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China’s plan to accelerate development of its aircraft industry could be disrupted by tensions with the US. Photo: Xinhua

US-China relations: Beijing’s plan for aviation supremacy faces bumpy ride as American export controls show no signs of easing

  • Since taking office, the Biden administration has not loosened buying restrictions on US aviation products imposed on China
  • As a result, China’s plan to accelerate development of its aviation and aerospace industries faces enormous challenges, analysts say

China’s plan to become a powerhouse in civil aircraft manufacturing could be derailed by US export controls on aviation products, as tension between Beijing and Washington shows no sign of easing despite a new administration in Washington.

A trade war between the world’s two biggest economies has morphed into a battle for tech supremacy that has spilled over into the aviation sector in the past two years.

Amid fears that US global competitiveness could be compromised and critical technology could fall into the hands of the Chinese military, Washington has targeted Chinese companies, including many in the aerospace industry, by restricting them from buying US-made products.

“For the moment the Biden administration has not loosened any controls, and it may never. Much will depend on the general trajectory of US-China relations and the outcome of the ongoing policy reviews,” said Scott Kennedy, senior adviser and trustee chair in Chinese business and economics at Centre for Strategic and International Studies (CSIS) in Washington.

I don’t think the US should see Comac, and China, as a global jetliner competitor
Richard Aboulafia
China has high hopes for its C919 in particular, a narrow body medium-haul passenger jet designed to compete with the Boeing 737 and Airbus A320. It is expected to receive its airworthiness certificate this year. 

But the plane’s manufacturer, the state-owned Commercial Aircraft Corporation of China (Comac), was added to a blacklist of alleged Chinese military companies by the US Department of Defense in January. Under an executive order signed last year by then-President Donald Trump, American firms cannot invest in these entities. 

“I don’t think the US should see Comac, and China, as a global jetliner competitor,” said Richard Aboulafia, vice-president of analysis at aviation and defence consultancy Teal Group. “But I also think there are many US government officials who want an opportunity to look tough on trade issues, and on intellectual property issues, with China.

“Some may also see it as an opportunity to get the Civil Aviation Administration of China (CAAC) to at least discuss conditions for 737 MAX recertification.”

Why is Chinese aviation firm Avic on a US sanctions list and what do we know about it?

Boeing’s China business and the return to the skies of its troubled 737 MAX jet have been entangled in the growing tension between Beijing and Washington. China was the first country to ground the MAX in March 2019 after two crashes that killed 346 people.

The CAAC has not given a timetable for the passenger jet to return to service in China.

China is a big importer of US aviation products and has relied on mostly American components for its C919. As such, there are growing concerns among US manufacturers that China could begin looking for alternatives as the US government looks to tighten licensing.

A report released in February by the United States Chamber of Commerce, a business-oriented American lobbying group, said the US government has made it “increasingly difficult for US businesses to obtain export licences to sell dual-use products to Chinese customers”, creating “uncertainty that is difficult for US firms to mitigate” and incentivising Chinese customers to replace US suppliers.

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Three more Chinese C919 passenger jets to start test flights by late 2019

Three more Chinese C919 passenger jets to start test flights by late 2019

Dual-use products are defined as goods and technology that have both civilian and military application.

China’s state-led industrial plan, dubbed “Made in China 2025” (MIC2025) – which aims to upgrade its hi-tech industries to Western levels and lessen its dependency on imports – and its military-civil fusion programme pose major concerns when it comes to regulating dual-use exports, according to a January report prepared by the Congressional Research Service, Congress’s think tank.

“China’s technology policies often require joint ventures and partnerships in which the Chinese side controls the technology and intellectual property. Many Chinese partners for US firms are government-controlled entities, increasing the possibility that US technology could be advancing China’s government and military capabilities,” the report said.

Aboulafia believes it would be difficult for China to replace US aviation technology and be even harder for it to innovate behind closed doors. A decoupling in the aviation sector could mean the US may miss out on the biggest growth market in the world, but China could also end up “with an inferior, inward-looking state-owned system that echoes the Soviet industry experience”, Aboulafia said.

Almost everything in the world civil aerospace market, outside Russia, is a global product
Richard Aboulafia

“US companies really can’t lose out to European competitors as a result of these rules, for two reasons,” he said. “One, European companies that went around these rules could face sanctions in the US, particularly for defence programmes.

“Two, there are very few all-European aerospace systems. The C919’s engine is a joint venture between GE and France’s Safran. Almost everything in the world civil aerospace market, outside Russia, is a global product.”

The Trump administration pushed through a flurry of punitive actions aimed at Beijing towards the end of last year, many of which targeted the aviation industry.

China’s biggest state-owned aviation and defence firm, the Aviation Industry Corporation of China (Avic), was put on the list of “Communist Chinese military companies”. Seven Avic subsidiaries were also listed as “military end users” by the US Commerce Department, meaning American exporters are required to obtain licences to sell certain products to them.

“Companies that are on the Commerce Department’s list of military end users are subject to a licensing requirement for certain, sensitive items which are described in US export control regulations,” said Nick Turner, a lawyer specialising in economic sanctions and anti-money-laundering at Steptoe & Johnson in Hong Kong.

There is zero chance China could be self-sufficient in commercial aircraft manufacturing in the next 30-40 years
Scott Kennedy

“Whether this would have a major impact on the companies depends on whether they receive those items and whether their US suppliers are able to get licences to continue to provide them.”

Aviation is integral to MIC2025, which has been criticised by China’s biggest trading partners the US and Europe as giving Chinese firms an unfair advantage through government subsidies and other forms of state support.

While China has since refrained from publicly talking about MIC2025, its investment in aviation and goal of carving out a chunk of the lucrative industry has not changed.

In Beijing’s 14th five-year plan and long-term development goals for 2035, aviation and aerospace have been highlighted as the “strategic emerging industries” that are crucial for China’s economic advancement and their development must be “accelerated”.

“There is zero chance China could be self-sufficient in commercial aircraft manufacturing in the next 30-40 years. Nor should they be. No one is fully self-sufficient, not even the US or [European Union]. Specialisation makes sense,” said Kennedy.

 

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