Taiwan has long faced the threat of force from mainland China. Since Taiwan has limited defense industry autonomy, it has insufficient self-produced weapons and must rely on foreign weapon procurement for defense preparation. As a result, Taiwan ranks among the top 10 U.S. arms sales and exports destination due to the large quantity of armaments purchased. An autonomous defense industry capability covers three aspects: independent R&D, production, and formation of the weapon industry chain. Due to the high complexity, strong integration, large capital investment, high technology threshold, and long payback period characteristics of the defense industry; promoting exchanges between the defense industry and private enterprises can effectively bolster economic development and enhance the country’s industrial competitiveness in addition to upgrading its advanced technologies. In addition to the overall government planning and policy promotion, the defense industry also requires private sector participation. However, private manufacturers generally have insufficient financial resources and often need to obtain the necessary funds via project financing. So project financing plays a critical role to the defense industry development. There are numerous consideration factors for project financing and the defense industry. Such factors influence each other, and are correlated and interlinked. All aspects must be considered from a holistic and structural system perspective. But there is a dearth of literature focusing on the research of the defense industry and project financing from a systematic perspective. Therefore, the researcher of this study employed the system dynamics methodology and used system thinking to construct a qualitative system dynamic analysis model for Taiwan's defense industry and project financing system. The goal is to provide reference for countries that desire to develop their own national defense industry. Keywords: Defense industry, Project financing, System dynamics, System thinking.