NOT so many years ago, when it was still a major producer of military ammunition, a sign outside the sprawling industrial complex on the outskirts of Chongqing warned foreigners that they were forbidden from entering. Today, the Jiangling Machinery Factory could not be happier to receive foreign visitors. Having converted all but a small part of its facilities to producing car engines under a joint-venture arrangement with a Japanese company, Jiangling wants another injection of foreign capital. ''We want to use foreign investment to grow more quickly,'' says He Zhongheng, the company's deputy director. When China's military industrial complex comes to Hongkong next month for a huge exhibition, it will be seeking the sort of foreign investment that has helped make Jiangling one of the most successful examples of the country's programme of transforming military into civilian production. Some 400 Chinese companies will be participating in the July 5 to 11 Conference on International Co-operation to Promote Conversion from Military to Civilian Industry. For the Chinese companies and potential investors, the main harvest to be reaped from the exhibition is, simply put, financial profit. Though they may not be skilled in free-market economics, military production units do have some of the best technology developed in China, Western analysts say. Beyond that, the event has broader international implications, helping, it would appear, to remove another layer of the secrecy that envelops China's military structure. With China now emerging as one of the world's biggest economies, and with concerns abroad that the country may eventually attempt to project its might well beyond its borders, other nations have an interest in seeing the military-to-civilian conversion proceed, analysts say. On the other hand, they note that there are risks in that China may be able to convert Western technology for civilian production into enhancing its military machinery. Chinese officials see Jiangling as a good example of military-to-civilian conversion. The company has 11,000 workers and supports a community of 30,000, including both employees and their dependents. Resembling a small town, Jiangling has its own hospital, sports field, basketball courts, cinema, park and hotel. Jiangling produced a small amount of civilian goods as early as the 1960s, but in the mid-1980s, under a technology and trade agreement with Suzuki of Japan, it converted most of its facilities to production of engines for the locally-produced Changan car. Jiangling expects to make 85,000 car engines this year, with total sales hitting 850 million yuan (about HK$1.15 billion at the official rate), creating profits and tax contributions of about 100 million yuan. About a tenth of its profits go back to its parent company, the huge military trading company China North Industries Corp. The rest are retained. Demand for Jiangling engines has been so strong that the company now plans to more than double production capacity. For this it is hoping to raise 700 million yuan, and is negotiating with the central authorities and foreign parties. Among the better-known Western countries which have entered into co-operative agreements with Chinese military-turned civilian companies is Germany's Siemens AG, which has a licensing agreement under which the Beijing No 239 Factory produces business telecommunications systems with Siemens technology. A number of Western aviation companies now work with Chinese firms once controlled by the military. McDonnell Douglas sells kits for the assembly of MD-80s passenger aircraft to the Shanghai Aviation Industrial Corp, a former maker of military aircraft which is now a part of the China Aviation Industry Corp. Boeing has subcontracted production of 737 vertical fins and horizontal stabilisers to Xian Aircraft Co, which also belongs to the China Aviation Industry. The Daya Bay nuclear power station was designed in part by the China Nuclear Power Research Institute, a former military unit but now part of the civilian side of China's nuclear industry, according to a Chinese official. ''It's not all rosy. There are some risks in the transfer of technology,'' one Western analyst observes. On the other hand, foreign participation in the conversion programme is probably a good thing, overall, ''as long as you have good transfer oversight'', he says. The military conversion programme dates back to the early 1980s when the People's Liberation Army was called upon to sacrifice some hardware so that its production facilities could contribute to national economic construction. By 1999, China plans to have converted 80 per cent of its defence industries into civilian use, based on output value, compared with various official figures ranging from 65 to 76 per cent in 1992, and only eight per cent in 1979. The yearly increase of converted military facilities is 20 per cent. Perhaps it would be more accurate to call the programme one of readjustment rather than purely conversion. Only a third of the military production facilities are now engaged exclusively in manufacturing civilian goods, while about a half churn out both military and civilian products. Jiangling, for example, still devotes about eight per cent of its production to the military. Company officials say the nature of its military output is secret. When China's conversion programme first began, military factories rushed to produce all sorts of civilian products, even if they did not have a market for their goods, according to Wang Luye, a senior official of the China Association for Peaceful Use ofMilitary Industrial Technology. In 1982, the state stepped in to help, in Mr Wang's words ''systematically administer the conversion and develop some high technology products''. The programme still faces difficulties. Mr Wang says many of the military-turned-civilian factories had a ''poor market consciousness,'' meaning they attached little importance to brand image and failed to make customer surveys. About 30 to 40 per cent of the converted factories are profitable, about 30 per cent break even, and the rest are losing money, says Mr Wang. ''It's hard for the money-losing enterprises to improve because this is a commodity society and one has to compete with others in the market. No one can save you, not even the state,'' he says. The Chinese defence industry says it has more than 10,000 civilian products on the market, from cameras, television sets, air conditioners and sewing machines to satellite launch services. It now produces about 60 per cent of all China's motorcycle output. Mr Wang says about a third of the defence industry now exports its civilian products. Western analysts say, however, that few of these products are up to international standards, and the main attraction of them is low price rather than quality. Over the past few years new organisations have appeared to help market the defence industry's civilian products. Among them are the Association for Peaceful Use of Military Industrial Technology and the Commission of Science, Technology and Industry for National Defence. Today about seven per cent of personnel at converted installations are employed in the sales and marketing part of operations. Yet, many factories do not have the capacity to promote their own products, and hand over sales responsibilities to private marketing firms and regional or collective import-export organisations. The trend seems likely to continue, according to Western analysts, making it harder for outsiders to track sales.