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China takes flight

China's rise in aviation is a threat and an opportunity for Wichita business

XIAN, China -- The vacant land and centuries-old farmsteads outside this historic city look nothing like the model community displayed outside Jin Qiansheng's office.

Give it time.

In five years, the Xi'an Yanliang National Aviation Hi-Tech Industrial Base could employ 50,000 aviation workers handling everything from design and flight testing to final assembly. In 20 years, it could employ 500,000 workers.

Jin hopes the new facilities and a low-cost work force will lure foreign companies.

"We would love to work with and learn from a company like Boeing or Cessna," said Jin, deputy director of the base's administrative committee.

The country that makes 40 percent of the world's cell phones, two-thirds of its shoes and nearly all of its toys intends to buy -- and make -- more planes. That offers growing opportunity, and threat, for Wichita.

With new prosperity boosting sales of jetliners and developing a demand for business jets, China is becoming the world's fastest-growing aircraft market.

With the world's largest work force and wages that are pennies to an American dollar, it also is becoming a more attractive place for aviation companies to locate jobs.

Western companies are pledging to increase jobs in China, in part because they hope that will encourage the Chinese to buy their airplanes.

Boeing, which in the past quarter-century has spent $550 million on Chinese-made parts, plans to spend another $750 million in the next five years.

Airbus plans to award 5 percent of the work on its new A-350 to Chinese companies.

Bombardier plans to consider China as a job destination. Wichita's other manufacturers, Cessna and Raytheon, could eventually feel pressure to do the same.

"We are prepared to manufacture in China if it makes good business sense for us to do so," said Mark Paolucci, a Cessna sales vice president.

Aviation development faces some stumbling blocks in China.

The airplane market, which is sizable for large jets but still tiny for small ones, could grow more slowly than expected.

Manufacturing growth, which has made great strides in low-tech industries but less impact in high-tech industries like aviation, could still stall over civil unrest or backlash from other countries determined to stem their loss of manufacturing jobs to China. Still, Jin's field outside Xian, known as China's air capital with 130,000 aerospace workers, represents a Chinese bid for a prominent place in a globalizing aviation industry.

"We have a huge market that can attract business from the U.S. and Europe," he said, speaking through a translator. "The thing we most need to do at the moment is build."

Globalization: Boon...

Globalization promises prosperity to all. The logic is simple: When goods are produced where costs are lowest, they become easier to buy. Standards of living rise, creating new markets for those products from all over the world.

China is one of globalization's greatest successes. The average Chinese worker is four times more prosperous than in 1978, when the country opened to outside trade and investment.

And wealthier Chinese, led by a growing class of business leaders, are ready to fly.

Right now, China flies about one in every 18 of the world's passenger jets. In two decades, it will fly one in every 11. That growth makes China crucial to Boeing's future.

"With its demand for aviation and aviation services over the next 20 years, China will emerge as the most important market in the world," said Wade Cornelius, Boeingvice president for business development and global strategy.

Boeing predicts that China's jetliner fleet will more than triple, from about 900 today to more than 3,200 in 20 years. In that time, Boeing expects China to buy $213 billion worth of passenger aircraft, a market it will largely split with Airbus. China still would trail North America, which with $585 billion of projected sales would remain the world's largest aviation market.

China's demand is already boosting orders. One of every four 787 orders this year has come from a Chinese airline, and in November China announced its intention to acquire 70 more Boeing 737s. Wichitans work on both Boeing jets.

China's growth as a marketplace for general aviation and business aircraft could be even more dramatic, although America's market will still far exceed it. In the past, growth has been limited by government regulation and the lack of aviation infrastructure.

The United States has more than 200,000 privately owned small aircraft. China has about 100; about 20 of those are business jets. In 10 years, China is expected to have 600 business jets, according to its state-run news service.

Jason Liao, head of Raytheon's Beijing sales office, predicts blossoming demand for Wichita's business jets and general aviation aircraft in a market where no demand existed before.

"The challenge sometimes is showing someone how much a business jet can improve their productivity," said Liao, a China native and former Wichita engineer.

"People seem receptive to our message," he said.

... Or bust?

China's development, nearly everyone agrees, will fuel plane sales over the next generation.

But China doesn't just want to buy planes. It wants to make them, too. That's where, for Wichita workers, opportunity courts concern.

"The bitter pill to swallow is that you have to give something to get something," said Allen Bell, economic development director for the city of Wichita.

Boeing has only about 100 employees in China now. The company has done much more to train pilots and build infrastructure that will allow China to fly Boeing jets than it has done to create the factories that would build them.

But Boeing has cultivated fruitful relationships with Chinese companies for decades.

In Xiamen, workers do modifications on 747s that are similar to work done in Wichita until 2002.

In Xian, Boeing suppliers work on 737 vertical fins and 747 trailing edge ribs, as well as 747 floor beams. In Shenyang, suppliers create 737 tail section modules, and in Shanghai they manufacture 737 horizontal stabilizers.

On the 787, Chinese companies will work on the rudder, wing-to-body fairing panels and the leading edge for the vertical fin.

China's ability to take over American projects has been limited by lower quality standards and less-sophisticated technology. That's slowly improving, largely through joint ventures with Western companies.

For example, Taikoo Aircraft Engineering Co. in Xiamen, where the 747 modification work is taking place, is a partnership between private Hong Kong and Japanese shareholders, Boeing and state-owned Chinese companies. It's an exception to the state-owned rule of Chinese aerospace.

So far, Wichita's general aviation companies have stayed away from manufacturing in China, although Bombardier archrival Embraer, based in Brazil, assembles regional jets in Harbin in northeast China.

China isn't ready yet to do higher-level aircraft work at international standards, said David Dixon, Bombardier's Asia-Pacific regional sales vice president.

"If the technology isn't there, you're spending more" to build an aircraft, even if labor is cheaper, he said.

The role of wages

Jin Qiansheng agreed that China has far to go before it becomes a full-fledged competitor for Wichita jobs. Low labor cost is China's great strength, he said. A typical blue-collar worker in Xian aviation makes about 80 cents an hour, according to the industrial base's documents. That compares to at least $25 an hour in Wichita. Neither estimate includes benefits or taxes.

But worker productivity is much lower in China, wiping out some of those savings.

"Many of our manufacturing procedures are not standard," Jin said. "We could have an energy shortage. Our record keeping is not as good. We need to learn more about management."

The country also faces other struggles, both internal and external.

Two weeks ago, police in southern China fired on demonstrators protesting the taking of their land to build a power plant. The government said three protesters were killed. Villagers put the toll as high as 20.

Environmental damage is a growing concern. Embraer had to shut down its Harbin plant for three days in November, as a toxic chemical spill polluted the river that runs through the city.

And the world is at times wary of China, suspecting it of manipulating its currency to make imports artificially cheaper, exploiting its work force and stealing technology.

But none of that dims the vision Jin sees in the model of Xian's industrial base outside his office.

Five years, 50,000 skilled low-wage workers. Doors wide open to foreign investment, and a willingness to do what it takes to get it.

The open field is a Chinese dream, but it could help make fears of American workers real. What it ultimately becomes is a key question for global aviation and for Wichita's prosperity.

"I've heard of Wichita's companies," Jin said. "I think I should visit."

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