Feng Li, Getty Images News, Getty Images

Wang Zegang makes mining machinery for the coal industry at his factory in Shandong province. But by next year he plans to branch out into a new business: making jets for China's air force.

The way he views it, the more of his products that get shot down, the better. The sole job of "Blue Fox" target drones — for which his factory will make jet thrusters — is to get blown out of the sky during aerial weapons tests. Thanks to sweeping reforms, private sector entrepreneurs such as Mr Wang are now able to compete in tenders to sell high-tech aviation to the People's Liberation Army.

While the PLA used to be the final bastion against capitalist aggression, it has been forced by Community Party fiat to allow private companies into the guarded inner sanctum of defenseprocurement — once the exclusive preserve of elite state-owned monopolies. "We are starting at the less demanding, less technical section of the market," said Mr Wang. Making engines for target drones is perhaps one of the less prestigious missions in the Chinese air force. But it is one area that the elite state factories have relinquished to the private sector. And it is a foot in the door of a lucrative sector. "In 10 years we hope to be making more sophisticated aircraft," Mr Wang added.

The decision to bring in the private sector is part of a broad reform aimed at streamlining China's bloated, 2.2m-man army and turn it into a 21st-century fighting force that can outfox US carrier battle groups in the western Pacific, rather than win low-tech land battles in case of a mass invasion by Russia or Japan. Defense is a growth industry in China, with its military budget growing at double digits nearly every year for the past two decades, as Beijing seeks to assert itself as a global power. Allowing the private sector to participate is also part of an effort to bring transparency and fight entrenched vested interests that have bloated the costs of military hardware in China. Read MoreCan China deliver on Asian economy? "The government wants to get the private sector into this area essentially because they want to spend their military budget more efficiently," said Yue Gang, a retired PLA colonel. "Introducing competition from the private sector and breaking up the monopoly of the previous military factor groups means that they will get more bang for their buck, and better high-allocate resources."

While the reform was initially announced at the National People's Congress in November 2013, the PLA set up a website last month to handle procurement tenders and to make the process more transparent. Until then, only a few private companies sold to the PLA, according to Col Yue, and in limited categories of goods, such as bulletproof vests and armored limousines. Now the reform has opened the gates to dozens, even hundreds, of companies. Mike Pillsbury, a US Pentagon consultant on China's military and author of The Hundred Year Marathon, a forthcoming book on China's hardliners, said the long-term strategy was to mimic the US system of defense procurement. "What the PLA wants to do is follow the American approach," he said. "If they want to make a missile they don't have just one single state factory which produces rockets and missiles. The US has Lockheed, Grumman and Boeing all competing."