The US’s crackdown on Alibaba and BYD highlights a US-China paradox: both powers increasingly depend on private-sector innovation for military advantage.
This month, multiple media outlets reported that the US Department of Defense (DoD) designated the high-profile Chinese tech giants Alibaba Group Holding Ltd. and Baidu Inc., along with the electric-vehicle manufacturer BYD Co., as entities supporting the People’s Liberation Army (PLA), updating its “1260H” list of Chinese military companies.
The US DoD’s move, in line with a 2021 Congressional mandate, aims to counter China’s “military-civil fusion” (MCF) strategy by restricting these non-state-owned champions from securing US defense contracts or research funding.
The publication of the 188-firm roster — which also reinstated memory chipmakers YMTC and CXMT after a brief February rollout that was retracted over diplomatic timing concerns—signals persistent bilateral friction just weeks after the US-China summit in Beijing between Presidents Donald Trump and Xi Jinping failed to ease technology competition.
While it has no immediate legal impact on regular commerce, the designation warns US investors and may indicate upcoming trade restrictions or delisting. Alibaba and firms like WuXi AppTec rejected US claims, asserting they operate independently of China’s military.
Meanwhile, the Chinese Embassy in Washington criticized the policy, accusing the US of misusing national security justifications to impose discriminatory trade measures on foreign businesses.
MCF has been a persistent feature of China’s defense-industrial base, though it may be evolving into a different form. While China’s 15th Five-Year Plan (2026-2030) does not explicitly mention MCF, it contains language consistent with the broader objectives of that strategy, including calls for deeper integration of technological and industrial innovation and for strengthening integrated national strategies and strategic capabilities.
This suggests continuity with China’s efforts to mobilize civilian scientific, technological, and industrial resources for national defense.
MCF is notably less prominent in China’s 15th Five-Year Plan than in earlier plans, suggesting a more indirect, integrated approach rather than an explicit policy emphasis. The toning down of MCF in China’s 15th Five-Year Plan may also reflect China’s desire to smooth out a major irritant in US-China bilateral ties.
One possible reason China’s MCF has been a major point of contention in US-China relations is that interactions between US and Chinese entities involved in MCF could provide a significant source of US-origin technology for China. An August 2025 US Department of State (DoS) report mentions that China uses MCF to acquire US technology by systematically eliminating barriers between civilian and defense sectors.
The report notes that MCF exploits civilian access to international investments, joint ventures, technology imports, academic partnerships, and talent recruitment. At the same time, it says it employs coercive methods, such as mandating forced technology transfers as a condition for US companies to enter the Chinese market. Once acquired, the report says these civilian and commercial technologies are diverted to the PLA to modernize its forces.
Yet expecting China to exclude its leading technology firms from supporting national defense may be unrealistic.
Delving into Alibaba’s alleged support for the PLA, the Financial Times reported in November 2025 that a declassified White House national security memo alleged that Chinese technology giant Alibaba Group Holding Ltd. is providing critical technical support for PLA military operations targeting the US.
According to the Financial Times, the document detailing “top secret” intelligence claims the e-commerce and cloud provider grants the PLA direct access to sensitive customer metadata, including IP addresses, payment records, and Wi-Fi information.
Additionally, the Financial Times reports that the memo claims Alibaba employees shared information about unpatched “zero-day” software exploits and advanced AI services with the PLA. However, the report notes that Alibaba rejected the accusations, calling them a malicious public relations effort to undermine recent US-China trade relations.
Earlier evidence of BYD’s involvement in MCF comes from an October 2019 Radarlock report, which says the company shared commercial technology, big data and international market access with defense entities such as the China Academy of Launch Vehicle Technology (CALT).
The report notes that BYD integrates its technical resources and shares equipment with specialized MCF zones and with state defense conglomerates such as NORINCO and the Aviation Industry Corporation of China (AVIC).
Furthermore, it states that BYD’s proprietary lithium-ion battery research directly fuels national defense technologies; the firm won a state award for battery innovations developed in collaboration with the State Administration of Science, Technology and Industry for National Defense (SASTIND)-affiliated national defense institute and an AVIC supply partner.
Yet the US is increasingly relying on its own technology champions for military AI capabilities. An April 2026 US Congressional Research Service (CRS) report notes that in July 2025, the US Department of Defense (DoD) awarded US$200 million in contracts to Anthropic, Google, OpenAI and xAI to promote the integration of advanced AI technologies for national security purposes.
The report notes that Anthropic’s Claude model became the DoD’s most widely deployed frontier AI model, utilized across national security agencies for mission-critical applications, including intelligence analysis, operational planning, cyber operations, and modeling.
It adds that the US used Claude in the January 2026 operation to capture Venezuelan President Nicolas Maduro, but it isn’t known whether the US DoD has used frontier AI within fully autonomous weapon systems.
Beyond Venezuela, Noor Hammad mentions in an April 2026 article for the International Institute for Strategic Studies (IISS) that during Operation Epic Fury in Iran, the US military leveraged AI as a primary decision-support weapon to conduct rapid, large-scale precision strikes. Hammad notes that central to the operation was the US DoD’s Maven Smart System (MSS), which integrated Anthropic’s Claude AI.
She notes that the system processed vast amounts of surveillance data, satellite imagery, and radar to automate threat detection, prioritize targets, and coordinate complex combat tracking, enabling the US to identify and strike 1,000 targets within a single 24-hour window.
The use of Anthropic’s Claude AI has led to a rift between the company and the US government. Michael Gregory notes in a recent The Conversation article that the Trump administration declared Anthropic a supply chain risk in March 2026 because the company refused to remove built-in safety guardrails that prohibit its models from being used in US DoD products, including for autonomous weapons and domestic surveillance.
As a result, he notes that the Trump administration banned the US federal government from using Anthropic’s Claude AI models. But Gregory says that despite Anthropic’s public stance against its products being used for military and internal security purposes, the US military continued utilizing Claude’s technology for targeting bombing sites in Iran.
For all their mutual accusations, China and the US are converging on a common reality: military power in the AI age depends on mobilizing private-sector capabilities. The contest is less about MCF itself than about which country can exploit it more effectively — and more legitimately.
First, you need Chinese engineers, then Chinese rare earth, and finally Chinese funding.