A report in Asia Times on August 1, 2017, by Zi Yang claimed that while Chinese President Xi Jinping has championed defense industry mixed-ownership reform in the past, he made no mention of it in his Army Day speech. He said coupled with the transparency issue, this has negatively affected investor confidence. He noted also that China’s defense equity market has been bearish since the second half of 2015. Defense stocks slid 18.58% in 2016 and 16% in 2017’s second quarter. Out of 93 investment funds specializing in defense, only 19 posted positive returns in the second quarter. Forty-two funds reported net losses of between 10 to 19%.In the run-up to Army Day, from July 18 to 31, the market expanded by 3.31%. But the momentum did not sustain. So far this month, defense shares have dipped 2.52% and the downward trend is likely to continue for the remainder of August. He observed that the bearish track is due to a number of factors. The defense industry’s mixed-ownership reform, which aims to introduce private capital to China’s state-dominated defense sector, is progressing at a slower pace than expected. But this is hardly surprising since the defense sector is the country’s most resistant to liberalization. Its best technologies and most valuable assets are still held by state-owned enterprises with vested interests in delaying reform for as long as possible.
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