The best possible solution would have been a Public-Private partnership. The benefit of privatization would be better management, economic viability and innovation in R&D sector. Downside is a lot of people among key persons could loose their jobs as is usually done after privatization.One of the biggest issues China is facing now, which hinders its path to be the No. 1 superpower is the decades old strict communist style control and thought process. China is currently battling this issue by active decentralization, involving public and it's young brains in tech competitions etc. Because you can't innovate in under stress or constant fear. Scientists, great minds in philosophy, culture, sciences can't be produced in a tightly controlled environment or strict SOPs. Lack of SOPs creates innovation. That's why the world still borrows cutting edge tech from the west and China is lacking in that field as of now.
China became an economic superpower through Capatalist communism hybrid. It would only be a tech giant and science innovator when General public and private sector would have far more stake in those fields and Chinese people are moving in the right direction overall.
Instead of supporting the local industries, Our Govt for decades has brutally supreessed local market and industries of small arms under the pressure of the US. It's easy for a local citizen to buy illegal small arms as licensed weapons are banned/strictly regulated which means more money for the corrupt Govt officials. A conglomerate of local arms manufacturers plus the Govt backed industry would have at least resolved the issues of small arms manufacturing and exports.
The carbon fiber cloth, a material used in furniture, construction and automotive products is regulated. And regulated means more bureaucratic hoops to jump through and more room for corruption. How a local industry specially a defense industry could thrive in those conditions. But still some of them are surviving and offering their products too.