The China Syndrome

Published 9:00 pm Tuesday, December 27, 2005

There’s an ongoing debate in academic circles about whether China represents a threat to the U.S. aeropsace industry. The government there would dearly love to develop an aerospace sector — it’s pretty much the top-of-the-line when it comes to advanced technology and value-added manufacturing — and some observers believe that the combination of low labor costs and a huge and expanding domestic airline market will prove irresitable.

Go-to analyst Richard Aboulafia is not one of them, however. His December newsletter to clients http://www.richardaboulafia.com/shownote.asp?id=207 discusses all the reasons jet builders should avoid setting up shop in China.

Key Quote: “The history of jetliner production in China is grim. Disregarding the awful indigenous stuff, the biggest disaster was McDonnell Douglas’s Shanghai plant. After a huge investment, the plant built 35 MD-80s and two MD-90s. Five of the 80s had to be re-exported, to TWA. If China was going to build its own jetliner industry, that was the moment to do it. Since then their aviation ambitions have gone downhill.”

This report from Knight-Ridder http://www.gazettetimes.com/articles/2005/12/27/news/business/monbiz02.txt (you may know K-R as the newspaper group that owns 49.5 percent of Seattle’s “locally owned” daily newspaper), looks at the issue.

Key Quote: “America’s aerospace industry, under stress from global competition, may not have to worry as much about China as the experience of other industries might indicate. For all its growth, China still has far to go to improve its technology and train its work force before it can compete with the West in aircraft. ‘I don’t know if it’s that easy for them to catch up,’ said David Dixon, Asian sales vice president for Montreal-based Bombardier.”