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

date was to aggressively push ahead with SOE reform
and so, rather than go through the route of applying
for new IPOs, the defense industry began injecting
more of its assets into its already existing IPOs. Since
most of the defense group corporations had already
listed their military conversion assets as subsidiaries
on the market, the emergence of real defense assets
began to appear around 2005-06. 72 These new defense
assets are highly attractive since their performance on
the stock market is impressive and generally superior
to the spin-off IPOs. 73 Defense related assets are expected
to raise an estimated 50 billion by 2010. 74
A third stage began near the end of 2008 and is
characterized as consolidation through mergers and
acquisitions (M&As), principally through existing
IPOs within defense group corporations (see Appendix
A). According to some specialists, the current
phase of intra-group corporation consolidation will
continue and be completed by the end of the 12th Five
Year Plan, after which time, M&As across group corporations
could begin. 75
These changes to the defense industry’s market
participation point to a number of conditionally optimistic
trends. The reforms have begun to open up
the defense sector to capital markets—not only for its
military conversion spin-offs, but for defense assets as
well. In looking to a long-term strategy to wean the defense
enterprises off central government largesse, the
potential of the stock market is proving to be a formidable
tool to raise the necessary capital. This process
has been encouraged through greater and diversified
shareholder participation. 76 According to COSTIND,
nearly a thousand enterprises out of several thousand
under China’s 11 defense group corporations (majors)
would be allowed to receive nonstate and foreign in-
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