China's sinister back door threatens US national security

Companies that threaten America’s national security or violate export control laws will face consequences — that’s the message that’s been broadcast across the world stage and reinforced by recent action by the Department of Commerce’s Bureau of Industry and Security. And in an important step, the bureau has rightly designated dozens of Chinese firms through the Entity List tied to human rights abuses, surveillance, and military development.

But one glaring loophole remains, leaving the back door open to adversarial influence: Subsidiaries are a key part of China’s strategy to infiltrate U.S. industry undetected. 

Take the Aviation Industry Corporation of China, a sprawling state-owned conglomerate at the heart of Beijing’s military-civil fusion strategy. Many of its subsidiaries are already on the Entity List. Yet this is a company with literally hundreds of subsidiaries — many with innocuous-sounding names, some buried under layers of corporate ownership — that continue doing business with U.S. firms and accessing controlled U.S. military technologies. Why? Because the Entity List doesn’t automatically cover subsidiaries.

That’s not just an oversight — it’s a national security risk.

China’s military-civil fusion is a formal doctrine designed to illicitly acquire U.S. and Western technology. Under this policy, China deliberately blurs the lines between civilian industry and the People’s Liberation Army, allowing it to skirt U.S. measures like Entity List designation. So when a company is designated, but its subsidiaries remain off the list, Beijing doesn’t see a roadblock but a roadmap. Redirect, rename, relabel and repeat.

Congress is paying attention and knows this is a problem. The House Select Committee on the Strategic Competition Between the U.S. and the Chinese Communist Party recently sent letters pressing the Bureau of Industry and Security to close this loophole. 

The committee has also proposed similar policy changes that would require the Bureau of Industry and Security to crack down on export control evasion and transshipment. The Department of the Treasury is already doing this with the so-called “50% Rule,” which bans companies from doing business with majority-owned subsidiaries of listed actors. A similar rule from the bureau would immediately protect U.S. national security and allow for straightforward compliance. 

The Bureau of Industry and Security deserves credit. Their work is complex, under-resourced, and absolutely essential. But as Chinese state companies grow more sophisticated in dodging scrutiny, our export control tools and policies need to evolve too. 

We must address these challenges head-on and adopt systems that enable continuous vetting of dual-use supply chain networks — tracking shifts in ownership, shell structures, and shipping networks to detect proliferators at scale. 

If America wants to win the technology competition with Beijing, the Bureau of Industry and Security can’t afford to play by 20th-century rules in a 21st-century power contest. The time for half-measures is over. The bureau has the authority and bipartisan congressional support to take the next step. Add the subsidiaries to the list. Shut down the shell game.

Kit Conklin is senior vice president of risk and compliance at supply chain AI company Exiger. He previously served as Senior Advisor to the U.S. House Select Committee on China.