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The Effectiveness of China's Industrial Policies in Commercial Aviation Manufacturing

The Effectiveness of China's Industrial Policies in Commercial Aviation Manufacturing

Keith Crane
Jill E. Luoto
Scott Warren Harold
David Yang
Samuel K. Berkowitz
Xiao Wang
Copyright Date: 2014
Published by: RAND Corporation
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  • Book Info
    The Effectiveness of China's Industrial Policies in Commercial Aviation Manufacturing
    Book Description:

    This report assesses the effectiveness of China’s industrial policies, using China’s commercial aviation manufacturing industry as a case study. It evaluates China’s efforts to create a national champion in this industry, and analyzes foreign manufacturers’ efforts to protect key technologies when setting up production facilities there. It also offers policy options for foreign governments responding to Chinese policies.

    eISBN: 978-0-8330-8584-9
    Subjects: History, Transportation Studies, Political Science

Table of Contents

  1. Front Matter
    (pp. i-ii)
  2. Preface
    (pp. iii-iv)
  3. Table of Contents
    (pp. v-viii)
  4. Figures and Tables
    (pp. ix-x)
  5. Summary
    (pp. xi-xvi)
  6. Acknowledgments
    (pp. xvii-xviii)
  7. Abbreviations
    (pp. xix-xx)
  8. CHAPTER ONE Introduction
    (pp. 1-6)

    In the 30-odd years since the beginning of economic reforms in 1978, China’s economy has grown at a remarkable rate. In 1978, China’s gross domestic product (GDP) was just $263 billion, placing it well below European economies such as France and Italy. Today, China has the second largest economy in the world. Although a large number of changes have been made in economic policy following the introduction of reforms in 1978, an about-face in Chinese attitudes toward foreign direct investment has been one of the most momentous. Initially concentrated in export zones, China has gradually opened up its economy to...

  9. CHAPTER TWO Chinaʹs Commercial Aircraft Manufacturing Industry
    (pp. 7-22)

    This chapter provides an overview of the structure of China’s commercial aviation manufacturing industry. It then charts the development of the industry since the beginning of the People’s Republic of China. It concludes with an assessment of the industry’s strengths and weaknesses.

    In the past, China’s aircraft manufacturing industry produced aircraft almost exclusively for the Chinese military, especially the People’s Liberation Army Air Force (PLAAF). Aside from the production of smaller (often propeller-driven) planes based on modified Soviet designs, China’s role in the global commercial aviation manufacturing industry consisted of providing parts for foreign aircraft manufacturers. More recently, China has...

  10. CHAPTER THREE Chinaʹs Industrial Policy and Its Commercial Aircraft Manufacturing Industry
    (pp. 23-34)

    The Chinese government uses technological successes, such as the launch of manned spacecraft and the production of stealth jet fighters, as manifestations of the country’s rise as a great power. To date, all of China’s commercial aircraft have been imported from foreign manufacturers or produced domestically under license from foreign firms. In keeping with these measures of success, the Chinese government sees designing and manufacturing a passenger jet as an important indicator of a nation’s technological prowess. The Chinese government also sees a vibrant commercial aircraft manufacturing industry as a source of economic growth and technological spin-offs. To achieve the...

  11. CHAPTER FOUR The Role of Foreign Companies in Chinaʹs Commercial Aircraft Manufacturing Industry
    (pp. 35-44)

    In this chapter, we first describe the operations of foreign companies that have invested in the commercial aircraft manufacturing industry in China. We then investigate the reasons why those companies have invested. Finally, we review the challenges these companies face in retaining control over their intellectual property, protecting their investments, and staying competitive with domestic Chinese companies.

    Because almost all aircraft manufactured in China have been for the PLAAF, both the Chinese government and foreign companies were initially wary about foreign investment in this industry. The first joint venture in the aviation industry was set up in 1996, when Pratt...

  12. CHAPTER FIVE Performance of the Chinese and U.S. Aircraft Manufacturing Industries
    (pp. 45-54)

    In this chapter, we describe key characteristics of the Chinese and U.S. aircraft manufacturing industries. For each industry, we track changes in output, employment, and exports. We also discuss technological capabilities. We discuss manufacturers from other countries as well, especially Airbus, focusing on exports and global market shares. We conclude with a comparative assessment of the Chinese and U.S. industries.

    As shown in Table 2.3 in Chapter Two, the output of China’s civil aviation manufacturing industry rose 134 percent in 2005 dollars between 2005 and 2010, albeit with fluctuations from year to year.¹ Despite the large increase, output of the...

  13. CHAPTER SIX Net Assessment of the Effectiveness of Chinaʹs Industrial Policies for Commercial Aviation Manufacturing
    (pp. 55-70)

    As described in Chapter Three, the Chinese government is making a concerted effort to create a commercial aviation manufacturing industry that will be competitive with Airbus and Boeing. In this chapter, we evaluate the likely effectiveness of China’s industrial policies in pursuit of this goal. We first review the successes and failures of the Chinese policy of creating national champions in three other high-technology industries: high-speed trains, wind power, and automobiles. We then discuss the characteristics of commercial aviation manufacturing that may serve to protect foreign incumbents, contrasting commercial aviation with other high-technology industries where China has enjoyed more success...

  14. CHAPTER SEVEN Policy Implications
    (pp. 71-80)

    China’s government is committed to developing high-technology industries like commercial aircraft manufacturing. It uses a variety of policies to create national champions, its preferred approach to fostering the growth of these industries. When successful, these new industries have taken market share from foreign competitors in China and in the rest of the world with detrimental effects on employment and profits for those competitors. But investing in these industries, especially the commercial aviation manufacturing industry, is expensive. Overinvestment in industries like solar panels has led to large economic and commercial losses, reducing wealth and welfare in China.

    In this chapter, we...

  15. APPENDIX Domestic and Foreign Aviation Manufacturing Companies in China
    (pp. 81-84)
  16. Bibliography
    (pp. 85-92)