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Research Questions

  1. What is the Chinese market demand of commercial and general aviation aircraft?
  2. What is the Chinese government's policy and goals for its aviation industry?
  3. What investments have the Chinese made in U.S. aviation companies?
  4. What relationships exist between the Chinese government and U.S. universities in the aviation arena?
  5. What is the possible technology transfer that would support Chinese aviation industry goals and military capabilities?
  6. What is the overall effect of all these tactics on U.S. competitiveness?

This report assesses Chinese investment in U.S. aviation from 2005 to 2016. It provides context in China's demand for aviation products and aviation industrial policies, while assessing technology transfers and impact on U.S. competitiveness. Since 2005, Chinese companies have steadily increased investment in U.S. aviation by acquiring, merging, or establishing joint ventures with more than a dozen U.S. aviation companies without directly running afoul of U.S. regulation. The combination of Chinese government policy to become globally competitive in aviation and the availability of capital drives these investments, but they are constrained by U.S. government foreign investment and export laws as well as classic business concerns about return on investment. While China has unambiguous government policies supporting the development of a globally competitive aviation industry, Chinese investment in U.S. aviation over the past decade has primarily involved lower-technology general aviation manufacturers that do not affect U.S. competitiveness. Chinese demand for large commercial aircraft may be as much as one-fifth of global demand, but the duopoly nature of global aviation also creates barriers to China's goal of developing a globally competitive commercial aircraft manufacturer, as any manufacturer of a new commercial aircraft struggles to achieve efficiencies of scale.

Key Findings

Context

  • China will likely account for up to one-fifth of global demand for large commercial aircraft (LCA) and is trying to grow its currently underdeveloped domestic general aviation (GA) industry.
  • China's unambiguous policy drives a whole-of-government effort to develop a globally competitive aviation industry by producing LCA and expanding China's domestic GA market.

Investments

  • Chinese investments in U.S. aviation have grown in scope and quantity over the past decade but are limited to smaller GA companies with technologies not particularly relevant to commercial or military aircraft, likely because of effective U.S. export and foreign investment regulations.
  • Given the GA nature of most of the investments by Chinese firms to date, there are few technology-transfer concerns. The main benefits to China's industry would be on the business-process side, such as international marketing, achieving Federal Aviation Administration safety certifications, and product support.

Implications

  • U.S. competitiveness is unlikely to be threatened in the near term because production of China's LCA — the C919 — may be further delayed and operate less efficiently than current Western narrow-body aircraft on the international market. However, some experts remain concerned about the transfer of engine or avionics technology through COMAC C919 joint ventures with Western companies; others think technology transfers are unlikely given U.S. export controls.
  • A more competitive civil aviation industry broadly supports Chinese military aviation (e.g., larger talent pool, scales of efficiency, greater supply chain options). However, direct military implications are minimal because advanced commercial aviation technology differs from military aviation technologies (e.g., stealth, radar, supersonic engines).

Recommendations

  • While this study has not found any immediate concerns with Chinese investment in U.S. aviation to date, given China's aggressive aviation industrial policies, it is prudent to continue monitoring the effectiveness of U.S. export controls and foreign investment regulation.
  • For additional recommendations on addressing China's industrial policies in commercial aviation such as engaging the European Union on aerospace industrial policy norms, improving transparency of Chinese aerospace actors, and monitoring the entry of the C919 into foreign markets, see "The Effectiveness of China's Industrial Policies in Commercial Aviation Manufacturing" (Crane et al., 2014 [RAND Corporation, RR-245]).

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Aviation Markets

  • Chapter Three

    China's Government Policy for Commercial Aviation

  • Chapter Four

    Chinese Investments in U.S. Aviation

  • Chapter Five

    Assessing the Effect of Chinese Investments in U.S. Aviation

  • Chapter Six

    Conclusions

This research report was prepared for the U.S.-China Economic and Security Review Commission and conducted within the International Security and Defense Policy Center within the RAND National Security Research Division.

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