China To Build Its Own Large Jetliner

Hugh Pickens writes "China's domestic airlines will need to buy an estimated 4,330 new aircraft valued at $480 billion over the next two decades to meet demand in commercial aviation. Now the LA Times reports that the Commercial Aircraft Corp. of China expects to begin producing its 156-seat C919 by 2016, competing with the Boeing 737 and Airbus A320. China has staked billions of dollars and national pride on the effort but what may surprise some Americans worried about slipping US competitiveness is that some well-known US companies are aiding China, putting US and European suppliers in a tough spot: Be willing to hand over advanced technology to Chinese firms that could one day be rivals or miss out on what's likely to be the biggest aviation bonanza of the next half a century. 'If they launch a commercial aviation industry, you've got to be part of it,' says Roger Seager, GE Aviation's vice president and general manager for China, whose company has garnered contracts worth about $6 billion for the C919. 'You can't take a pass and come back in 10 years.'"

Comments

What's the adage?

[QuantumG]

Oh yeah, "A capitalist will sell you the rope you will hang him with if he can make profit on it" Lenin

Re:What's the adage?

[91degrees]

It's basic game theory. If you can make a profit out of something that will kill you, you might as well. At least your last few days wil be that little more comfortable. It's no like China can't set up its own avionics equipment companies. It's just easier to partner with US and european companies. COMAC could just design it to use 737 parts, which can be purchased off the shelf, and do a piecemeal replacement as they get their own avionics industry in shape.

Re:What's the adage?

[advocate_one]

The firm my mother worked for put itself out of action by selling large hydraulic presses to the Russians to use in factories that were to produce large hydraulic presses...

always knew there would be comebacks for letting the Chinese do your manufacturing for you as they would learn your technology and use it against you

Re:What's the adage?

[chrb]

It's basic game theory. If you can make a profit out of something that will kill you, you might as well.

The game theory is indeed simple - it's better to have 20% of a billion person market than 0%. The commercial airplane industry is largely dominated by Boeing and Airbus - two Western companies that have both received substantial state support The market for jet engines is dominated by Rolls-Royce. Given how interested Western nations are in having their own commercial aircraft manufacturing capability, it is no surprise that China also wants one.

This will not kill Boeing or Airbus. Unlike cheap crap that people buy off ebay, the commercial airplane market in the West is quite image sensitive and financially and managerially cautious. They are not going to switch fleets to cheaper Chinese aircraft just to save a few dollars. Consider that Rolls-Royce jet engines are the standard in commercial aviation, and they certainly aren't the cheapest, but everyone still pays up - because any airline that switched in order to save a few dollars would be crucified if the new aircraft crashed.

Re:What's the adage?

[benjamindees]

That would be true, if profit were measured in some fixed terms.

Unfortunately, here in reality, the economics profession is a complete fucking failure of a joke. Banks are run by dipshit morons propped up by criminal politicians. Corporate accounting is a total fraud. Ridiculous models conflate assets and technology and labor along with fiat currencies that have no real measurable value. The entire bullshit field is based on a fantasyland premise of perpetual growth in "utility" along with magical non-zero-sum mathematics at odds with even basic physics.

And this is what "free trade" gives us: US companies offshoring jobs and real assets, chasing little pieces of paper printed up by the central banks, earning hypothetical economic "profit" while actually making us all poorer in the process.

With regard to China, the result is exactly what one would expect when trading with a country with few natural resources and a billion consumers: American labor has lost all value. Technology that America has invested heavily in, is either stolen outright or practically given away to rising competitors. Real capital is exported en masse in exchange for worthless consumerist crap. And it won't stop until either we've all been dragged down to the level of the average Chinese peasant or we wake the fuck up and start hanging traitor politicians and bankers in the streets before they give our entire fucking country away and then conscript us into some new bullshit war to try to go get it back.

Re:What's the adage?

[JustOK]

China has few natural resources?

Re:What's the adage?

[TheRaven64]

I went to a talk back in 1996 by a Professor of Sinology at Cambridge, who was discussing the fact that it was Chinese policy to invite western corporations in with large incentives, then learn their business methods and create government-funded clone companies. The case study that he provided was Cocoa Cola, which was already quite an old example there. He wasn't talking about his latest research, just about a current trend.

Given that this has been pretty widely known by anyone who bothers to look for about 20 years, I am amazed that any company would be stupid enough to move manufacturing to China. I'd expect a shareholder lawsuit for any that tried. Unfortunately, Wall Street has been selecting in favour of CxOs who avoid long-term planning for quite a bit longer than China has been an economic threat.

Re:What's the adage?

[xonar]

From Rolls-Royce's website "Rolls-Royce wins $1.2 billion order from China Eastern Airlines and agrees environmental partnership"

http://www.rolls-royce.com/civil/news/2010/101109_china_easter_order.jsp

Re:What's the adage?

[umghhh]

Two things:

• the engine market is not dominated by RR this much. General Electric is bigger and Pratt & Whitney is also huge.
• All this enthusiasm in air transport does not seem to take into account the problems with fossil fuels and their availability in the future. I wonder how the air transportation will look like in 50 years. I am sure alternatives will be found but they will not be cheap. This does not mean one should not invest but I think a second thought should be spent on sustainability (both in terms of economics as well as environment) in this particular industry

Re:What's the adage?

[gusmao]

China has few natural resources?

Yes, China is the one of world's biggest importers of iron ore, copper and crude oil, not to mention rubber and other commodities. So, althought the sentence "few natural resources" is too general (china is one of the biggest exporters of rare minerals, for instance), it certainly is applicable to a lot of core commodities for manufacturing

Re:What's the adage?

[Luckyo]

Except that it doesn't work that way for high tech. China now is an excellent example of this: They really, REALLY tried to make proper military making machine for several decades. Investments were close to trillion levels.

Results? To cover up the failures, they ended up essentially buying russian tech, modding it a bit, and showing it off as your own. The devepment costs needed to make a functional jetliner without the necessary know-how of the entire chain of suppliers is next to impossible, no matter how deep your pockets are. Look at russians themselves - after we raided their supply chain in 90s, essentially buying out and killing off many of their strategic know-how companies, they can't even make a current gen jumbo jet. This from country and bureaus that are known to produce civilian craft that has operated safely and consistently for decades in conditions boeing and airbus have problems making their military craft operate (TU-154 being the main supply workhorse for essentially entire Siberia, taking off and landing in what essentially amounted to nothing but a cleared out field with almost no accidents).

At they at least have a history and know how how to build a new jetliner. And they still can't. For China to do this without West helping is in a realm of impossiblity, unless we're talking 1st gen jetliners, which can't compete with any Airbus or Boeing variants on anything.

In this case, Lenin's quote is dead on. We are literally selling them the rope that they will hang us with. We're selling the supply chain and know how that took us DECADES to get, and would take them DECADES to acquire on their own. Rest is simply hardcore capitalistic bullshit about how we "have to participate now". Which is bullshit because if we don't participate now, they may have something among the lines of boeing 707, or more likely tu-104. Which is commercially pretty much dead on arrival considering the competition available - even russians, in spite of their problems could sell Chinese much better aircraft cheaper. Boeing and Airbus could even better then that.

Essentially this one of the biggest reasons why Marx predicted the fall of too capitalistic system - it is utterly unable to properly regulate itself not to damage itself, and at the same time it tends to try to destroy outside attempts to regulate it - which is what we're seeing with this now. Big companies simply buying out politicians to get permits to essentially sell decades worth of know-how for pennies compared to what it would cost to develop it in the first place.

Re:What's the adage?

[Tom]

I am amazed that any company would be stupid enough to move manufacturing to China.

That one is simple: American companies rarely think beyond the next year, and CEOs often not beyond the next quarter, because it is always the next quarter (or two) that seem to matter. A CEO who willingly lets the next few quarters suck in order to have the company in better condition three, four years down the road would be sacked long before the ROI happened. Then his successor can bring in the harvest, while cutting costs/jobs, be lauded as a genius, take a big bonus and leave before it all falls apart.

Re:What's the adage?

[Luckyo]

You're ignoring the point for the sake deluding yourself that once the cheaper actor with no R&D outcompetes on price point, they will somehow magically conjure the R&D and become that which they crushed.

We're seeing even now as many industries in the West are running to Asia, plant themselves there, and then note that their R&D hits the ground because it wasn't just a few key people that drove the innovation, but the entire support system and its own R&D.

This is damage because the system competing against capitalism is controlled by a small centralized community. It's capitalistic for as long as this community allows - and not a millimeter more.
Unless of course you count a "hostile, pretentiously capitalist until opponent is defeated" system as something of an ally. In which case it's just plain self-delusion at work.
You may also look up "dumping", as well as "protectionism" as terms, as well as study how West in general held China down for over a century.

This isn't anything new and original. US largely fought big European powers pre-WW1 to a standstill economically by essentially doing the same thing China is doing to West now. Buy tech, pirate tech, copy tech, compete making the same products but with no need to recoup massive research investments, outcompete on price point and win. This has already been done in many goods, such as electronics, and automotive industry is waking up to similar problem now.

The end result is that the system winning is currently the one strongly regulating its own form of capitalism, while the system losing ground so fast, it can't even understand what's going on is our largely unregulated one. And one of the main reasons why they caught up so fast, is because we did exactly what I described in the previous post. We sold things that took us decades to develop for a quick buck.

To quote Lenin again: A capitalist will sell you the rope you will hang him with if he can make profit on it. Chinese are offering companies a quick profit in exchange for information they can strangulate them with later on.

Re:What's the adage?

[dokebi]

What's ironic about that video is that China has actually done more of the exact things that is supposed to bring down the US:

* Stimulus/spending out of recession: China has spent more of their GDP on stimulus spending that the US, and as a result has felt less impact from it. In fact, there is a linear correlation between amount a of GDP a country spent on stimulus and the length of the recession: the more they spent, the shorter the 2009 recession. Most economists acknowledge that if US had spent more, our recession would have been shorter.

* Government take over of health care: Seriously? China has government (actually, Communist) health care. Neither they nor Korea, Japan, Taiwan are about to privatize their national health care system to stay or become competitive with US.

* Government take over of private business: Chinese government owns and subsidizes many key corporations so that the corporation benefit the nation as a whole and not the CEOs and the shareholders.

If one follows the logic of the ad, it would seem that the Chinese state controlled capitalism is much more effective than our form of capitalism, and if our biggest competitor is China, then we should counter with our own similarly designed policies.

But no, this ad was carefully created to instill a feeling of fear and uncertainty, juxtaposition it with fiscal conservative ideas with almost no basis on fact. It is perfect propaganda.

In fact, I believe blaming foreigners for self created domestic problems was the first step in the decline of Greece, Rome, UK....

Chinese Control

[bkmoore]

I once read how German and Japanese companies were required to partner with Chinese companies in order to bid on high-speed rail contracts. Once the Chinese "partners" had the designs, they severed their partnerships and are now building all of their rail systems in house. So it was basically a scam to gain access to technology, and the promises of long-term contracts never materialized. I suspect something similar will happen this time around with aerospace. I doubt that the Aerospace companies are any more savvy on protecting their technology than the rail companies.

Re:Chinese Control

[DNS-and-BIND]

Yup, they stole...er, technology transferred the maglev tech that was used in Shanghai. A couple of years later, there was another identical maglev built and Chinese people cheered their nation for producing such advanced tech by themselves with no help. Now, they have bullet trains that are copies of the Japanese shinkansen. The first time I saw one pull into the station, I immediately thought, "Wow, a Japanese train! I wonder if they have those nifty box lunches!" (they didn't) But in Chinese language media, the trains are 100% Chinese and anyone who says otherwise is laughed out of the conversation. There are legal agreements in place that give the government a fig leaf of legality to say this. I saw a very carefully worded statement that vehemently denied stealing any technology and everything was hunky-dory.

Same thing will happen with these airliners. Our companies will happily sell the rope to hang themselves. Anyone who protests will be labeled a racist/nationalist/xenophobe and excluded from the conversation.

Re:Quality control?

[bmo]

This is marked insightful?

This is the same shit uttered about the Japanese in the 1960s and early 70s before they kicked everyone's ass in the 80s.

--
BMO

Isn't it about time for a bit of protectionism?

[erroneus]

You know, over the past 6+ years I have brought my position out on multiple occasions only to have my position labelled "protectionist" and discarded. But we have a problem in the U.S. We are exporting money that doesn't return. Some call it trade deficit. Some call it exporting jobs. Others call it outsourcing. Whatever you call it, big business is sending out a lot of money that never returns to the U.S. What's more, in order to do that, the foreign workers have to be educated in our technologies in order to replicate what we have done.

So we lost manufacturing and technology. All we have remaining is "intellectual property" which is really a thing that is not universally agreed upon. The things that made the US great aren't here any longer and while many of us were complaining about it leaving, government paid off by big business persisted in letting it happen.

Now were are we?

Maybe it is time for protectionism. Maybe it's too late for it to do any good. Government needs to think about the people, not the businesses. Business is demonstrably abusive of people when allowed -- it's why we have [outdated] labor laws at all. They are unashamed of it. It's past time our government did their job instead of the will of the highest bidders.

Re:Isn't it about time for a bit of protectionism?

[digitig]

You know, over the past 6+ years I have brought my position out on multiple occasions only to have my position labelled "protectionist" and discarded. But we have a problem in the U.S. We are exporting money that doesn't return. Some call it trade deficit. Some call it exporting jobs. Others call it outsourcing. Whatever you call it, big business is sending out a lot of money that never returns to the U.S. What's more, in order to do that, the foreign workers have to be educated in our technologies in order to replicate what we have done.

So we lost manufacturing and technology. All we have remaining is "intellectual property" which is really a thing that is not universally agreed upon. The things that made the US great aren't here any longer and while many of us were complaining about it leaving, government paid off by big business persisted in letting it happen.

The USA did it to the UK, now China is doing it to both of us. What comes around goes around.

Re:Quality control?

[bmo]

I'm not sure what your point is, but last I checked, the Chinese are doing pretty good in aerospace, are aiming for the moon, and well, are motivated to get shit right when it comes to aerospace.

I think the Chinese will pull it off. Indeed, I hope they do, to light a fire under the complacent asses currently inhabiting my country - the US.

Your post positively reeks of such complacency and whistling past the graveyard.

--
BMO

Re:Quality control?

[Anonymous Coward]

Not to mention the Koreans in the 1980s and the Taiwanese in the 1990s and the Chinese in the 2000s. Next up: we laugh at the Vietnamese and the Malaysians in the 2010s, the Thais and the Indians in the 2020s and the ...

Do you see what's happening? All these nations are steadily, determinedly industrializing and marching past us on and up the value chain, while we make monkey noises and throw feces.

Re:ITAR is the problem

[Richard_at_work]

ITAR can be easy to get around - China already produces (via a final assembly line) their own Airbus A319/A320/A321 series aircraft under license from Airbus for the Chinese market (which is why you see lots of Chinese orders going to Airbus these days) and Airbus, despite being an European country, can still fall foul of the ITAR limitations.

McDonnell Douglas setup an MD-90 final assembly in China during the 1990s, so basically large scale technology transfer has already happened despite ITAR limitations.

Re:Quality control?

[bmo]

I didn't say, "no other country" will make it to the moon this century

Explain what, exactly, you were thinking when you wrote this sentence. Seriously. What the bloody blazes are you replying to in my message? Go re-read my message.

upcoming economic crash

Yeah, and it took US merely 40 years to get to the moon from the beginning of the Great Depression with a world war eating up a significant chunk in between. But the space race to get to the moon really started from Kennedy's announcement in 1962, so it really took us 7 years with 1960s technology to get there.

So what you've said is that it will take the Chinese 13 times longer to get to the moon than we did assuming they start immediately.

Nope, I don't buy it. I don't buy your stupid assertions. They have no basis in reality. You ignore the development rate of the Chinese. You completely ignore the starting point of the Chinese. You ignore the education level of US educated Chinese scientists and engineers. Indeed, the only reference you have is your own biases from your own head.

It's attitudes like yours which make me fear for the future of the US in science and technology. Many people think like you. Many are willing to simply write off the Chinese even as they have been kicking our ass for 10 years. This is the complacency that nearly brought down the US automotive industry *twice* in the last 40 years. This is the complacency that will cost us our future.

Fuck you.

Sincerely,
BMO

Re:Quality control?

[bmo]

Thanks for the vote of confidence.

Many top Chinese engineers and scientists are Western educated, so calling them into question calls our own system into question. And yes, it's an unfair comparison. It's like asking Hasbro to come up with a moon rocket. Maybe, if there is a Werner Von Braun in Pawtucket, Rhode Island.

I don't get the arguments about how the Chinese will always lag in these threads, how they're slow, how they don't know how to do anything well enough, that they make crap. I'm actually old enough to remember the exact same arguments said about the Japanese. I was a kid, but I did hear it from my parents, especially when I was told about build quality. Then the 1980s happened. Then Chrysler had to be bailed out by Ronald Reagan, and suddenly Japanese cars and electronics were what everyone wanted.

And we proceeded to say the same things about the Koreans (A Hyundai is one of the most reliable cars out there, and everyone seems to have a Samsung computer monitor or big screen TV). And we've also said some not-so-nice things about the Taiwanese too.

Funny how they've been able to catch up. The Chinese can't do the same? I don't buy it.

--
BMO

Don't let actual facts slow down a good rant

[sjbe]

I'm pretty sure you are a troll but eh, whatever...

Unfortunately, here in reality, the economics profession is a complete fucking failure of a joke.

It is called the dismal science for a reason. However that is mostly because it is REALLY hard to accurately model human behavior. People are unpredictable and do unpredictable things, both individually and in groups. If you can do better a Nobel prize awaits you.

Banks are run by dipshit morons propped up by criminal politicians.

Morons? No they aren't stupid. Greedy, selfish or arrogant I might go with but the guys who run banks are very very bright. I've met more than a few myself. Stupid is not a word that would come into the conversation.

Corporate accounting is a total fraud.

How so? I am a certified accountant who does corporate accounting for my day job so I'm more than passingly familiar with this capabilities and limitations of corporate accounting. It's certainly possible to have fraudulent corporate accounting (Enron, etc) but that hardly is evidence that corporate accounting as a whole is a "total fraud".

Ridiculous models conflate assets and technology and labor along with fiat currencies that have no real measurable value.

Do you have even the foggiest idea what the word asset means? Technology, labor and currency are BY DEFINITION assets. Anything tangible or intangible that can be owned or controlled to produce an economic benefit is an asset. Fiat currency's have measurable value and that value is measured every day. So long as people believe something has value, it does. Gold only has value because people believe it does. Same for any other resource.

The entire bullshit field is based on a fantasyland premise of perpetual growth in "utility" along with magical non-zero-sum mathematics at odds with even basic physics.

Glad you could distill the entire life's work of all those Nobel laureates. I'm sure they'll be happy you cleared up that they were wasting their time on a fruitless endeavor. You will of course be providing your own ever so insightful solution to all the worlds economic problems? ... No? Oh, I get it. You're on a populist rant and don't have time to be slowed down by actual logic, facts or reason.

With regard to China, the result is exactly what one would expect when trading with a country with few natural resources and a billion consumers

"Few natural resources"? Are we talking about the same country? China has natural resources that rival the US available to it. They are rich in some and lack others, just like any other country. Their needs are immense and often outstrip their domestic production as one might expect with a country containing 1/6 of the world's population but China is hardly resource poor.

American labor has lost all value.

Really? Then how does the US still have the largest economy of any single country in the world?

Re:Quality control?

[nojayuk]

A commonly-used short-hand term in the British and Commonwealth military during the WWII period was U/S, short for "unservicable" meaning something wasn't worth repairing and it should be junked or dismantled for spare parts. It had nothing to do with the USA.

Re:ITAR is the problem

[mangu]

ITAR can be easy to get around

It's possible to do it, but not easy. Getting ITAR licenses from the US State Department can take years, believe me, I work at this business.

A major marketing argument used today by European and Japanese companies id "ITAR free"

Re:Quality control?

[BeanThere]

Indeed, I hope they do, to light a fire under the complacent asses currently inhabiting my country - the US.

I've been hoping so too, but so far it doesn't seem to be working, so I'm growing less optimistic. I think this is the major reason: http://www.nytimes.com/2010/10/12/opinion/12brooks.html ... in the old days the US spent tax money on good old engineering to do great things like get people to the moon. Now it spends its money on massive bureaucracies that push paper around, for the sake of pushing paper around. And I'm afraid I don't think too many people in that system see or care about the bigger picture or bigger goals, just their next paychecks and the next department budget.