Boeing made news headlines last week with the announcement that they will be breaking ground on a new plane finishing facility by the end of March. The facility, which
will focus on the final assembly of the 737, will be in Zhoushan. Included in the final assembly work will the be installation of seats, entertainment systems and other interior finishes. According to MarketWatch, the plant will eventually employ over 2,000 workers and finish roughly 100 planes per year.
This announcement comes at an interesting time geopolitically. US President Donald Trump has been outspoken in his views towards China in terms of trade and foreign exchange. Despite his strong opinions towards the country, he has been silent on the Boeing announcement. Given that Boeing is the nation’s largest exporter and also employs the most engineers in the US, this announcement paired with Boeing’s continued shift towards automated work hits against two of President Trump campaign points : to promote job growth and keep production domestic. In a February speech at the Boeing plant in North Charleston, SC, Trump emphasized his intent on keeping jobs at home. He claimed that he would change trade deals a
nd tax structures to keep American jobs. Despite these promises, Boeing CEO Dennis Muilenburg announced they would break ground on the Chinese factory.
A catalyst for the creation of the plant is China’s emergence as the worlds fastest growing market for airplanes. China is expected to pass the United States in aviation demand by 2024. According to the Economic Times, “The plant is being set up amid forecast by Boeing that China will need 6,810 new aircraft in the next 20 years at an estimated cost of USD 1 trillion.” The factory will create a massive revenue source for Boeing. In addition to meeting Chinese demand, Boeing built the factory to catch up to rival Airbus, which also recently built a factory in China. This is an interested case of a massive American company, and large contributor to trade taking production oversees. It will be interesting to see if other American companies follow suit as the Chinese economy continues to grow, and their burgeoning middle class continues to increase demand for goods and services.
Thinking about the growth of Chinese aviation demand, we might be able to draw parallels with what we have read in Hessler. The growth in the Chinese auto industry changed how people moved around the country, and changed tourism in country villages like Sancha. How then, might plane travel effect both flows of trade and human travel?
China is quite new to this space; its first domestically-produced passenger aircraft was commissioned last year. However, the demand for aircraft services in China is ascending. Keeping that in mind, I’m intrigued by the dialogue regarding the possibility of Chinese manufacturers/workers taking proprietary aircraft construction plans from Boeing manufacturers and potentially retaining that information for the Chinese market. However, I would assume that Boeing is aware of this possibility and thus that information is likely secured seal tight.
This is an interesting parallel but I think that it will have a different impact on China than the advent on motor vehicles. Specifically, I think that it will improve intra-urban travel more than anything.
I agree with Alden. The emergence of the Auto industry improved trade and surely had a major impact on rural-urban migration. Its important to acknowledge the barrier of entry for those wishing to take advantage of the air craft, however. While it will be lowered slightly, by some increase in aircraft production, cost of manufacturing a plane is much greater than manufacturing a truck or bus per se. So relative cost may play a factor in the real short term benefits of Boeings move in China.
Although replicating Boeing’s success in the United States will prove to be difficult in China, the growing demand in China cannot be ignored. The market has grown to a bigger size than the United States and would be a huge opportunity missed for Boeing to manufacture planes in not only a bigger market but also using cheaper resources. Perhaps the super rich of China want to invest in this? This is not an investment an average investor can make so someone might have noticed this trend and wanted Boeing to come to China. I am just speculating at this point but it would not be surprising if this were the case.
I wonder what caused the move to China. Considering Trump’s rollback on a lot of campaign promises, I wonder if Boeing felt he would not deliver on his trade promises, as well. That there has been no political chatter about this deserves attention because, as you mention, one of the key aspects of Trump’s campaign was his rhetoric about keeping jobs on American soil. It will be interesting to see how Boeing goes about producing these planes. Will they use the Lishui model? Or will they simply use the same model which has brought them success in America to manufacture in China?
I personally think Boeing’s move is purely one that any typical multinational company would make. Regardless of Trump’s rhetoric, I think that there is very little to prevent these multinational companies from producing a portion of their goods in lower cost markets. As Peter mentioned in his post, China’s demand for aircrafts has surpassed that of the United States — despite increasing labor costs, this new factory allows Boeing to penetrate an increasingly competitive market, where we’ve seen Chinese manufacturers make their mark (i.e. Comac).
Trump’s trade rhetoric is all talk. While his proposed policies would ratchet up trade conflicts, I believe there is very little that anyone could do to stop all the momentum that world trade has built up over the past 60-70 years.
I think that with a massive company like Boeing, that need to find growth wherever they can find it. I think that this move wasn’t necessarily geopolitical, but rather a play on the massive consumer base in China.
This is certainly an important development in the modern geopolitical landscape. Not only will China’s demand for airplanes continue to grow, but for just about everything else. As high-tech and service industries continue to grow, the Chinese upper middle class is expected to constitute 54% of the population in 2022. Additionally, consumption is expected to grow at a rate of 9%/year until 2020. While China begins to outsource low-cost labor to Africa, and their high-paying manufacturing and service industries continue to expand, the Chinese will soon begin to demand much more than airplanes.
http://www.businessinsider.com/chinas-middle-class-is-exploding-2016-8
I think this is more a Boeing strategic move than the ‘our jobs are going overseas’ scenario that has become common in American politics. Professor Kester talks a lot about the airline industry in Asian in his finance classes. He’s advised a number of airlines there and uses the industry numbers as examples in class often. The airline industry is growing explosively in China, Singapore, Japan, and elsewhere. It seems like Boeing is trying to keep up with this growth to maximize profits.
I totally agree, but I think the timing, given the current geopolitical climate, is at least interesting. Given the huge markets in the Asian continent, this is a strategic move for Boeing and one which could result in great growth for the company going forward.
It interests me to see how these big aviation moves into China from foreign companies. The Chinese military actually controls somewhere around 80-90% of the airspace, and I remember one summer in my childhood, air flights were delayed for an entire month as the Chinese air force was performing drills as celebration for a military anniversary. Because of these constant air delays, even today, that is why bullet trains are actually priced more expensively than airline tickets in China. Also in the news today, China just released C919 in hopes of a passenger jet that seeks to challenge the dominance of Airbus and Boeing. Also, American airlines is considering taking a stake in China Southern airlines, boosting routes between the world’s two largest travel markets.
That’s really interesting about the bullet trains. Given that Boeing is merely the producer of these planes not an actual airline, I wonder how much exposure they would have to the risk of restricted airspace.
How does this sort of production relate to automobile and consumer goods manufacturing? It seems like this is being branded as Boeing’s decision, but that the Chinese government’s strong interest in developing a competitive high value added manufacturing sector must have resulted in their offering the company some strong incentives to establish this factory.
I think that this very well might be the case. I would assume there “behind close doors” incentives that makes this a no brainer for Boeing.
With the tremendous expense involved in the production of aircraft, it only makes sense to locate some manufacturing facilities in China proper if Boeing intends to compete with Airbus in that market.
While it may seem odd that Trump has not lambasted this plan yet, one has to remember that much of his vitriol about lost manufacturing jobs comes as a result of situations like the Carrier move to Mexico, where existing US manufacturing employees were laid off. In this instance, there may be “unseen” lost potential American jobs, but there are no “seen” factory workers being fired and replaced with Chinese labor. Whether this distinction actually matters in policy terms is likely dubious, but for the purposes of Trump’s narrative and rhetoric this is likely the explanation for his hushed lips, along of course with a desire not to alienate one of America’s most popular and profitable companies.