New Chinese Jet to Challenge Boeing

A new 160-seat passenger jet built by Commercial Aircraft Corp., which is majority owned by a Chinese state company, will be a big seller at this week’s Zhuahi air show, the Wall Street Journal reports. No surprise. The hundreds of orders for the plane, which competes with Boeing’s workhorse 737, will come from China’s state-run domestic airlines.

The rise of Chinese state capitalism is all over the news this week. Todays Wall Street Journal reports how the Chinese state led the effort by China to dominate the solar power industry. Business Week reports in its cover story “Be Evil” that Chinese search company, Baidu, has engaged in lots of questionable practices including, in one case,reportedly taking money from a dairy producer that sold tainted milk power in exchange for making sure the scandal didn’t pop up on its search engine. Few of the charges can be proven, but the Chinese government appears to have helped Baidu beat Google in the Chinese market by hobbling Google in a number of ways. The economist cover story is “Buying up the World: the coming wave of Chinese takeovers.” The economist discusses the many ways in which the Chinese government has backed efforts by its national companies to buy up natural resources and technology around the world.

The economist argues that the West should let China buy up whatever it wants. The argument is that as Chinese buy more companies around the world, their interests will be more aligned with those of the rest of the world. Yet, the economist admits that these Chinese companies are more often driven by the desire to create jobs at home than to increase profits. That creates a potential zero-sum game in which jobs are quickly tranferred to China.

At a minimum, the power of the Chinese state and its tendency to heavily interfere in the marketplace reveals the vulnerability of companies like Boeing that rely on a kind of barter system, offering technology and jobs to countries like China that promise to buy its jets. The policy may help create buyers in the short term. In the longterm it creates strong competitors. Hopefully, Boeing has learned its lesson and will try to keep in-house the hard-earned lessons it is learning as it builds a new generation of composite jets.