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Defense-related industries will open more to private investors in a "fair and safe manner", according to an investment guideline unveiled on Thursday.
Investors and State-owned defense technology enterprises will be treated equally across the board, including licensing and tax, said the guideline, jointly crafted by the State Administration of Science, Technology and Industry for National Defense and the General Armament Department of the People's Liberation Army.
The guideline, however, only applies to private investors on the mainland.
Investors are encouraged to get involved in weapon development and production, the restructuring of State-owned enterprises as well as developing technology for both military and civilian use.
A catalog detailing the weapons private companies can develop and produce is being revised and will be released later.
The guideline aims to boost competition in military procurement and some projects will be submitted for open tender.
The military budget for 2012 is 670 billion yuan ($105 billion).
The defense industry is potentially lucrative for investors, especially during a period of modernization, insiders said.
Zhang Hanya, chairman of the Investment Association of China, said that private companies have already been involved in certain defense sectors, including the production of dynamite, clothing and machinery. But private companies face limitations, especially financial, compared with State-owned enterprise, he said.
"These limitations restrict the role of private companies in the defense industry," he said.
"They are mostly suppliers of parts and not involved in major projects like their counterparts in the US."
The new policies are "positive", but it is still too early to say how private companies can really benefit from them, he said.
"We have to wait and see," he said.
The government has been gradually opening up defense-related sectors to private companies.
Policies supporting private investment in defense were introduced in 2005 and 2010.
The guideline in 2010 did not set a cap on private investment for a number of key areas, including spacecraft.
The new guideline reaffirmed this.
It also highlighted security protocols for private investors in related industries and pledged to boost supervision to safeguard national security.