The new big deal from China pleases Airbus while disappointing Boeing, who in turn puts pressure on the U.S. government. Hold the EU, beat the U.S., does Beijing have other plots behind its huge investment of 292 Airbus airplanes?
China’s “Big Three” state airlines have recently struck a deal to buy nearly 300 Airbus jets for $37 billion, reported CNBC on July 1. The largest order by Chinese carriers since the Covid-19 outbreak arriving just days after the new NATO strategic concept first identified Communist China as a “systematic challenge.”
In seemingly coordinated declarations, Air China and China Southern Airlines promised to each buy 96 A320neo-family jets worth $12.2 billion at list prices. At the same time, China Eastern Airlines agreed to purchase 100 airplanes of the same model, worth $12.8 billion.
According to France’s Le Monde, the orders follow a “bumper” year for European Airbus, with record profits in 2021 after a two-year epidemic downturn, further boosting the company over U.S. rival Boeing.
CNBC reported that in 2022, Boeing handed over only one commercial aircraft to Beijing, against 47 for Airbus. An estimated 150 Boeing airplanes are waiting to be delivered to China.
On the surface, the deal can be explained by the Chinese aviation market’s recovery after the coronavirus pandemic and the safety issue of Boeing’s MAX planes which caused deadly crashes in 2019. However, given the current ups and downs in China’s economy and heavy losses suffered by the airliners, that could well be a strategic move by Beijing.
According to Reuters, in 2021, Chinese airlines incurred nearly $10.4 billion in losses. In the first quarter of 2022, China Eastern Airlines reported a financial loss of $1.18 billion. Beijing-based Air China suffered a quarterly net loss of about 1.4 billion, its largest since records began in 2008.
Using the term “aircraft diplomacy,” Wang He, an overseas expert on China’s issue, has put forward three plots of the Chinese regime behind its huge purchase of Airbus airplanes.
#1. Hold the EU
NATO’s new strategic concept, published on June 29, describes the Chinese regime as challenging NATO’s “interests, security and values,” reported Newsweek.
Wang He pointed out that most of the 30 member states of NATO are European countries. Although European and American policies towards China are consistent, the pace is still inconsistent. During the introduction of the NATO Strategic Concept 2022, there were disparities in the China strategy. Because of the “unanimous agreement” decision-making mechanism, the Chinese Communist Party (CCP) had to be regarded as a “challenge” rather than a “threat,” and a “constructive engagement” strategy was implemented. The CCP recognized the gap between the U.S. and Europe and aimed to widen it in two ways.
- One is showing weakness to Europe.
At the end of 2020, China and Europe reached an investment agreement before Biden took office. However, the CCP misjudged the situation and launched a sanctions war with the EU over the Xinjiang issue in March 2021, causing the European Parliament to freeze the agreement. Additionally, the CCP bullied Lithuania and supported Russia overtly and secretly in the Russian-Ukrainian war, which made China and Europe drift apart.
The CCP tried to salvage the situation by sending its representative to mollify the EU. Huo Yuzhen, the Special Representative of the Ministry of Foreign Affairs, visited eight countries in Central and Eastern Europe. Wu Hongbo, former United Nations Under-Secretary-General for Economic and Social Affairs, also visited the Czech Republic, France, Hungary, Germany, Italy, etc., and lowered Beijing’s stance in an attempt to repair Sino-European relations.
Wu said Beijing “made mistakes” in many things, from handling the COVID-19 outbreak to Wolf Warrior diplomacy and economic mismanagement. Although not directly addressing the Ukraine war, he sent European people a message, assuring them that they are considered a priority compared to the US.
- Another CCP’s tactic is economic temptation.
China commentator Wang He highlighted that the order with Airbus this time was announced immediately after the NATO summit; its intention could not be more obvious.
The CCP judges that the complementarity of China-EU economic and trade relations, determined by the difference in resource endowments between China and the EU, will not change in the short term. Since the beginning of 2020, China has surpassed the United States to become the EU’s largest trading partner. China has always been Germany’s biggest trading partner for the past six years. With the current soaring prices, Europe is more inseparable from Chinese goods.
#2. Beat the US
Sharply reacting to the announcement, Boeing attributed the blockbuster order to “constructive dialog” between European and Chinese governments and urged the U.S. authority to launch productive discussions with Beijing.
“As a top U.S. exporter with a 50-year relationship with China’s aviation industry, it is disappointing that geopolitical differences continue to constrain U.S. aircraft exports,” said Boeing in its emailed statement.
Boeing’s reaction is precisely what the CCP expects, commented Chinese expert Wang He. The CCP has played the “commercial card” for a long time to contain the U.S. government’s China policy.
For example, in 1972, Nixon visited China, and US-China relations thawed. One of the CCP’s gestures to show favor to the United States was to order 10 Boeing 707s. In November 2018, Boeing delivered its 2,000th aircraft to China. According to a “New Fortune” report in March this year, from 2012 to 2020, Boeing’s sales revenue from mainland China totaled $83.7 billion, accounting for 10.74% of Boeing’s total revenue of $779 billion in the same period. In 2015, 2017, and 2018, mainland China even surpassed Europe to become Boeing’s second-largest revenue contributor outside the United States. It is not hard to imagine that for 50 years, Boeing has been one of the leading proponents of improving U.S.-China relations.
However, Boeing is just a pawn in the hands of the CCP, said Wang He. Boeing’s last passenger plane order from China was in October 2017 (including 260 aircraft of the 737 series, 40 jets of the 787 series, and 777 series). After that, the Sino-U.S. trade war started, and Boeing passenger planes failed in China.
Furthermore, after two crashes of the Boeing 737MAX model (competing with Airbus A320NEO), the CCP was the first to announce the grounding of this type of aircraft in March 2019. Now, more than a year since the 737MAX returned to service around the world, the CCP is only “close to approving the return of the 737MAX” (Boeing CFO Brian West declared in Japanese on May 11 this year). According to Bloomberg, Boeing’s largest Chinese customer, China Southern Airlines, has removed more than 100 737 MAX planes from its fleet purchase plan due to delivery uncertainty.
The CCP attempts to hurt Boeing and force it to pressure the U.S. government to change its policy toward Beijing, commented Wang He. This reminds us of an example provided in the book “Death by China: Confronting the Dragon – A Global Call to Action” by Peter Navarro and Greg Autry, when 36 American companies and groups jointly sent a letter to Congress to oppose the H.R.2378, the Currency Reform for Fair Trade Act.
#3. Take the technology of Airbus
This latest large order consolidates Airbus’ position in the Chinese market. In fact, by the end of 2020, the number of active Airbus aircraft in China accounted for 51% of the domestic civil aviation market, and China has surpassed the United States to become the largest market for Airbus in a single country.
At the end of the 20th century, Airbus’ market share in China was only 30%. How did Airbus improve its position in the Chinese market? In addition to inter-state politics, Airbus has also paid an enormous price—trading technology for the market.
For example, in October 2006, when French President Chirac visited China, China and Airbus signed a framework agreement to order 150 A320 series aircraft and a letter of intent to order 20 A350 wide-body aircraft, which became the largest aircraft order in the history of China’s civil aviation at that time. As part of the price, Airbus signed an agreement with relevant Chinese parties to jointly build an A320 series final assembly line in Tianjin, which was Airbus’s first production line outside Europe then. According to statistics, from the delivery of the first A320 in 2009 to the end of 2021, the Tianjin General Assembly Manufacturing Base has delivered a total of 555 A320 series aircraft, an average of almost 50 per year.
On June 24 this year, one week before the latest big deal, Airbus and Suzhou Industrial Park signed a framework agreement online to establish the Airbus Suzhou R&D Center.
China expert Wang He pointed out that the CCP induces Airbus to do all these to build its own “big plane” industry. In the Mao era, he wanted to build a jet airliner, launched the Y-10, and quit after ten years. In March 2007, China announced the launch of the large aircraft project. The prototype of the C919 was scheduled to fly in 2014 and be delivered to airlines in 2016. However, the CCP-related industrial foundation and technology are too poor, and the timeline has been repeatedly delayed. On May 14 this year, the first delivered C919 large aircraft made its maiden flight successfully. This makes the CCP rely heavily on the extraction of Airbus technology to support the continuous improvement of the C919.
In concluding his thorough commentary, Wang He stressed that putting aside inter-state politics, even from Airbus’s interests, it is risky to succumb to the CCP’s “technology-for-market” strategy. As John Gapper from Financial Times has once said:
“A pattern is developing. One [foreign] company cedes its intellectual property to a Chinese State Owned Enterprise (SOE), and then all of them are squeezed to the margins of China’s domestic market and face a new competitor. None of this is accidental or a case of overeager SOEs crossing the line. China wants to transform from being the factory of the world to an advanced economy and is using its market power to take a short-cut by “digesting” others’ intellectual property.” (As cited in Peter Navarro and Greg Autry’s book)
In fact, according to Airbus’ official website, as of May 2022, the A320NEO series has received more than 8,000 orders from more than 130 customers. From this point of view, the CCP’s latest big order is just the icing on the cake. However, if the CCP’s large aircraft is fully-fledged, what will be the market position of Airbus?
Conclusion and Prospect
Sun Tzu, an ancient Chinese master of military art, said, “To defeat your enemy, first offer him help so that he slackens his vigilance; to take, one must first give.” Is this precisely what the Chinese Communist Party has applied to the US, the EU, and Western corporations over the past decades?
The CCP often camouflages its wicked plots with the term “peaceful coexistence,” but how can such a dictatorial regime, which persecutes its peaceful citizens just because they have a belief or opinion different from the communists, truly coexist in peace with the rest of the world? Indeed, the cooperation with the CCP for short-term economic benefit is nothing other than “dancing with the wolves.” And the fatal result is foreseeable.
In fact, China, with a populous market and diligent labor force, could theoretically be a good trading partner of any country in the world, but the unfair and distorted policies of the CCP have destroyed it all. Opposing the CCP does not mean opposing the Chinese people; by contrast, it could provide the Chinese who live under the tyranny of the CCP the opportunity to see the sunlight.