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[IWS] RAND: THE EFFECTIVENESS OF CHINA'S INDUSTRIAL POLICIES IN COMMERCIAL AVIATION MANUFACTURING [4 April 2014]
IWS Documented News Service
Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
THE EFFECTIVENESS OF CHINA'S INDUSTRIAL POLICIES IN COMMERCIAL AVIATION MANUFACTURING [4 April 2014]
by Keith Crane, Jill E. Luoto, Scott Warren Harold, David Yang, Samuel K. Berkowitz, Xiao Wang
[full-text, 114 pages]
Since economic reforms began in 1978, China has enjoyed rapid growth in exports, which have contributed to the country's impressive economic growth. Improvements in the quality of China's workforce, manufacturing technologies, and materials have enabled the country to enter new, more technologically sophisticated industries. In several such industries, which the Chinese government has frequently denoted as strategic, the Chinese government has employed industrial policies, formal and informal, to foster the development of national champions. As part of this strategy, the Chinese government has attempted to induce the transfer of technologies from foreign manufacturers to Chinese companies. To the extent that these policies have been successful, they have accelerated shifts in production and employment from industries located in other countries to China. This report explores the emerging commercial aviation manufacturing industry in China to examine the effectiveness of the policies and mechanisms the Chinese government has used to create "national champions;" evaluate the effectiveness of the steps taken by foreign manufacturers to prevent transfers of key technologies to potential future Chinese competitors when setting up manufacturing facilities in China; provide policy options that allow foreign governments to effectively respond to Chinese industrial policies; and alert Chinese policymakers to the downsides of China's current industrial policies.
The Chinese Government Views Aviation Manufacturing as a Priority
- Designing and manufacturing passenger jets is seen as an indicator of the nation's technological prowess.
- Aviation manufacturing is also seen as driving economic growth and innovation.
Foreign Companies See Benefits to Investing in China -- Carefully
- Foreign companies benefit from interacting with China by providing support to Chinese customers, cultivating a competitive source of parts, and generating sales to Chinese airlines.
- Because of the way the agreements operate, foreign companies are careful to protect intellectual property and technologies.
- Foreign manufacturers say continued innovation is key to preventing emergence of Chinese competitors.
China's Commercial Aviation Manufacturing Industry Is Still Developing
- The planes currently in development are not likely to be competitive when finally realized. The Chinese government will then have to invest heavily in developing a new round of planes that might be more competitive.
- It is possible China will be more successful in general aviation, building smaller aircraft for private or charter use.
Foreign Competitors Struggle with Negotiating Agreements with China
- If China succeeds in penetrating the commercial aviation manufacturing market, other countries may want to consider several policy options.
- China also should consider the opportunity costs of its policies and whether to pursue more market-oriented policies.
- The U.S. government could engage in bilateral negotiations with the EU to pressure Airbus and Boeing to reduce the use of purchases of components as a marketing tool.
- The United States and EU could push for more transparent tenders for purchases of aircraft by Chinese state-owned airlines.
- They could also monitor development of Chinese technology and intervene through the World Trade Organization and bilateral forums in response to efforts to use subsidies or other supports to enter U.S. or EU markets. They could also continue to press the Chinese government in these arenas to dispense with industry-specific industrial policies.
- If China wishes to become fully integrated into the global commercial aviation manufacturing industry, China's government would be well advised to change its current policies to create a more equitable business environment for both foreign and Chinese commercial aviation manufacturers.
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