The PLA at Home and Abroad - Strategic Studies Institute - U.S. Army

ernment’s initiatives to overhaul the inefficient SOE
system through asset restructuring began in 1993
and concentrated on the civilian sector SOEs. 63 It has
gradually gathered steam within the defense industry
as well and has already enhanced the sector’s access
to market capital, though its impact on how the defense
industry is managed and run remains unproven.
There are many barriers that are likely to be a source
of inertia.
The defense sector’s experience with market-based
reform has unfolded in three stages. 64 From 1993-2005,
initial public offerings (IPOs) from the defense industry
flowered, numbering about 54 by the end of this
period. The vast majority of these listed companies
were spin-offs from the institutes under the defense
industry involved in purely civilian production. 65 This
phenomenon started prior to the reorganization of the
six defense industrial sectors into 11 major defense
group corporations in the 1999-2002 timeframe, 66 but
IPOs continued after that in the form of subsidiaries of
the group corporations. 67
A second phase was kick-started by a document
published by the State Council in 2005, which turned
out to be path-breaking in that it officially sanctioned
private, nonstate enterprise and even foreign capital
investment in the state defense sector. 68 This was
closely followed up in early 2007 by two documents
published by COSTIND, the NDRC, and the recently
established SASAC, 69 elaborating on nondefense
and nonstate participation in the defense industry. 70
However, around the same time, the overheated markets
led the China Securities Regulatory Commission
(CSRC) in 2006 to issue tightened controls on the new
stock listings, making IPOs an unattractive option for
the defense industry. 71 Nevertheless, SASAC’s man-
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