China is set to complete shareholding reforms of its military industries within three to five years in a bid to accelerate the process of bringing them in line with civilian businesses and to raise more funds from capital markets.
Stimulated by the news, stocks of military and other related industries saw a marked jump Thursday, indicating the market's confidence in the reform.
The scheme is one of seven major tasks for defense-related science, technology and industry under the 12th Five-Year Plan (2011-15). Sources from the Ministry of Industry and Information Technology revealed that an inter-ministerial coordination mechanism would be established in 2011 to ensure the improvement of the reforms, the Shanghai Securities News (SCN)reported.
The completion of the reforms is also one of five targets set by the State Council and the Central Military Commission under a guideline for the improvement of a research and production system for weapons and equipment.
"The guideline has upgraded military and civilian integration to a national strategy. This is a way to revitalize those companies through actively participating in market competition," Liu Jiangping, a Chinese military expert, told the Global Times.
"The enclosed structure of the military industry will be broken, the age of the 'iron rice bowl' will go, and an open, competitive and vibrant system will be established," Lin Zuoming, president of the Aviation Industry Corporation of China (AVIC), was quoted by the SCN as saying.
AVIC now has nearly 200 subsidiaries (branches) and over 20 listed companies. In 2009, it was listed in Fortune 500, the first Chinese military enterprise to make the list. The enterprise is undergoing further reform in order to get listed as a single entity.
Foreign experience showed that the securitization of military assets, mergers and acquisitions are important methods of achieving rapid development in the military industry, Liu said, citing Lockheed Martin, Boeing and Northop Grumman Corporation as examples.
It is necessary for Chinese military enterprises to attract capital from stock and securities markets as research and development require huge investment while their current asset-liability ratios are generally above 60 percent, which makes large-scale loan from banks or issue of bonds impossible.
China Securities anticipates that Chinese military enterprises are expected to receive 30 billion yuan ($4.5 billion) in financing from stock markets this year.
Still, the restructuring of military enterprises face many barriers, such as the approval of capital injected into the military industry and confidentiality policies, observers say.
Lu Ming, a professor at the University of National Defense of the PLA, told the China News Agency that "the reservation of core military technologies" should be a prerequisite for the integration of military and civilian business, which is also the general practice of the world's military powers.