China Seeks Foothold in Aviation With Flight of Its First Big Passenger Jet

By Trefor Moss Features Dow Jones Newswires

China is expected to pass a technology milestone on Friday with the maiden flight of its first big commercial airliner, launching what Beijing hopes will become a rival to Boeing Co. and Airbus SE.

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If the flight goes off as planned, and weather permitting, the C919 will be the latest breakthrough for China as it races to upgrade its advanced industrial capacity in sectors including robotics, computer chips, electric cars and renewable energy.

Getting airborne is one thing. Soaring in the fiercely competitive commercial-aviation market is a far tougher proposition, aviation analysts say. But with a reported $317 billion set aside to bankroll advanced manufacturing projects, China seems to care less about returns from costly experiments like the C919 than about securing a foothold in high-value industries dominated by foreign players.

"Basically, they can deliver jets if they're willing to lose a lot of money," Richard Aboulafia, vice president at Teal Group Corp., a U.S.-based aerospace intelligence company.

The C919 project predates the government's Made in China 2025 initiative, which began in 2015, but it falls squarely within the objectives of that program. The plan calls for Chinese products to replace foreign equivalents in the domestic economy and to be exported globally.

Efforts at home are being matched by strategic acquisitions abroad, such as last year's $5 billion purchase of German industrial-robot maker Kuka AG by Chinese home-appliance manufacturer Midea Group.

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In March, the Ministry of Industry and Information Technology, the agency steering the industrial-upgrade program, acknowledged overcapacity risks in some high-tech fields, notably robotics, which at least 800 Chinese companies are busy developing, but claimed steady progress overall.

However, the Made in China blueprint has drawn fire from, among others, the European Chamber of Commerce, which contends that state support for local players designed to squeeze out foreign rivals could contravene World Trade Organization rules, not to mention squander resources in a top-down bid to capture market share.

Senior officials have denied that China's industrial strategy will put foreign companies at a disadvantage, claiming that outsiders are welcome to participate in China's high-tech industries.

To the skeptics, the C919 is indicative of the waste inherent in the domestic-manufacturing push. Though the jet marks a leap forward in China's aerospace capabilities, it is still three-quarters foreign technology and isn't close to matching Boeing or Airbus's newest jetliners, according to Mr. Aboulafia. Most aviation analysts say the jet's technology is a decade or two behind the competition, making it less fuel efficient than its more up-to-date rivals.

Once the euphoria of the inaugural flight subsides, China "might be surprised to learn that all the big challenges are still ahead of them: setting up a global support network, arranging for jetliner finance and, most of all, losing money on the first 500 they build," Mr. Aboulafia said.

The C919's developer, the state-owned Commercial Aircraft Corp. of China, or Comac, has one big advantage: a captive market for its creation in the form of China's three large state-run airlines, which have agreed to buy the jet. Whether they commit to much beyond a handful of orders once the plane starts rolling off the production line in the early 2020s remains to be seen.

Beijing's expectations are modest: The Made in China plan targets 10% self-sufficiency in passenger jets by 2025, compared with 80% for electric cars and 70% for industrial robots. In 2025, that would equate to 20 to 30 planes, according to jet-market forecasts.

Even that could prove challenging. Comac says it plans to build 2,300 C919s over the next two decades, but Teal Group forecasts that it will be lucky to sell more than a few dozen over the lifetime of the program, since the 158-seat single-aisle plane will be competing head-on with Boeing and Airbus's established short-haul jets.

Yet securing market share could still qualify as a success in Beijing's reckoning, if the C919 is seen as a first step in a decadeslong project to erode the Boeing and Airbus duopoly, said Jost Wuebbeke of the Mercator Institute for China Studies in Berlin.

Moreover, Made in China is a "wish list": China doesn't seriously expect to conquer all 10 targeted industries, Mr. Wuebbeke said.

Beijing would probably settle for success in two or three of those sectors, such as electric vehicles, semiconductors and biotechnology, he said, noting that heavy losses in individual programs such as the C919 are tolerable so long as some self-sufficiency benchmarks are being met.

"Westerners often underestimate China's top-down approach," Mr. Wuebbeke said. "It wastes resources, but it also produces results."

Write to Trefor Moss at Trefor.Moss@wsj.com

(END) Dow Jones Newswires

May 04, 2017 04:56 ET (08:56 GMT)