China’s aviation industry has a steep climb to ‘Made in China 2025’ goals

  • This is the final instalment of a series on China’s plan to move its industries up the value chain to reduce reliance on foreign technology
  • China wants its commercial aircraft to supply 10 per cent of the domestic market and its jetliners to account for up to 20 per cent of the global market by 2025
PUBLISHED : Monday, 29 October, 2018, 11:01pm
UPDATED : Thursday, 01 November, 2018, 12:10pm

When the C919, China’s indigenous long-haul airliner, successfully completed its maiden flight in May 2017, officials were quick to announce that the country was edging closer to clinching the “crown jewels” of the modern manufacturing industry: aircraft.

The one-hour-20-minute flight may only have taken five crew members about 200km from Shanghai and back, but it also carried the huge weight of a nation’s ambition to be a major player in the global aviation industry.

China’s aviation market is expected to overtake the US as the world’s largest by 2022, and the country is estimated to need over 7,000 planes in the next 20 years. Being able to make its own would not only help disentangle Beijing from the political complications of having to deal with the global manufacturing duopoly of Boeing and Airbus, but would also be a statement that it had the technological prowess to match its economic might.

“Building an aircraft brings together all the major disciplines in engineering. I think that’s why it’s so important to China. It’s the top of the mountain as far as complexity. That’s why it’s so strategic,” said Kevin Michaels, managing director of AeroDynamic Advisory, an aerospace and aviation consultancy.

“China is playing the long game, it’s not about the 2020s. China is looking at the next 20, 30 or 40 years.”

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That ambition explains why the aviation industry was listed as one the key 10 areas of focus in the “Made in China 2025” (MIC2025) industrial plan, unveiled in 2015 with the aim of lifting the country’s industries up the value chain, replacing imports with local products and building global champions capable of taking on Western giants in global markets.

Under the plan, China expects home-made commercial aircraft to supply more than 10 per cent of the domestic market by 2025, while regional jetliners should take a share of about 10 to 20 per cent of the global market by 2025. It also aims for global market shares of 40 per cent and 15 per cent respectively for general-purpose planes and helicopters.

China’s aviation dream has been long-held and has taken a number of forms over the years.

One was the entirely domestically made Shanghai Y-10 airliner of the 1970s that was based on Boeing designs, but which was cancelled in the early 1980s after being deemed commercially unviable. Later in the decade came a short-lived partnership with McDonnell Douglas to assemble the MD-82 jetliner in China.

This was followed by the ARJ21, a 90-seat jet partially based on the McDonnell Douglas MD-80 that began as a project in 2002 but which did not fly commercially until 2016. Built by the state-owned Commercial Aircraft Corporation of China (Comac), six are now in service with domestic airlines.

The dream’s latest incarnation, Comac’s C919 programme, was launched in 2008. But while the plane represents a huge step forward for China’s aviation industry, and has received over 800 orders and options to buy as of June this year, the fact that it is not expected to enter operation until at least 2021 and that only 50 per cent of the components are domestically produced puts it some distance away from the goals of the MIC2025 plan.

Among the obstacles the country faces in becoming an aviation power are its lack of expertise in avionics, materials technology and aerodynamics, and most crucially, engines. Experts have estimated that China’s jet engine technology is about 20-to-30 years behind its competitors.

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The C919 currently runs on engines from CFM International, a joint venture between GE Aviation of the US and France’s Safran Aircraft Engines.

To make the switch to a domestic engine, Beijing invested 100 billion yuan (US$14.4 billion) in 2016 under the MIC2025 plan to establish Aero Engine Corporation of China (AECC), which will build the CJ-1000A turbofan jet engine to power the C919.

So far, however, progress has been slow, with one major difficulty being finding the right staff. AECC president Feng Jinzhang has pointed out the lack of critical thinking, precision and team working spirit among applicants for engineering jobs as hurdles to building an advanced manufacturing industry.

The design of an engine needs absolute mathematical accuracy and engineers should have strong desire to pursue perfection, according to Feng.

Building an aircraft brings together all the major disciplines in engineering. I think that’s why it’s so important to China. It’s the top of the mountain as far as complexity
Kevin Michaels, AeroDynamic Advisory

“The spirit of independent thinking, asking for the ultimate, along with the spirit for pursuing perfection are all extremely lacking,” Feng said in an interview with the state-owned Science and Technology Daily last year.

Efforts to acquire technology have also met with little success.

CFM International, for one, is not parting with its know-how. In 2013, it ruled out a joint venture with the state-owned Avic Commercial Aircraft Engines (ACAE) and halted plans for an assembly line in China for the engine, in part due to concerns over intellectual property, analysts said. ACAE is controlled by Aviation Industry Corporation of China (Avic).

Two engineers with Avic subsidiaries, who spoke on condition of anonymity because they are not authorised to speak publicly, said they had little direct access to the specifications of foreign aircraft components when they tried reverse engineering.

“Even if we offer to pay a lot more [for the specs], they wouldn’t sell it to us,” said one of the engineers.

In fact, China has spent less than US$1 billion on 12 aviation-related acquisitions in the US over the decade up to 2017, according to estimates by the US think-tank Rand Corporation.

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Rand said the deals were for smaller companies with technologies “not particularly relevant to commercial or military aircraft, likely because of US export and foreign investment regulations”.

Comac has 16 joint ventures with foreign firms, including GE Aviation, Honeywell, Parker Aerospace and Liebherr, and is also building a larger twin-aisle plane, the C929, with a Russian company. While these help improve its technological skills, they also highlight its reliance on overseas technology.

Comac did not reply to requests for comment.

At home, the company also has to face strict scrutiny of locally produced parts for the C919 by the regulator, the Civil Aviation Administration of China (CAAC). Certain parts were tested rigorously, but failed to meet CAAC’s standards, according to an engineer who works on the C919.

“They [CAAC] would rather choose those made by foreign firms over our own,” said the engineer who declined to be identified or to be more specific, as the matter is sensitive.

Meanwhile, a broader political cloud also hangs over the MIC2025 plan as a whole in the form of a new-found US hostility to it.

The administration of President Donald Trump has seized on the plan as an example of what it calls unfair government interference in China’s economy, to the detriment of US exporters, and as a direct challenge to its technological might.

It has used the plan as justification for the tariff war it unleashed on Chinese products earlier this year, a move that has spooked countries and companies around the world.

While some aircraft parts have been subject to tariffs, it is unclear whether the broader political tensions from the tariff war would spill over, analysts said.

However, given that Comac is yet to apply for certification for the C919 from the US Federal Aviation Administration, without which it cannot access the US market, and given that many companies in the US and elsewhere are involved in the plane’s development, analysts said it did not represent a threat to the US’ leading position in the industry.

In addition, there is flourishing cooperation between Boeing and Airbus and China. Airbus plans an innovation centre in the southern city of Shenzhen and already operates a final assembly line in Tianjin, which produces A320 single-aisle jets, as well as a completion and delivery centre in the city. Boeing, meanwhile, is building a completion facility for its 737 model in the eastern city of Zhoushan, set for opening early next year.

“Every plane we build has parts and assemblies from China, so we continue to emphasise that relationship,” Boeing’s vice-president of marketing, Randy Tinseth, said in an interview last week with the South China Morning Post in Jeju, South Korea. “It’s a real win-win.”

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China also lacks one of the US’ key advantages in developing world-leading technologies. In the US, a government policy of supporting research and development in crucial areas, while at the same time allowing private companies to commercialise the resulting technologies, has created world’s strongest research and development system. This has greatly benefited many companies, including Boeing.

In China by contrast, the government’s pursuit of quick results has not been good for research and development where the uninterrupted accumulation of knowledge is necessary for success.

If Made in China 2025 pushes the technological frontier it should open up the market for private involvement
Blaine Curcio, Orbital Gateway Consulting

Coupled with sensitivities over security and defence, the approach has hindered innovation in the aerospace and aviation sector, which remain dominated by state-owned firms. The private sector has been limited to a supporting role rather than driving innovation.

There are signs of a shift in this attitude. More private firms have been allowed to invest in aviation projects such as airports and maintenance, although the state still retains control of most of the sector.

However it is in aerospace, also included in the MIC2025 plan, where this shift has been more pronounced, with start-ups backed by venture capitalists increasingly entering the satellite and rocket launch industry because technological innovation has brought costs down.

The country’s first private launch attempt, however, ended in failure on Saturday, when start-up Landspace Tech’s ZQ-1 rocket failed to reach orbit.

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Lan Tianyi, a former engineer at the state space agency China Academy of Space Technology, who is now a consultant, said he believed the success of Tesla boss Elon Musk’s Space Exploration Technologies Corp, or SpaceX, showed Beijing a way to build and capitalise on its technologies and offer commercially viable solutions that appeal to a broad spectrum of customers to create new markets.

Among the targets for the aerospace sector under MIC2025, China aims for a space transport architecture with “high efficiency, safety and adaptability”, and a national civil space infrastructure with interplanetary exploration abilities. At least 80 per cent of software for space applications should be home-made.

Allowing a greater role for the private sector could help China in the quest to narrow the gap with competitors.

“If ‘Made in China 2025’ pushes the technological frontier it should open up the market for private involvement,” said Blaine Curcio, founder of space and satellite telecommunications consultancy Orbital Gateway Consulting.

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“I can’t imagine a Chinese version of Elon Musk, saying ‘look at how terrible these guys are, I am gonna beat them at their own game’. In China, the private companies that are innovating are doing so in a way that is not in competition with state-owned companies.

“It’s another dimension [of innovation] that exists in China.”

With reporting by Danny Lee in Jeju, South Korea

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