How China Aims to Take Down Boeing
U.S. airliner giant only recently awakened to Beijing plan to close off domestic market
If only China’s successful test flight last Friday of its first made-in-China, large-scale airliner could be dismissed as poetic justice for Boeing. For decades, the American aviation giant has led the corporate full-court lobbying press to expand U.S. trade indiscriminately with the People’s Republic. The takeoff of the C919 narrow-body jet into the Shanghai skies now signals that by offshoring production and transferring technology to China, Boeing (with the help of other big U.S. and foreign multinational companies) has created a potentially formidable rival.
Unfortunately, the birth of the C919 is only the latest sign that the U.S.’ China strategy, paid for by big-business campaign contributions, keeps backfiring disastrously on not only the entire American economy but on U.S. national security as well. In fact, these failures are now so glaringly obvious that even the companies themselves are showing signs of buyers’ remorse.
Beijing has already made clear its ultimate goal of ridding China’s skies of non-Chinese aviation companies.
After all, Boeing and the rest of the offshoring lobby, along with their political hired guns, have long promised that the more the United States traded with and invested in China, the faster the American economy would grow and the more good manufacturing jobs would be created — mainly through exports of sophisticated goods to a gigantic, booming economy that would always remain well behind the United States technologically.
The China trade cheerleaders were so confident in America’s know-how and inventiveness as to insist that teaching the Chinese to produce advanced manufacturing goods was the best way to ensure that they and other foreigners would continue controlling the pace of China’s tech progress. In the process, exciting new markets would be generated for U.S. goods and services that would always remain on the cutting edge.
More broadly, the Pollyannas predicted that ramping up business across the Pacific would steadily promote free market and democratic practices, and turn China into a “responsible stakeholder” (as a senior George W. Bush aide famously put it) in what they imagined to be a “global community.”
And no company exemplified this approach better than Boeing. It's been manufacturing aerospace parts in China since the 1970s, and according to the company, today these products are in every one of its jets currently in service — including its newest and most innovative model, the 787 Dreamliner. In fact, as of 2009, Boeing boasted that it was the single biggest customer for China's aviation sector.
Just as important, Boeing has provided "enhanced professional training to almost 50,000 Chinese aviation professionals" in fields including manufacturing and industrial engineering, and is conducting research with the Chinese Academy of Sciences and various Chinese universities. Projects worked on with these government-run or -controlled institutions include "advanced materials and advanced computing technology for aviation and industry design."
So far, the payoff has looked impressive, both for Boeing and for the U.S. economy. Most of Boeing's China operations have resulted from Beijing's either explicit or implicit extortion — with China's leaders playing off both the American firm and its European rival Airbus with threats to buy more aircraft from the other if production, jobs, and know-how aren't shared with Chinese partners.
But Boeing currently claims to supply more than half of China's already huge demand for jetliners, and predicts that this market will become the world's largest — surpassing America's — by 2024. Therefore the company, just like Airbus, understandably has viewed appeasing Beijing with some parts contracts and employment as an acceptable price to pay for a big piece of the action.
But Boeing seems just as clueless, or apathetic, as America's leaders and other corporations have been for decades about China's approach to developing its manufacturing and entire economy. Let's leave aside the recklessness of helping to strengthen China's aerospace industry, with all its capacity to produce weapons that can be used against the American forces still blocking Beijing's ambition to be East Asia's kingpin.
The purely economic dimensions of Chinese policy should have been nearly as troubling, for Beijing's aim has never been to welcome all business comers with the intent to allow market forces to determine who wins and loses in China and whose success in gigantic China can be leveraged into worldwide success. Instead, the aim has been to encourage only the importing of those foreign goods, services, capital, and technology that China can't supply itself at any given time, and kick the foreigners out the minute they're no longer needed.
Nor is China making any secret of this objective. In mid-2015, for example, Beijing unveiled its "Made in China 2025" initiative. According to The Wall Street Journal, it "calls for Chinese products to replace foreign equivalents in the domestic economy and to be exported globally." Further, sectors targeted include most of those Americans and others typically call "industries of the future" — such as advanced materials, electric vehicles, green energy equipment, advanced medical devices, industrial robots, semiconductors for cell phones — and commercial aircraft.
The C919's test flight shouldn't strike fear in Boeing's heart for the time being. Because of China's own safety and other testing requirements, the plane won't be in service for two more years at the earliest, and so far its development has been behind schedule. Satisfying consumers in foreign markets, along with building a global maintenance and services infrastructure, will take even longer. Moreover, China's new jet relies heavily on imported parts itself, and even so, industry analysts view it as less technologically advanced, and especially fuel-efficient, and therefore more expensive for airlines to operate, than its rivals in the huge, rapidly growing narrow-body market.
All the same, since the C919 is built by China's state-run and subsidized aviation industry, it's sure to be able to offer heavily discounted prices to customers outside China. And the Chinese government is bound to guarantee it robust sales in that enormous and growing domestic market. The inevitable result: limited opportunities in China for Boeing and other foreign competitors, and major worldwide economies of scale for Chinese aerospace producers.
Most important, Beijing has already made clear its ultimate goal of ridding China's skies of non-Chinese aviation companies. In the words of President Xi Jinping, "We used to believe that it was better to buy than to build, better to rent than to buy. We need to spend more on researching and manufacturing our own airliners." In a video made for the C919's government-owned manufacturer, he even more explicitly stated that China should become more self-reliant in aviation.
Just as China's backsliding under Xi on human rights and its expansionism in the South China Sea has been so obvious as to alarm even trade cheerleaders at the Council on Foreign Relations, the Asia Society, and elsewhere in the corporate-funded American foreign policy establishment, China's rougher treatment of foreign businesses and intensified mercantilism in recent years has been obvious enough to start alarming offshoring companies and entire industries. Boeing itself apparently is having second thoughts about current trade policies, judging from its support of a border adjustment tax and the anti-dumping complaint it's just filed against Canada's Bombardier.
In all these cases, however, the awakening has come dangerously late. Moreover, China's continued reliance on and purchases of foreign aviation components and systems will enable it to play divide-and-conquer with foreign aerospace companies in particular for years to come — even as it keeps climbing the technology ladder.
Of course, growing elite concerns about China, combined with the election of candidate Donald Trump as president, indicated that the country's political leadership and much of its establishment were getting on the same page regarding the need for a realistic strategy toward Beijing. All the more important for President Trump, who's talking of rewarding Chinese cooperation on North Korea nuclear issues with economic benefits, to remember his campaign positions, and not miss the more fundamentally important opportunity created by Beijing's increasingly undeniable and worrisome hubris.
Alan Tonelson, who writes on economic and security policy at RealityChek, is the author of "The Race to the Bottom" (Westview Press, 2002). Follow him on Twitter: @AlanTonelson