Binhai New Area, a rising outpost for China's financial reform, has also emerged as an incubator for industries that adapt military products to civilian use.

    Several projects would be based in the region, which is 120 kilometers southeast of Beijing and covers 2,270 sq km. The potential list of projects involves aviation, aerospace, shipbuilding, electronics, new materials and new energy, according to a strategic cooperation agreement signed between the Commission of Science Technology and Industry for National Defense (CSTIND) and the Tianjin Municipal Government on Tuesday.

    In this area, venture capital firms, investment companies and China's first locally-invested private fund, Bohai Industry Investment Fund, will be encouraged to invest in military enterprises that produce items for civilian purposes.

    Local companies, including private firms, can also participate in the shareholder reforms of military enterprises through equity investment so as to diversify the shareholders of military firms, which remain largely state-owned.

    Research and development (R&D) centers will be built to facilitate the development and application of technologies with civilian and military purposes.

    Director Zhang Qingwei of the CSTIND said the agreement charted out the direction of future cooperation and set priorities. It also defined specific policies and measures.

    The CSTIND will provide capital subsidies and discounted loans to these projects. Meanwhile, the Tianjin Municipal government will offer a range of incentives, such as capital support for R&D centers and service-sector firms. There will also be tax relief for these types of organizations on revenues generated from R&D, technical transfers and consulting.

    Military companies, once designated by the local authorities as new high-tech enterprises, will get a concessional rate on corporate income taxes of 15 percent, 10 percentage points lower than the national standard for both domestic and foreign-invested companies. Land use costs for these firms will also be the minimum allowed by the central government.

    The agreement formalized what had been happening for some time in this port city. Military companies had increased their presence with projects such as a production base for China's new-generation heavy-lift launch Vehicle, installed by the China Aerospace Science and Technology Corporation, and a shipbuilding and repair base built by the China Shipbuilding Industry Corporation.

    Sun Laiyan, deputy director of the CSTIND, noted that integrating military industries with regional economic development was a significant task of the commission. The CSTIND has signed technical cooperation agreements with the provinces of Shaanxi and Hubei and the Municipalities of Beijing and Chongqing.

    The Shaanxi Provincial government and the CSTIND, for example, jointly built industrial parks and production bases for aerospace, aviation and engineering projects and channeled more than 100 million yuan (about 14 million U.S. dollars) to support 40 projects with civilian and military purposes.

    With military industry serving as a major engine for economic growth, Shaanxi has seen 20 of the 300 civilian products in mass production each generate more than 100 million yuan in sales last year.

    The aggregate output generated by civilian products manufactured by the local defense industry has risen 11 percent annually since 2000, when it stood at from 5.6 billion yuan to 10.2 billion yuan last year.

    Overall, the output of civilian-use products as a percentage of the total output of the national defense industry jumped from less than 10 percent in 1978 to 65 percent last year.

    Nearly 200 civilian products each have yearly sales of more than 100 million yuan, and there are 20 products that generate at least 1 billion yuan a year.

    Sources with the CSTIND said that apart from Tianjin, the commission is also in talks with the provincial governments of Sichuan and Zhejiang and Shenzhen city government for similar cooperation agreements.

    A directive on technical cooperation between the national defense industry and regional economies, such as the Northeast's old industrial base, the west interior region and the central region is to be released at the end of this year, Sun has said.