Reaching for the skies

In 1916 a 35 year-old Yale alumnus named Bill Boeing decided to quit the timber industry and start building aircraft. Rather than picking an American or European as his chief engineer, Boeing opted for a man named Wong Tsu, who had recently graduated from MIT.

Wong, who was from Beijing, would go on to design the Model C seaplane, the aircraft that delivered the first cross-border airmail into the US (from Canada). It was Boeing’s breakthrough plane, a hit not just with the post office but also with the military.

“Without Wong Tsu’s efforts, especially with the Model C, the company might not have survived the early years to become the dominant world aircraft manufacturer,” writes James Fallows in his new book China Airborne.

Fallows is a writer with The Atlantic magazine. But he also has a pilot’s licence and he opens his book with a personal anecdote that speaks volumes about how fast China’s aviation market is developing.

The author is co-piloting a Cirrus SR22, a small propeller aircraft. Fallow’s co-pilot is a salesman for Cirrus – it’s his job to sell these $500,000 planes to newly-rich Chinese – and the plan is to fly one from Changsha to an air show in Zhuhai.

There’s just one small problem: a lack of fuel.

The Avgas that the Cirrus requires – commonplace in US airports – is not readily available at the airstrip in Changsha. For a whole day the two men wait, assured that supply is “on its way”. When nothing materialises, they return to their hotel for the night.

The next day the two get to the airstrip early. But still there’s no fuel. By late afternoon, the light is fading fast. Finally, a delivery truck rolls up but their excitement dwindles when they are told how the Avgas was secured: it was drained earlier in the day from the tanks of an abandoned Soviet training aircraft. A 10 foot hose is then produced and a member of the ground crew tempts out the fuel by sucking furiously on it. After about an hour – resulting in black teeth and gums for the man at the end of the pipe – they have enough Avgas to take-off.

They eventually make it to Zhuhai – after an eventful journey in which worries about the fuel’s quality feature heavily. But perhaps more startling is the epilogue to the author’s anecdote. A mere five years after Fallows watched the SR22 refuelled by a fairly primitive combination of Chinese lung-power and a hose, he reads the news that a subsidiary of AVIC, China’s main state-run aviation corporation, has bought Cirrus. Likewise in 2011 another AVIC subsidiary acquires the company that made the SR22’s engines.

For Fallows this symbolises China’s efforts to leapfrog its way up the aviation industry ladder. Not long before these deals were struck, AVIC also made plain its plan to build larger passenger jets and eventually compete with Boeing and Airbus (see WiC31).

This is the theme of Fallows’ book: the revolution in China’s aviation industry. “In aerospace as in so many areas, China was starting out far behind the United States and many other developed powers – but planned to catch up fast,” he writes.

Commercial aviation is expanding rapidly in China. Twice as many passengers flew on flights in 2006 as in 2001, and twice as many again were flying by 2011. But the country’s commercial fleet still only numbered about 2,600 aircraft as of 2010, about half as many as the United States for a population four times as large.

The target: 4,500 airplanes by 2015, “a rate of purchase that would represent about half of the new aircraft sold anywhere in the world,” Fallows’ dizzyingly estimates.

Almost as soon as the author landed in Beijing in 2006, he became fascinated with this rapid reach for the sky. “China seemed to be a country made for travel by air,” he muses. “It is characterised by vast distances; widely separated population centres; mountains and gorges and other barriers separating the cities and making land travel slow.”

Fallows soon meets fellow enthusiasts desperate to tell him about the business potential for the sector. “The market here will be enormous,” booms one local entrepreneur, who is keen to build a small airport for private planes.

“Now that they [the government] have got Cirrus, I think you will see very good support for general aviation in China,” the businessman adds. Fallows is then told that there are more than 220,000 light aircraft in the US, versus only a “few” in China. (Dassault, the French jet firm, reckons there are 11,000 business jets in the US, versus a few hundred in China.)

That wasn’t the only opportunity. Fallows also recounts a dinner arranged by Xu Changdong, a tycoon who controls vast coal reserves in Inner Mongolia. His plan was to build helicopters. “You can’t imagine how big this is going to be,” Xu tells the author. “People have the money. They have the technology. The airspace is opening.”

What else does the aerospace industry tell us about China? Quite a lot reckons Fallows.“The more time I spent in China, the more I thought that this aspect of its industrial ambition is a test case for Chinese modernisation,” he writes. “If the Chinese could conquer this sector, it was a sign that the economy was capable of making the leap from low cost manufacturing to the very top of the value chain.”

A US aviation expert shares this assessment: “This industry is a perfect test case of economic maturity in general, since there’s no shortcut to success.”

What about the obstacles to future growth? For a start Fallows says China will have to adopt better intellectual property protection if it wants to move from assembling aircraft to designing them.

He does point to notable progress in other areas. In the nineties China’s airlines had woeful safety procedures, leading to crashes (five occurred in a four month span in 1992). Over the past decade safety standards have been overhauled (much credit here, he says, goes to a low-key training programme paid for and arranged by Boeing).

But possibly the single biggest impediment to the local aviation industry’s future success is the military, which still “owns” most of China’s airspace. This control of routes leads to massive waste and inefficiency. Because they cannot take the most direct routes to their destinations (or find themselves forced to fly at lower altitudes than in other jurisdictions) China’s airlines burn twice as much fuel per passenger mile as their counterparts in Europe or North America.

For passengers that means a much greater likelihood of delay at airports around the country too. The author recalls a single example from an afternoon in December 2006, when every flight out of Shanghai’s Pudong International Airport was cancelled without warning. Flights heading into Shanghai were also rerouted elsewhere. Why? The Central Military Commission had ordered the airport closed for several hours.

Fallows notes the military has agreed to three experimental aviation zones in which the rules are being reviewed. Helicopters look like being an early beneficiary.

There is also metaphor in the military’s stranglehold. China might be buying a huge share of the world’s new aircraft or building gleaming new airports in many of its major cities. But the state still looms large behind the scenes, with the military still hogging the skies.

Fallows doesn’t give his own verdict on whether China will succeed in developing an aerospace sector to rival that of the US. Perhaps that’s because his time there has dented his confidence in making judgements about the country. He says that soon after he arrived he met a foreign businessman who confessed: “Each month I’m here, I know half as much as I did the month before.”

Fallows said at first he thought the businessman was being “arch”. But a few years later he began to grasp what the man had meant. With China “it’s not that your store of knowledge keeps going down; it’s that your awareness of what you don’t know – and won’t ever know – keeps going up, and at a faster rate.”

---

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.