The emergence of a new international competitor in the commercial aircraft sector: The China syndrome

This paper examines China's emerging industrial and international trade potential within the commercial aerospace sector. Decades of industrial offset agreements between Western aerospace companies and Chinese subcontractors have endowed China with the technological fundamentals required to build commercial passenger jets. These offset agreements were designed to secure sales of Western-built aircraft to China, and often involved critical streams of knowledge transfer from prime contractors to Chinese suppliers. By now, China has acquired virtually all of the technological know-how to enter the commercial aircraft market on an internationally competitive basis. The implications for Western producers are presumably not bright, as China's unit costs are extraordinarily low. Further, it is clear that China's first regional jet has been designed to lead to a replacement for the Boeing 737. Looking to the future, I contend that China will challenge Airbus and Boeing in the market for medium-to-large passenger jets by the mid-2020s.