China to let foreigners invest in its defense firms

　　(Reuters) – Beijing will allow foreign investment in its defense sector, except for enterprises controlled by the state, while encouraging these firms to raise funds throuh stock market listings, a senior official said on Tuesday.

　　China will also encourage domestically-listed, state-controlled companies to acquire and reform defense firms, Wu Fenglai, head of the reform department at the Commission of Science Technology and Industry for National Defense, said in a commentary published in the official China Securities Journal.

　　“Encouraging enterprises to enter market competition and to expand with aid rom the equity market is an important way to help them develop,” Wu wrote.He said defense firms in which the state is not a controlling shareholder should collectively aim to raise 50 to 60 billion yuan (US $6.8-8.2 billion) from share listings by 2010.

　　China’s usually secretive defense sector supplies a full range of equipment, from fighter jets and tanks to uniforms, to China’s military force of more than 2 million personnelSome big military corporations have already spun off their civilian product businesses for stock market listings.

　　Wu noted that the Jiangnan Heavy Industry Company, part of the China State Shipbuilding Corporation which builds both naval and civilian vessels, had raised 7 billion yuan through an IPO.

　　But he added that foreign investment would in principle be barred from defense enterprises controlled by the state, unless a foreign strategic investor could enhance the innovative, managerial and competitive ability of an enterprise.