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Risks of Chinese Espionage in Europe’s Defense Industry


Written by Dyami analysts - June 2024

Years of underinvestment in defense industries and overreliance on the US security guarantee have resulted in the glaring lack of defense autonomy for Europe. Shortcomings in Europe’s defense industries for artillery shells and a wider industrial base have fallen short to adequately supply Ukraine’s security. As a result of this shortcoming, European defense industries are facing new calls to ramp up domestic production and reduce dependencies on overseas sources. 

While European militaries are faced with funding problems, European militaries need to be also aware of the security risks of importing components from a resurgent China. This increases the risk of industrial espionage, Chinese influence on European defense, and gives China tools to pressure the EU into taking unfavorable stances in case of geopolitical tensions. Procurement strategies need to take into account their supply chains and sourcing programs to avoid the risks of being cut off from critical supplies from, for example, China.

China’s role in Europe’s defense industry

In 2023, it came to light that a Chinese government-owned company produced armored vehicles, including sensitive electronic warfare and command-and-control variants, and designed its interiors for the Dutch army for over a decade. Since the acquisition in 2013, Dutch intelligence services have not conducted screenings of the company which allowed continuing production and new orders worth millions. 

Netherlands Ministry of Defense

While this is one example, there are many cases of Chinese companies selling subcomponents to European militaries. In most cases, this involves non-sensitive equipment with low security threats. However, some sales include subcomponents for sensitive systems such as radars, advanced communication equipment, and ISR sensors. Even when a Chinese (state-owned) company supplies subcomponents, the company could gain access to information about other components within the overall system, allowing China to improve their knowledge about these (sensitive) military systems.

The larger concern is that NATO countries unknowingly source several key components for weapon’s systems from China. The task of reinvigorating a European Defense Industry has raised awareness of the overreliance on sourcing microchips produced in China. For example, the Javelin anti-tank missile, a widely used weapon system by NATO members and its allies, contains over 200 microchips. This highlights the high demand for microchips in modern weapon systems, emphasizing the strategic importance of independence which could be sourced from China for these components. 

Chinese components were also found in more advanced equipment like air defense radars and fighter jets. In 2022, it was discovered that an alloy sourced from China was used in the engine of the F-35 stealth jet. The Pentagon briefly paused production of the advanced fighter jets, but signed a national security waiver and resumed deliveries after an alternative was found. While the alloy was not a critical component and posed low espionage risks, it highlighted the lack of tracking of the increasingly complex supply chains by NATO militaries and their contractors. Large U.S. and European defense contractors are not aware of every detail in supply chains, especially in larger systems with many subcomponents. For adversaries like China, it is a window of opportunity to attempt to gain access to sensitive information about a supply chain and/or military system. 

Chinese components are not only found in complex high-tech systems. Major European ammunition producers have repeatedly warned that Europe is overly reliant on Chinese cotton linters, which is a critical ingredient to produce artillery shells and other explosives. The high demands from the war in Ukraine has further strained imports from other sources and thus increased Europe’s dependence on China for critical military supplies.

Security Risks from China’s Investment in Europe

China’s sourcing of military procurement has not been met with the same concern as China’s investment in critical infrastructure. Security concerns over China’s investments in European critical infrastructure are becoming more obvious, given the Chinese Communist Party’s increasing control over both state-owned enterprises and private businesses. Chinese president Xi Jinping and the CCP have changed corporate governance to place more party control over International business to fulfill the strategic goals of the CCP. This has led to security concerns that China’s control over ports, telecommunications or rare earth minerals could be used for monitoring NATO movements or disrupting communications and strategic production lines. 

China COSCO Shipping Corporation is owned by the central government and has invested in strategically significant ports, where NATO troop movements and military exercises are regularly conducted. Another example is Hutchison Ports Poland, a subsidiary of the Hong Kong trading house CH Kuthinson Holdings which is partially owned by China Communications Construction Company. According to intelligence analysts, the People’s Liberation Army (PLA) is able to monitor the strategic NATO troop movements and supplies as well as the private companies passing through these strategically important ports.

Screening measures to prevent Chinese companies acquiring critical infrastructure are in the process of being implemented at an EU level. The EU’s proposed European Economic Security Strategy in June 2023 focuses on better screening of potentially risky investments and encouraging skeptical capitals to adopt similar measures. However, the strategy does not cover other vulnerabilities in European security such as materials sourced from China. 

Taiwan Ministry for National Defense

Security risks in NATO’s aviation training

China has been increasingly interested in pilot training programs of NATO and its allies with the goal of improving their own military flight academies. In the last decade, China has expanded their footprint in the (European) trainer aircraft industry. Next to economic opportunities, it is likely part of a larger campaign to gather military knowledge about NATO’s pilot training programs. While China is now capable of developing and producing advanced fighter aircraft, their training program is generally considered to be inadequate when compared to NATO standards. To combat this, China has intensified their campaign to recruit Western (former) military pilots to train instructor pilots of the People Liberation Army Air Force (PLAAF). Dozens of former NATO pilots were successfully recruited through private firms around the globe with extravagant salaries, which allowed China to gather sensitive information about NATO pilot training without directly infiltrating or hacking NATO training programs.

In addition to these aggressive recruitment efforts, China has also embedded itself in European companies producing trainer aircraft. As budget restraints remain a primary factor in the selection of new trainer aircraft for European air forces, security issues of Chinese companies with subsidiaries in Europe appear to be overlooked. In addition to information security threats, Chinese involvement in the procurement, production and operation of trainer aircraft of European air forces will allow the PLAAF to further expand their espionage on western training programs. This knowledge will then be used to improve their own training programs and increase China’s air power.

This increased espionage risk highlights the need for a cautious approach to procuring new military (trainer) aircraft for European air forces, especially from companies with ties to China. A good example of this is the Aviation Industry Corporation of China (AVIC), which is a state-owned aerospace and defense company that is working on aircraft/helicopter manufacturing, avionics, engine components, aircraft leasing and defense systems. The company has a history of acquiring European companies in the aviation sector. This means that European companies are not only at risk for espionage, the investments create dependency on China. With increasing tensions between Europe and China, it gives China an advantage in power with their ability to withhold investments.

Looking forward

As China becomes an increasingly belligerent power tacitly supporting Russia’s war against Ukraine, it is vital to be aware of the risks of becoming over reliant on the country for Europe’s defense needs. The awareness over critical infrastructure is welcome, but more attention is needed for Chinese investments in seemingly non-sensitive components or programs. China’s embedment into strategic programs and industries allows the country to gather sensitive information for both military and economic reasons without directly infiltrating companies or military programs. The increasingly complex and interconnected supply chains are being exploited for intelligence gathering. This trend is expected to further increase in the coming decade. Growing tensions between China and Europe calls for more awareness of the risks of Chinese espionage and influence in vital European industries.

20240628 Risks of Chinese Espionage in Europe's Defense Industry
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