvanced sensing and tracking that can undermine traditional allied military capabilities, such as anti-submarine warfare.20
In addition to national subsidies and large- scale investment programs, China has supported its indigenous quantum advances by manipulating international R&D partnerships, including in Europe, to access foreign know-how.21 As China continues to push toward quantum supremacy, Beijing could become the global supplier of quantum technologies.Quantum technology is another top risk area for Europe and the alliance.
Semiconductors
Semiconductors or microchips have a huge range of commercial applications, including IoT devices such as smartphones, automobiles, televisions, cameras, household appliances, and even light- emitting diode bulbs.22 Semiconductors are also used in a variety of defense electronics and platforms, such as computers, sensors, amplifiers, switches, weapons, military aircraft, tanks, armored personnel carriers, and more.23 Semiconductors are integral to the way modern militaries fight and conduct operations.
China has traditionally lagged behind leading competitor semiconductor developers, such as the United States and South Korea. Because China lacks domestic companies that can design and produce tools its chip manufacturers need, it has relied on Europe and other countries for key materials and know-how.24 China has pumped billions of dollars into developing its own semiconductor industry, a move accelerated after the United States blacklisted Chinese technology giant Huawei for espionage and banned key component exports to China.25 Despite US pressure on Europe, China has doubled down on its activities on the continent in search of key IP, subcomponents, processes, and materials. As a result, semiconductors are a significant risk area for Europe and North America.26
Space and Space-Enabled Capabilities
Space capabilities, such as geospatial intelligence, the Global Positioning System, launch vehicles, and satellite communications, have many commercial uses, from transportation to data analytics. For governments and militaries, space capabilities provide better, more real-time intelligence to decisionmakers; enable military headquarters to manage battlespaces effectively; and connect platforms and warfighters across the globe.27 In fact, most allied capabilities rely on access to and the freedom to act in space.
China has recently prioritized space exploration and dominance as a strategic objective and made significant strides in anti-satellite and counterspace capabilities that could disrupt or disable NATO capabilities.28 To makes these strides, China has partially relied on access to foreign technology and talent, in addition to national programs.29 Because space is central to enabling much of the defense innovation among great powers, space capabilities represent a core risk area for allied technology and defense capabilities.30
The 14th Five-Year Plan also emphasized three additional areas of technological development China may not consider as leading-edge but that it still prioritizes across its investment activities, including as part of Made in China 2025.31 These areas pose a variety of risks to allied security and defense.
Additive Manufacturing
This technology represents a transformative approach to industrial production that uses “software or 3D object scanners to direct hardware to deposit material, layer upon layer, in precise geometric shapes.”32 The technology enables the creation of strong, light parts and systems, often more quickly than traditional methods. The technology can be widely used across commercial sectors, including in the aerospace, automotive, construction, health-care, and entertainment industries.33 For security and defense, additive manufacturing can be used to produce spare parts quickly for key platforms like space launch vehicles, fighter jets, submarines, and tanks; medical supplies for personnel; materials like concrete and metal; and even entire structures, like submersible hulls or drones.34 More broadly, additive manucturing is likely to encourage localized, on-demand production, which could threaten China’s leading position in global supply chains.35 To strengthen Beijing’s production base at home and expand its ability to exploit weakened manufacturing sectors abroad, the CCP provides tax benefits; credit support; and other incentives, including for international collaboration, to support the development and adaptation of AM technology for Chinese entities.36 These measures put European allies’ AM intellectual property, manufacturing sectors, and supply chains at substantial risk of Chinese manipulation.
Robotics
Robots perform tasks done traditionally by humans, either autonomously or with human input.37 Robots have been widely incorporated across commercial industries, such as manufacturing, mining, and health care. In the defense sector, robots can provide transformative advantages related to armor, transportation and logistics, emergency response, remote-controlled vehicles, information collection, and more while minimizing risk to personnel.38 For China, robotics has been a major innovation priority for use in its military and in commercial industries.39 Following massive investments and subsidies under Made in China 2025, China’s robotics capabilities have advanced significantly in both areas.40 Despite buying and building more robots than any other country, China still depends on robotics manufacturing and technology from Europe and Japan. Most Chinese robot manufacturers lack the expertise to build key components, such as encoders, or to coordinate multiple robots for integrated manufacturing; thus, China does not yet make enough technologically advanced industrial robots to meet domestic manufacturing demand.41 As China explores new ways—both legal and illicit—to close this gap, European allies’ robotics intellectual property and capabilities remain at risk.
Unmanned Systems and Autonomy
These systems are fundamentally changing industries and warfare across all physical domains (land, sea, air, and space). The most proliferated uninhabited systems (UxS) at present are unmanned aerial systems (UASs), commonly known as “drones.” These aircraft systems are designed to operate autonomously or to be controlled remotely without a pilot on board, drawing on technology used in robots.42 These systems have several valuable civil and commercial uses, including delivering packages and supplies and transporting critical medical aid.43 For militaries, UASs have traditionally been key sources of intelligence, surveillance, and reconnaissance capabilities, and, more recently, the systems have provided the ability to strike targets directly. The systems provide this capability at a cost that is an order of magnitude lower than that of manned aerial assets as well as minimize the risk to pilots’ lives.
The use of unmanned aerial systems has been increasingly transformative because they have had a significant force-multiplying effect when paired with other assets.44 In addition to their prospects for aiding in population surveillance, these systems are particularly attractive to China for upending the high-end capabilities of the alliance due to their low- cost, low-risk, high-reward nature. Furthermore, the asymmetrical use of UASs by adversaries exploits gaps in NATO’s traditional doctrine.45
The 13th Five-Year Plan (2016–20) brought significant progress (largely carried by commercial unmanned aerial systems) to China’s traditionally underdeveloped general aviation industry, however, the country still relies on foreign aviation technology.46 Though international investment and acquisition in the broader European aviation sector are already restricted due to national security concerns, to avoid screenings, especially in Europe, China has pursued smaller and seemingly commercial investments associated with UASs and autonomy.47 At the same time, Chinese drone companies, principally SZ DJI Technology Co., Ltd., have effectively seized the European hobby drone market—the company currently boasts over 70-percent market share. China could adapt these commercial capabilities for military use with other foreign or domestic intellectual property, exposing a significant risk area for allied security.
ABOUT THE AUTHORS
Lauren Speranza is Director of Transatlantic Defense and Security at the Center for European Policy Analysis (CEPA). Lauren leads the Center’s work on NATO and regional security, as well as its Defense Tech Initiative.
Nicholas Nelson is a Non-resident Senior Fellow for Emerging Tech and Policy with the Transatlantic Defense and Security Program at the Center for European Policy Analysis (CEPA).