Involvement of private companies in military contracts improves openness

The People's Liberation Army is inviting private enterprises to bid on its training-related contracts, an unprecedented move to optimize the military budget and boost participation of the private sector.

The PLA General Staff Headquarters recently published 108 military items for "advanced training technologies and equipment", encouraging private companies to take part in their research, development and manufacturing.

The move indicates that the military is moving away from a monopoly of State-owned defense contractors in training logistics and lowering the eligibility threshold for military procurement, PLA Daily reported on Monday.

It said that as the PLA makes its combat exercises more realistic, training technologies and equipment have become increasingly incapable of meeting the military’s requirements, so it is necessary to tap into private businesses' expertise.

The 108 items being sought include dummies used by medical personnel and simulators for early warning planes and aircraft carrier operators. Cutting-edge technologies such as short-distance wireless positioning and cloud computing are also on the list.

"These public procurements are unprecedented in their openness, transparency and wide coverage. They will help lift the effectiveness of our military spending and optimize resource distribution, thus boosting the PLA's modernization drive," the newspaper quoted an unidentified officer from the PLA General Staff Headquarters' training logistics bureau as saying.

According to PLA Daily, 117 defense industry companies and private enterprises have submitted proposals covering 106 of the 108 procurements.

At least 70 percent of exhibits displayed at a military training technology and equipment exhibition in Beijing last week were developed by the civilian sector, the report added, saying the PLA will work with the business sector to establish a market entry and review mechanism, set up a fair competition platform and regularly release defense demands.

Public procurement will enable private enterprises to use their advanced technologies and products to better serve the PLA's needs and help reduce the military’s development and testing costs, said Ding Feng, an expert at the Civil-Military Integration Equipment Research Institute in Beijing.

However, enterprises that want to access the defense market must undergo sophisticated review and approval procedures, which are generating obstacles for those unfamiliar with the field.

In addition, as PLA procurement officers usually pass on new demands to State-owned defense contractors, private companies will have fewer opportunities to make a deal, Ding said.

"The military should establish a procedure for information exchange as soon as possible," he said.

China has been gradually opening the defense market to private enterprises since 2005.

By May 2013, more than 500 private companies had received permission to develop and produce weapons or other military equipment and about 1,000 civilian technologies had been used in equipment development for the PLA, according to a report published by PLA National Defense University in July. It said that some private companies had even played an important role in the country's top-tier projects including the Shenzhou-10 spacecraft, Chang’e lunar exploration and the CNS Liaoning aircraft carrier.

In a November 2013 document on deepening national reforms, the government pledged to foster the coordinated development of military and civilian industries and to reform the development, production and procurement of weapons. Private businesses with a competitive edge are encouraged to invest in the development and repair of military products.

Currently, businesses bidding for PLA contracts must obtain government-issued licenses on confidentiality and technological capability.

Contracts with the military usually have a profit margin of at least 20 percent, Yang Zhiyong from Shenzhen Special Technology and Equipment Association told Oriental Outlook magazine.