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The China Market Is Attaining Critical Mass


Post Date: 23 Apr 2011    Viewed: 491

The trend lines have been familiar for more than two decades: China is the world’s largest potential market for everyone making nearly everything. In air travel, national growth rates are so strong that they are typically broken out from the rest of Asia, as if China is a separate continent.


The country’s economy is expanding so rapidly that industry and infrastructure strain to keep up. Ironically, this makes China an ideal laboratory for teams of foreigners and Chinese researchers to test big ideas, such as carbon dioxide sequestration to produce “clean” coal, that go unheeded in older, more mature economies.


In commercial aviation, it is not so much big ideas as big ambitions that are drawing attention. Suppliers from the U.S., Europe, Canada and Brazil are coming because they are compelled by the size of the Chinese market. The map of China is now dotted with at least 36 joint ventures between Chinese and foreign partners, with a dozen more pending final approval.


This year is the first of China’s latest five-year economic plan, which identifies aeronautics as one of seven high-technology “rising” industries. The most immediate bottom-line effect: Managers at Comac—the state-owned airplane manufacturer whose 158-seat C919 is a challenger to the Airbus A320 and Boeing 737 duopoly—read that listing as indicating “we will receive strong support from the nation.”


Joint ventures mostly include subsidiaries of the government’s Aviation Industries of China (Avic) and date back decades, involving equipment manufactured to serve aircraft operating in China. But some involve various national research, training and regulatory institutions that speak more to the nation’s far-reaching ambitions than basic manufacturing. The most recent support the “rising industries” aspect of Chinese industrial policy.


In the late 1980s, European manufacturers talked to Avic about teaming on a small regional jet and, a decade later, there were even plans for China, South Korea, Japan and others to work as a team on such a project. All turned out to be paper airplanes. In 2002, China settled on the 90-seat ARJ21, using tooling from the MD-90 Trunkliner program that evaporated in the Boeing-McDonnell Douglas merger. Foreign suppliers flooded in to help.


The ARJ21 is no longer a priority, but it played a starring role influencing relations between China’s factories and foreign Tier 1 suppliers, such as Parker Aerospace, which built a “close to off-the-shelf” hydraulic system for it, says Parker Vice President Pui Ho, head of Asia-Pacific operations. “The ARJ21 was more than a building block. The Chinese like to use the term ‘long-term partners. If I work with you, why should I switch?’”


Indeed, six years later when China initiated the C919, suppliers such as Parker Aerospace, GE Aviation, Eaton, Honeywell, Rockwell Collins and Hamilton Sundstrand, who were there for the ARJ21, were in a favored position for the program that eclipsed it. In many cases, their roles increased. All expect the C919 to be the first airplane in a family likely to stretch to about 200 seats. Initial sales of the C919 will be focused on domestic demand, but once Comac has a family it stands a better chance of finding a global market.


Long-term relationships are favored everywhere; the Japanese are famous for them. “The difference in China is that the government is involved,” Ho explains. How suppliers understand that relationship is essential to how well they will connect in China. Even as they pursue their own company’s interests, the most successful never lose sight of the fact that they are partnering with a government, not merely another business. To explain, Ho cites a Chinese saying that relates to failure: “Same bed, different dream.”


The ARJ21 was the first regulatory effort by the Civil Aviation Administration of China (CAAC) that was “shadowed” by the FAA; this means the U.S. regulatory authority looked over the shoulder of its Chinese counterpart to verify that it was following procedures that met FAA standards.

 


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