TAIPEI: US teeth-gnashing over China’s development of a domestic semiconductor industry is drowning out an overlooked threat to trade, one which has far bigger implications for American jobs and could undermine national and economic security.
A statement from China Eastern Airlines last week points to an overwhelming trend in the world’s second-largest economy. Commercial Aircraft Corp of China (COMAC) landed orders for 100 of its C919 jets from the carrier just months after the aircraft model made its first commercial flight.
Both companies are state-owned enterprises and although the list price is US$9.9 billion, the actual deal is likely much smaller after a steep discount. The single-aisle passenger plane is a local equivalent to Boeing’s 737 series or Airbus SE’s A320Neo.
COMAC has made extraordinary progress since it was founded in 2008 as a joint venture of other SOEs including the Aviation Industry Corporation of China. Its first offering is the ARJ21, a medium-sized regional jet that was developed by AVIC. But it’s the C919 that is setting the industry abuzz. The latest deal from China Eastern, the nation’s second-largest carrier by fleet size, takes total orders to around 1,000.
In the duopolistic market of global aircraft manufacturers, China winning orders – even from domestic clients – doesn’t come without a cost. Each plane supplied by COMAC is a lost order to Airbus or Boeing. And that pain is being felt, especially in the US.
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AEROSPACE COMPETITION
Sales of aircraft, including related parts and equipment, were the largest component of exports to China in each of the past three decades. Those days are gone. Over the past three years that ratio dropped to just 3.4 per cent, having stood at 18.8 per cent in the 1990s, and falling to 9.5 per cent in the decade to 2019.
On an annual basis, exports peaked in 2018 and have since fallen by two-thirds. That’s the same year Boeing’s sales to China reached their zenith before plunging by a similar amount.
While the COVID-19 pandemic takes some of the blame for this decline as flights were halted and airlines were forced to park planes in the desert, the writing was on the wall more than a decade earlier when COMAC began work on the C919.
Fatal crashes of Boeing’s 737Max in 2018 and 2019 prompted Beijing to join regulators globally in banning the jet. Flights on those models already in service resumed in China this year, with Air China indicating it will take delivery of 12 Max aircraft in 2023 and more in 2024.
That short-term boost won’t last. Multiple cases of espionage and an increasingly rancorous trade war show there’s little chance of turning back. COMAC leaned on foreign partners to develop the C919, using engines from General Electric and parts from across the globe. In 2011, the company signed a cooperation partnership with Canada’s Bombardier, which later included an agreement to share cockpit technology and designs.
Yet even as China’s aerospace sector has sought to procure technology through the front door with joint ventures and licensing deals, Beijing has been very busy acquiring know-how through the back door.
In one effort uncovered by the FBI in 2017, Chinese intelligence agents directed a project to steal engine technology from GE Aviation, while a separate case involved a Chinese national and Air Force contractor who helped the People’s Liberation Army obtain more than 630,000 files related to Boeing’s C-17 Cargo plane.
It may take years before the foreign intelligence community can ascertain how much of the C919, or the forthcoming twin-aisle CR929, was built from pilfered technology
There are numerous similarities between the semiconductor and aerospace industries. Both rely heavily on technological development, have high barriers to entry, and bestow upon their nations significant national-security advantages. There’s one huge difference though, one that makes US maintenance of its supremacy even more important.
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RACING FOR THE NEXT MILESTONE
Chip technology evolves rapidly, building on past breakthroughs to reach the next milestone. Even if an adversary eventually masters one manufacturing node, the leader has already advanced a long way down the scientific highway to maintain its edge. This is what we’re seeing with China’s recent advancements in semiconductors, which still trails Taiwan, South Korea and the US by many years.
By comparison, aviation is slow-moving and new products can be put into operation for decades. Boeing’s four-engine 747, for example, was introduced in 1968 and continues to serve the global aviation market with the last model delivered in January this year.
As a result, once a rival – or foreign power – develops or steals critical technology such as material compounds or engine designs, they catch up almost immediately and the gap is narrowed for that specific part of the aviation puzzle.
If a committed and well-resourced entity spends a decade pilfering enough secrets, then there’s every chance they can assemble them into a complete aircraft and neutralise many of its previous deficits. The end result might not be quite as cutting-edge as the industry leader, but it’s good enough.
That close equivalence is not just a national security risk to American and European industries, but poses an economic challenge. More than half a million people are employed in the US aerospace industry, including over 200,000 in aircraft manufacturing.
If China can offer global airlines, especially those in fast-growing emerging markets, a reasonable alternative to a Boeing or an Airbus, then those jobs are at risk. This danger is exacerbated by Beijing’s willingness to subsidise strategically important industries, even if they’re chronic money losers.
To ensure they stay ahead and prevent further leakage of defense-adjacent technologies, US and European governments need to develop clear policies that limit foreign access to aerospace technology and impose harsher restrictions on joint ventures and licensing. Washington’s obsession with protecting the semiconductor sector is not misguided, but it risks leaving out another key industry.