De­fense in­dus­try adopts mar­ket role

China Daily (Hong Kong) - - BUSINESS - By MENG FANBIN meng­fan­bin@chi­

China’s de­fense sec­tor is tak­ing bold steps to be more com­pet­i­tive and in­no­va­tive, as it pre­pares to mark the 90th an­niver­sary of the found­ing of the Chi­nese Peo­ple’s Lib­er­a­tion Army on Aug 1.

A key as­pect of this re­form is the drive to put the na­tion’s de­fense re­search in­sti­tutes on a more com­mer­cial foot­ing, a move which was an­nounced at a re­cent con­fer­ence held by the State Ad­min­is­tra­tion of Science, Tech­nol­ogy and In­dus­try for Na­tional De­fense.

Work is pro­ceed­ing well on such ef­forts at 41 in­sti­tutes, which will be­come in­de­pen­dent le­gal en­ti­ties as com­pa­nies, it was re­vealed at the con­fer­ence on July 7.

The move shows that the re­form of the in­sti­tutes has en­tered the pe­riod of its prac­ti­cal im­ple­men­ta­tion, said Wang Zongchao, chief an­a­lyst of Hu­atai Se­cu­ri­ties.

In fact, the cap­i­tal mar­ket has been ea­gerly await­ing this step for a num­ber of years, said Wang.

“Un­til now, the as­set se­cu­ri­ti­za­tion rate of the 10 largest de­fense in­dus­trial groups was only about 30 per­cent, which leaves much room for im­prove­ment.”

These re­search or­ga­ni­za­tions have the lead­ing tech­nolo­gies in their sec­tors, and strong re­search and de­vel­op­ment ca­pa­bil­i­ties.

“Putting these in­sti­tutes on a com­mer­cial foot­ing can stim­u­late their vi­tal­ity, and raise their over­all pro­duc­tiv­ity,” said Wang, who fo­cuses on re­search of listed com­pa­nies in the de­fense sec­tor.

Si­no­link Se­cu­ri­ties said in a re­search note that in­vestors should not ex­pect too many re­sults from the re­form this year.

Gao Song, an an­a­lyst at CITIC Se­cu­ri­ties, pointed out that the re­form was un­likely to be com­pleted un­til the end of 2018, not­ing that it is “very com­pli­cated and the pace will be steady”.

Cov­er­ing a large amount of em­ploy­ees and in­volv­ing many dif­fer­ent sec­tors, re­form of de­fense re­search in­sti­tutes is an im­por­tant task for the cen­tral gov­ern­ment in its wider re­form of State in­sti­tu­tions.

“With ad­vanced tech­nolo­gies, the re­search in­sti­tutes will in­crease the prof­itabil­ity and com­pet­i­tive­ness of the al­ready listed de­fense com­pa­nies through cap­i­tal in­fu­sion,” said Wang.

He added that these new de­fense com­pa­nies will ei­ther be listed, or see in­vest­ment in units un­der them which are al­ready listed.

Although de­fense in­dus­try shares have re­mained sta­ble re­cently, Wang said he has a bullish out­look for the sec­tor in the medium and long-term, es­pe­cially in aero­nau­tics and as­tro­nau­tics, as well as high­end equip­ment.

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