China’s Military Is Cashing in on America’s Open Economy

When American companies try to do business in China, they often face a labyrinth of restrictions, such as forced technology transfers and limited market access. Yet, the door to the U.S. economy remains wide open for Chinese firms—even those with deep ties to China’s military—to access U.S. markets, talent, and taxpayer-funded financial incentives. Congress and regulators should close the loopholes that let Chinese military contractors acquire American companies and siphon U.S. government grants and tax credits to advance China’s military ambitions.

Concerningly, some Chinese companies obtain access to market, talent, and taxpayer-funded benefits by obscuring their ownership and strategic intent in sophisticated ways, so that they appear to be American companies. This practice does not resemble typical business localization strategies that firms use when conducting business overseas. For instance, in 2017, China’s Ministry of Commerce (MOFCOM) instructed Chinese multinationals to "downplay the company's home-country identity" when operating abroad.

Take Alabama-based Continental Aerospace Technologies, for example. Its website features a proud eagle logo and highlights a storied history of building engines for the U.S. Navy during World War II. What its patriotic branding obscures is that, in 2011, China’s fully state-owned aerospace and defense giant Aviation Industry Corporation of China (AVIC) acquired the company. Despite these ties to China, Continental continues to benefit from U.S. support, receiving a $7.43 million Paycheck Protection Program (PPP) loan in 2020 that was later fully forgiven. This money likely benefitted Continental and AVIC more than its employees, as a 2022 study showed that most PPP dollars did not go to workers.

Then there is the case of California Manufacturing & Engineering Company (CMEC). A machinery company, CMEC operates under the brand name "MEC Aerial Work Platforms," or just “MEC” for short, having spun out in 2004 from Mayville Engineering Company (MEC), a longtime supplier to the U.S. defense industrial base. CMEC changed ownership numerous times before Zhejiang Dingli Machinery, which provides research and equipment to China’s People’s Liberation Army (PLA) and possesses PLA security clearances, fully acquired the company in 2024. Today, CMEC uses a legacy MEC trademarked logo that could possibly lead some to mistakenly believe it is still associated with the original U.S. MEC. Retaining the branding of a trusted U.S. military contractor, this PLA-linked firm has quietly embedded itself in the U.S. heavy industry supply chain.

Yet another example is Farasis Energy, also based in California. The company won millions of dollars in research grants from the U.S. Department of Energy and Defense Advanced Research Projects Agency (DARPA) in the 2000s to develop advanced battery technology. In 2006, when it was already working with DARPA and U.S. taxpayer dollars had helped mature its technology, Farasis began plans to move the majority of its manufacturing and intellectual property to China, in the process helping Beijing achieve its electric vehicle and battery industrial goals. Now a U.S.-based subsidiary of its Chinese parent company, Farasis has continued to receive millions of dollars of U.S. government funds throughout the last decade.

Finally, the Chinese state-owned NAURA Technology Group—one of China’s largest chip production equipment manufacturer—acquired the Pennsylvania-based semiconductor equipment company Akrion Systems in 2018. Akrion has since received tens of thousands of dollars in U.S. state tax credits. In other words, American taxpayers have helped fund China’s race for semiconductor self-sufficiency, a goal tied to its military modernization. In 2020, NAURA made another acquisition, this time in China. The company it acquired specialized, in part, in “military communications equipment and related systems.”

These case studies illustrate a broader trend. Chinese companies operating in the U.S. economy that follow MOFCOM’s guidance to obscure their ties to China likely exist in almost every high-tech sector and U.S. state.

Many Chinese companies operating in the U.S. economy pay taxes, employ Americans, and contribute to local economies. However, the current U.S. system lacks sufficient oversight from both security and reciprocity angles following acquisitions. The Committee on Foreign Investment in the United States (CFIUS), an interagency committee that reviews foreign investments in U.S. businesses and real estate for national security risks, approved all of the acquisitions detailed above.

To address these ongoing issues, Congress should instruct CFIUS to restrict Chinese companies tied to the PLA from acquiring U.S. firms and to restrict Chinese companies not tied to the PLA from acquiring firms in critical sectors for U.S. strategic goals, such as semiconductor manufacturing equipment or batteries. Congress should require Chinese military-linked companies to disclose their ownership in public-facing materials when conducting business in the United States. And U.S. taxpayer money should not flow to companies ultimately owned by Chinese PLA suppliers.

At the very least, the U.S. government should subject Chinese companies operating in the United States to the same scrutiny that their American counterparts face in China. Many lawmakers likely have a Chinese company in their district that is benefiting from the American economy’s openness while advancing Beijing's strategic aims. These lawmakers should ensure that when the United States funds innovation, that money goes toward strengthening the United States' own economy and military, not China’s.