Beijing to back private military suppliers

China's government is to fund directly privately-owned producers of military equipment, a move intended to promote innovation and reduce the People's Liberation Army's reliance on often highly inefficient state-owned defence suppliers.

The policy, outlined in an official "opinion" issued this week by the Commission of Science, Technology and Industry for National Defence (Costind), is part of a broad effort to apply private sector entrepreneurial energies to the defence industry.

China's government is determined to turn the PLA into a modern fighting force able to deter any potential opponent credibly and, if necessary, to enforce its claim to sovereignty over the rival democratic island of Taiwan.

Beijing has in the past used a variety of methods to support private ventures that produce products used by the military or are judged strategically important, but Costind said its new policy was the first time it had set "clear standards" for direct funding.

"The release of the Opinion will have a positive guiding effect in improving the role played by non-state enterprises in the creation of the national defence science and technology sector," the commission said.

Costind said it would mainly fund non-state companies through subsidised loans, but could also make direct capital injections, with all resulting income being remitted to central government coffers.

Such funding would be offered to companies that developed or manufactured important military equipment but lacked resources, it said.

China last year introduced a new system for licensing defence suppliers that created a legal basis for privately owned and foreign-invested companies to supply the PLA with military equipment.

One of the best-known beneficiaries is Shaanxi Baoji Special Vehicles Manufacturing, a private company from north-west China that has won big orders to supply the PLA with its Model 2002 four-wheel armoured personnel carriers.

However, analysts say that while private companies are generally far more efficient and innovative than established state-owned suppliers, few have the financial resources to allow them to compete effectively for development and production contracts. Costind's new policy would help level the playing field for private suppliers, said a senior researcher at a Chinese defence institute.

"This will create a lot of pressure for traditional munitions units and will be extremely beneficial for the creation of a competitive system," the researcher said.

The new policy will not lead to private companies supplying major weapons systems such as tanks or fighters, as Beijing still requires they be handled only by state-owned producers.

The impact of the rules is likely to be greatest in the technology and software sectors, where the emergence of innovative private companies is being fuelled by China's emergence as a base for global electronics manufacturing.

Successful use of private suppliers would help to promote what analysts say has already been a remarkable strengthening of China's de-fence industry over the past decade.

Despite widespread inefficiency and continuing reliance on imports for the most advanced technology, China appears increasingly able to develop and deploy modern weapon systems including ballistic and cruise missiles, fighter jets and warships.

Such deployments have prompted concern among US defence officials.

Copyright The Financial Times Limited 2006

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armchair_jihad said:
China's government is to fund directly privately-owned producers of military equipment

Excellent, I'll get a few billion Renminbi for producing components for the Chinese WZ-10 Attack Helicopter in my secret underground lair!!!
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