Beijing has come a long way since building its first plane in the 1960s
By MENG WTAN 15 April 2011
China first embarked on its quest to develop an indigenously designed commercial aircraft in the late 1960s at the height of the Cultural Revolution to demonstrate the country’s ability to catch up with the West technologically. The efforts of its engineers and scientists, despite their inexperience, culminated in a prototype known as Y-10.
Unfortunately, even though test flights conducted in the early 1980s proved the functionality of the plane, the antiquity of its design and the absence of a domestic market eventually prevented the commercialisation of the Y-10.
By the 1990s, as China’s economic reforms gathered steam, the public sector and state enterprises underwent restructuring and streamlining. In 1993, the Ministry of Aviation and Aerospace Industry was converted into the Aviation Industry Corporation of China (Avic), comprising a consortium of Chinese aircraft manufacturers.
Maiden attempt
In 1999, this consortium was split into Avic I and Avic II, with the former focusing mainly on large planes and the latter on smaller ones. By the turn of the century, Avic I succeeded in developing its first indigenously designed regional commercial aircraft, the 70 to 110-seat ARJ21 (Advanced Regional Jet of the 21st Century).
In 2008, to reduce redundancy, Avic I and Avic II were reconsolidated to form Comac (Commercial Aircraft Corporation of China) which embarked on the creation of the C919.
With a sitting capacity of 190 passengers, the C919 is positioned to challenge Boeing 737, the best-selling jet airliner in history, and Airbus A-321. When the C919 made its debut in November last year, Comac received orders for 100 planes from mostly Chinese airlines.
The gradual maturation of the Chinese aerospace industry since the fateful Y-10 comes amid tumultuous changes in both domestic and international market conditions and economic environments over the past two decades. Unlike in the past, however, these changes have been mostly advantageous to the development of the Chinese aerospace industry.
Mindset change
First, the organisational reform of the Chinese aerospace industry in the late 1990s facilitated the adoption of production systems, market practices and management philosophies of the West by the now more market-oriented Chinese aerospace enterprises, allowing them to compete more effectively with established players in the market.
The restructuring was also accompanied by a shift in mindset from the Soviet Union’s defence industrial thinking to the Western models of development which encouraged the pooling of research and development results between the civilian and military sectors.
Secondly, as a result of its rapid economic development over the last three decades, China has emerged to become the world’s second largest market for new aircraft. Air passenger volume in China is expected to grow by 8.3 per cent every year until 2029. To serve the growing traffic, Boeing estimates that China needs 4,330 new aircraft worth US$480 billion over the next two decades.
Globally, Boeing also estimates that 21,160 aircraft like the Boeing 737, Airbus A320 and Comac C919, valued at US$1.7 trillion, will be needed over the next 20 years. Hence, unlike the Y-10 project, the ARJ21 and the C919 come at an opportune time when both the domestic and overseas markets for aircraft are experiencing explosive growth.
Thirdly, China has made great strides technologically over the past three decades. The recent test flight of the fourth-generation J-20 stealth fighter, for example, took the world by surprise. Significant advances made in the areas of material science, avionics and power engines from the defence arena have crossed over to the production of civilian aircraft.
Gaps in technological capabilities are filled by building alliances with foreign components and parts manufacturers who are also suppliers or partners of Boeing and Airbus. Also, China has been able to entice foreign competitors to voluntarily transfer knowhow using its huge domestic market as leverage.
Fourthly, the practice of outsourcing has also worked to the advantage of Chinese aircraft makers. As Boeing and Airbus increasingly outsource the designing and manufacturing of parts and components to suppliers and partners around the world, they risk losing control of valuable technical knowledge which could not only weaken their core competence over time but also be used by their competitors. Indeed, the proliferation of foreign component and part suppliers allows Chinese aircraft makers to easily source for what they are unable to produce. Currently, Comac has about 17 global suppliers and has also set up 14 joint ventures with foreign partners.
In addition, Chinese aircraft makers have been on the prowl to acquire companies with proprietary knowledge. In 2009, for example, Avic succeeded in buying up 91.25 per cent of Austria’s Fischer Advanced Composite Components which produces parts and components for customers including Airbus, Boeing, Bombardier, Embraer and Gulfstream. On March 1 this year, China Aviation Industry General Aircraft Co Ltd (CAIGA) announced the 100 per cent ownership acquisition of the world’s second-largest manufacturer of single-engine general aviation aircraft, the US-based Cirrus Industries Inc, pending the approvals from both governments.
Govt support
The acquisition not only allows CAIGA access to Cirrus’s technology. It also endows CAIGA with new capability to tap future growth in China which is set to become the fastest-growing business aviation market as a result of the opening up of low-altitude airspace and private flying.
Finally, the Chinese aerospace industry has the unwavering support of the government. Just as the Y-10 was intended to, the C919 is an inspiring display of China’s emerging industrial might. It symbolises the country’s transition from a low value-add to a technologically advanced producer. Besides bringing China closer to its ambition of transforming into a aviation powerhouse capable of making jumbo jets, regional planes, business jets, propeller planes and helicopters all at home, the C919 project is also expected to have a catalytic impact on the development of a host of indigenous allied industries.
As a manifestation of its unswerving backing, the government provides generous bank financing to not only Chinese but also offshore customers. It is never easy for any new player to take on entrenched mammoths such as Boeing and Airbus.
The impact of a nascent Comac on Boeing and Airbus may appear deceptively inconsequential initially. Currently, Airbus and Boeing are still doing brisk sales with orders coming in even from Chinese airlines.
But by holding up the ARJ21 and C919 projects as emblems of national pride, domestic airlines are obliged to put them ahead of Boeing and Airbus for future purchases. Hence, given the confluence of internal and external factors that work in favour of Comac, Boeing and Airbus could face a formidable Chinese competitor within a decade or two.
More importantly, the evolutionary pattern of the Chinese aerospace industry may epitomise a replicable development model for other Chinese industries also seeking global dominance.
Breakout phase
In this model, a flag-bearing Chinese enterprise, supported by a deep-pocket government, leverages on its strengths in a burgeoning domestic market and expands ferociously, not only by developing internally but also by working aggressively with foreign partners determined not to be left out of the lucrative Chinese market and by acquiring strategically important foreign entities with proprietary knowledge and market channels in order to leapfrog the competition.
In short, if the impending success of the Chinese aerospace industry is any indication, we may be looking at a China on the brink of a breakout phase where more and more geared-up and cash-rich Chinese enterprises are raring to launch their challenge at entrenched foreign incumbents, especially those weakened by the Great Recession in the aftermath of the global financial crisis.
The development model may also afford China a shorter route to develop its technology-intensive industries, hence allowing it to catch up with the developed economies sooner than expected.
The writer is a Singaporean currently pursuing his PhD in world economics at Nanjing University
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China’s maturing aerospace industry
Beijing has come a long way since building its first plane in the 1960s
By MENG WTAN
15 April 2011
China first embarked on its quest to develop an indigenously designed commercial aircraft in the late 1960s at the height of the Cultural Revolution to demonstrate the country’s ability to catch up with the West technologically. The efforts of its engineers and scientists, despite their inexperience, culminated in a prototype known as Y-10.
Unfortunately, even though test flights conducted in the early 1980s proved the functionality of the plane, the antiquity of its design and the absence of a domestic market eventually prevented the commercialisation of the Y-10.
By the 1990s, as China’s economic reforms gathered steam, the public sector and state enterprises underwent restructuring and streamlining. In 1993, the Ministry of Aviation and Aerospace Industry was converted into the Aviation Industry Corporation of China (Avic), comprising a consortium of Chinese aircraft manufacturers.
Maiden attempt
In 1999, this consortium was split into Avic I and Avic II, with the former focusing mainly on large planes and the latter on smaller ones. By the turn of the century, Avic I succeeded in developing its first indigenously designed regional commercial aircraft, the 70 to 110-seat ARJ21 (Advanced Regional Jet of the 21st Century).
In 2008, to reduce redundancy, Avic I and Avic II were reconsolidated to form Comac (Commercial Aircraft Corporation of China) which embarked on the creation of the C919.
With a sitting capacity of 190 passengers, the C919 is positioned to challenge Boeing 737, the best-selling jet airliner in history, and Airbus A-321. When the C919 made its debut in November last year, Comac received orders for 100 planes from mostly Chinese airlines.
The gradual maturation of the Chinese aerospace industry since the fateful Y-10 comes amid tumultuous changes in both domestic and international market conditions and economic environments over the past two decades. Unlike in the past, however, these changes have been mostly advantageous to the development of the Chinese aerospace industry.
Mindset change
First, the organisational reform of the Chinese aerospace industry in the late 1990s facilitated the adoption of production systems, market practices and management philosophies of the West by the now more market-oriented Chinese aerospace enterprises, allowing them to compete more effectively with established players in the market.
The restructuring was also accompanied by a shift in mindset from the Soviet Union’s defence industrial thinking to the Western models of development which encouraged the pooling of research and development results between the civilian and military sectors.
Secondly, as a result of its rapid economic development over the last three decades, China has emerged to become the world’s second largest market for new aircraft. Air passenger volume in China is expected to grow by 8.3 per cent every year until 2029. To serve the growing traffic, Boeing estimates that China needs 4,330 new aircraft worth US$480 billion over the next two decades.
Globally, Boeing also estimates that 21,160 aircraft like the Boeing 737, Airbus A320 and Comac C919, valued at US$1.7 trillion, will be needed over the next 20 years. Hence, unlike the Y-10 project, the ARJ21 and the C919 come at an opportune time when both the domestic and overseas markets for aircraft are experiencing explosive growth.
Thirdly, China has made great strides technologically over the past three decades. The recent test flight of the fourth-generation J-20 stealth fighter, for example, took the world by surprise. Significant advances made in the areas of material science, avionics and power engines from the defence arena have crossed over to the production of civilian aircraft.
Gaps in technological capabilities are filled by building alliances with foreign components and parts manufacturers who are also suppliers or partners of Boeing and Airbus. Also, China has been able to entice foreign competitors to voluntarily transfer knowhow using its huge domestic market as leverage.
Fourthly, the practice of outsourcing has also worked to the advantage of Chinese aircraft makers. As Boeing and Airbus increasingly outsource the designing and manufacturing of parts and components to suppliers and partners around the world, they risk losing control of valuable technical knowledge which could not only weaken their core competence over time but also be used by their competitors. Indeed, the proliferation of foreign component and part suppliers allows Chinese aircraft makers to easily source for what they are unable to produce. Currently, Comac has about 17 global suppliers and has also set up 14 joint ventures with foreign partners.
In addition, Chinese aircraft makers have been on the prowl to acquire companies with proprietary knowledge. In 2009, for example, Avic succeeded in buying up 91.25 per cent of Austria’s Fischer Advanced Composite Components which produces parts and components for customers including Airbus, Boeing, Bombardier, Embraer and Gulfstream. On March 1 this year, China Aviation Industry General Aircraft Co Ltd (CAIGA) announced the 100 per cent ownership acquisition of the world’s second-largest manufacturer of single-engine general aviation aircraft, the US-based Cirrus Industries Inc, pending the approvals from both governments.
Govt support
The acquisition not only allows CAIGA access to Cirrus’s technology. It also endows CAIGA with new capability to tap future growth in China which is set to become the fastest-growing business aviation market as a result of the opening up of low-altitude airspace and private flying.
Finally, the Chinese aerospace industry has the unwavering support of the government. Just as the Y-10 was intended to, the C919 is an inspiring display of China’s emerging industrial might. It symbolises the country’s transition from a low value-add to a technologically advanced producer. Besides bringing China closer to its ambition of transforming into a aviation powerhouse capable of making jumbo jets, regional planes, business jets, propeller planes and helicopters all at home, the C919 project is also expected to have a catalytic impact on the development of a host of indigenous allied industries.
As a manifestation of its unswerving backing, the government provides generous bank financing to not only Chinese but also offshore customers. It is never easy for any new player to take on entrenched mammoths such as Boeing and Airbus.
The impact of a nascent Comac on Boeing and Airbus may appear deceptively inconsequential initially. Currently, Airbus and Boeing are still doing brisk sales with orders coming in even from Chinese airlines.
But by holding up the ARJ21 and C919 projects as emblems of national pride, domestic airlines are obliged to put them ahead of Boeing and Airbus for future purchases. Hence, given the confluence of internal and external factors that work in favour of Comac, Boeing and Airbus could face a formidable Chinese competitor within a decade or two.
More importantly, the evolutionary pattern of the Chinese aerospace industry may epitomise a replicable development model for other Chinese industries also seeking global dominance.
Breakout phase
In this model, a flag-bearing Chinese enterprise, supported by a deep-pocket government, leverages on its strengths in a burgeoning domestic market and expands ferociously, not only by developing internally but also by working aggressively with foreign partners determined not to be left out of the lucrative Chinese market and by acquiring strategically important foreign entities with proprietary knowledge and market channels in order to leapfrog the competition.
In short, if the impending success of the Chinese aerospace industry is any indication, we may be looking at a China on the brink of a breakout phase where more and more geared-up and cash-rich Chinese enterprises are raring to launch their challenge at entrenched foreign incumbents, especially those weakened by the Great Recession in the aftermath of the global financial crisis.
The development model may also afford China a shorter route to develop its technology-intensive industries, hence allowing it to catch up with the developed economies sooner than expected.
The writer is a Singaporean currently pursuing his PhD in world economics at Nanjing University
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