Military expert Song Xiaojun, Editor in Chief of the online version of Naval & Merchant Ships, said the COSTIND would draft a detailed catalogue for the sector to attract private investment in line with the aforementioned classification of the three groups. Besides, the statement makes it clear that military companies should stick to related stipulations on national defense security and technology secrecy while seeking investment overseas, he said.

In the event of offshore stock sales, companies should apply for a confidentiality exemption certificate from state authorities, according to an internal directive issued on May 17. The directive also requires private shareholders to maintain strict confidentiality, asking them to sign agreements against divulging national secrets.

Furthermore, the drafting of a set of related regulations has been developed to avoid such risks. In extraordinary circumstances, the government will impose special regulations on the research and production of weaponry equipment, Song said.

The decision of speeding up shareholding reform of the defense sector, according to Song, is part of the government's efforts to expand the number of listings while introducing certain policies to prevent the stock market from overheating. The ideal choices should be those with potential for technological innovations and good market prospects. They also should be comparatively energy-efficient and pollution-free, play a pillar role in replacing imports and promote the process of industrialization.

Many listed and yet to be listed military companies meet or are close to meeting these requirements, said Song, because "they are producing both civil and military products, and by producing civil products they survive the market economy."

Song is optimistic about the prospects of some military enterprises, provided that there are a complete set of rules and regulations, rational and realistic governance in developing technologies with independent intellectual property rights, and a sound risk-control mechanism against corruption and waste in the operation of projects.

Evolutions

Luo summed up the development of China's military sector into three phases-- the stage of establishment when China built a primary military industry with the help of the Soviet Union in the 1950s; the stage of improvement when a group of military enterprises were founded in the country's western region covering nuclear, aeronautics, astronautics, warships, weapons and electronic products between the 1960s-70s, perfecting the geographical distribution of the defense sector; and the third stage of reform when the Central Government slashed national defense expenditures and shifted the focus of its work to economic development in the early 1980s.

The state introduced a series of adjustments including restructuring, reform, listing and closure to help military enterprises turn into the successful model of arms manufacturers in developed countries.

According to Luo, the Central Government separated China's military enterprises into different industries, including those that lacked competition and thus suffered from sagging efficiency, a lack of flexibility and low vitality. The pressing task is to boost their efficiency through reform in order to gain vitality.

"Arms manufacturers should invite a variety of capital as part of their restructuring efforts," Luo said.

He recommends that the state has less than 51 percent of the stakes in a state-holding enterprise, stating that if the rate rises to 80-90 percent, the shareholding reform won't have an obvious effect.

Huang said that the current restructuring aims to facilitate the reasonable allocation and concentration of military industry resources, improve the innovative capacity of military and civilian technologies, and boost the operational efficiency and competitiveness of military enterprises.

It was quite a different story years ago when China's military enterprises didn't emphasize the market, but instead focused on security and confidentiality.

Huang stressed that military enterprises should target the world market and view the restructuring as a strategic move to enhance the comprehensive competitiveness of the Chinese economy and secure a larger share of the world market.

Yet, the shareholding reform of China's military enterprises can't be completed in the securities market as only a few have been listed in the A-share market.

Huang said that the government will encourage more defense enterprises to achieve the goal of expansion and restructuring through the securities market and invite investment agencies to play a matchmaker role in raising diversified capital.