Banks, real estate, alcohol makers fund managers found a host of hot investment sectors to pursue in the 2006 A-share market. Yet when the exuberance of a 130 percent main index gain left with the year's end, investors are now asking what the theme of 2007 will be.

One answer, at least for sure, is the restructure of companies in the military industry. Investor's enthusiasm is highly strengthened by a guideline released recently by the Chinese government.

The report, issued March 2 by the Commission of Science Technology and Industry for National Defense, says that China will encourage military-related industries to expand into manufacturing and trading of products for civil use and raise funds through capital markets.

The statement is seen as a strong signal that the Chinese government will encourage its military industry giants to copy the success story of Lockheed Martin, one of the world's leading ordnance manufacturers, which doubled its size via the stock market.

Investors now have a strong interest in mysterious military industrial giants that have big potential to develop non-military businesses by raising capital through the stock market.

Speculation on the assets of the non-military units in the defense industry to be used by existing public companies held by those military giants already boosted a new wave of investment on the A-share market.

"The total assets and profit- making capability of those public companies under the control of the military industry are still small, but increased high-quality asset injection will help those companies to grow rapidly, especially in the next three to five years," China Galaxy Securities says in a recent report.

As a result, manufacturers of rockets, satellites, missiles and aircraft are expected to witness frequent reshuffle and restructuring. Among them, China's aircraft manufacturing and trading industry has been at the forefront of the restructuring trend.

CATIC's flight

China National Aero-Technology Import & Export Corporation (CATIC), the nation's largest aviation industry trading company, says that the company is actively seeking strategic investors.