The US 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 points of sale reported that the US Department of Defense (DoD) designated high-profile Chinese tech giants Alibaba Group Holding Ltd. and Baidu Inc., along with electric vehicle maker BYD Co., as entities supporting the People’s Liberation Army (PLA), updating “1260H” List of Chinese military companies.
The US DoD move, in line with the 2021 congressional mandate, aims to counter China’s “military-civilian fusion” (MCF) strategy by restricting these non-state champions from securing US defense contracts or research funding.
The release of the 188-firm list — which also reinstated memory chip makers YMTC and CXMT after a brief February rollout that was pulled over diplomatic timing concerns — signals continued 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 trading, the designation alerts US investors and could indicate future trade restrictions or delisting. Alibaba and firms such as WuXi AppTec rejected the US claims, saying 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 against foreign businesses.
MCF has been a persistent feature of China’s defense-industrial base, although it may be developing in a different form. WHEREAS 15 of Chinath Five-year plan (2026-2030) does not explicitly mention the 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 significantly less prominent in China’s 15th The five-year plan that in previous planssuggesting a more indirect, integrated approach rather than a clear policy emphasis. Lower MCF toning in China’s 15th The five-year plan may also reflect China’s desire to smooth over a major irritant in US-China bilateral ties.
One possible reason that China’s MCF has been a major point of contention in US-China relations is that interactions between US and Chinese entities involved in the MCF could provide an important source of US-origin technology for China. An August 2025 US Department of State (DoS) REPORT mentions that China uses MCF to acquire American technology by systematically eliminating barriers between the civilian and defense sectors.
The report notes that MCF leverages civilian access to international investment, joint ventures, technology imports, academic partnerships and talent recruitment. At the same time, it says it uses coercive methods, such as forcing forced technology transfers as a condition for American companies to enter the Chinese market. After the acquisition, the report says these civilian and commercial technologies have been diverted to the PLA to modernize its forces.
However, expecting China to exclude its major 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, a declassified White House national security memo claimed that Chinese tech giant Alibaba Group Holding Ltd. is providing critical technical support to PLA military operations targeting the US.
According to the Financial Times, the document detailing “top secret” intelligence claims the e-commerce and cloud provider gives the PLA direct access to sensitive customer metadata, including IP addresses, payment data and Wi-Fi information.
Additionally, the Financial Times reports that the memo alleges that Alibaba employees shared information about unsolved zero-day software exploits and advanced AI services with the PLA. However, the report notes that Alibaba denied the allegations, calling them a malicious public relations effort to undermine recent US-China trade relations.
Previous evidence of BYD’s involvement in MCF comes from an October 2019 Radarlock REPORTwhich 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 MCF specialized areas and with state-owned defense conglomerates such as NORINCO and the Aviation Industry Corporation of China (AVIC).
Furthermore, he points out that BYD’s proprietary lithium-ion battery research directly drives 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) associated with the national defense institute and a supply partner AVIC.
However, the US is increasingly relying on its technology champions for military AI capabilities. A US Congressional Research Service (CRS) April 2026 REPORT notes that in July 2025, the US Department of Defense (DoD) awarded $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 widespread frontier AI model, used across national security agencies for mission-critical applications, including intelligence analysis, operational planning, cyber operations and modeling.
He adds that the US used Claude in the January 2026 operation to capture Venezuelan President Nicolas Maduro, but it is not known if the US DoD has used borderline AI within fully autonomous weapons systems.
Beyond Venezuela, Noor Hammad mentions in an April 2026 ITEM for the International Institute for Strategic Studies (IISS) that during Operation Epic Fury in Iran, the U.S. military used artificial intelligence as a key decision support weapon to conduct rapid and precise strikes on a large scale. Hammad notes that at the heart of 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.
Anthropic’s use of Claude AI has led to a rift between the company and the US government. Michael Gregory notes in a recent conversation ITEM that the Trump administration declared Anthropic a supply chain risk in March 2026 because the company refused to remove built-in security guardrails that prohibit its designs from being used in US DoD products, including 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 using its products for military and homeland security purposes, the US military continued to use Claude’s technology to target bombing sites in Iran.
For all their mutual accusations, China and the US are converging on a common reality: military power in the age of AI depends on mobilizing the capabilities of the private sector. The competition is less about the MCF itself than about which country can use it most effectively – and most legitimately.
