As the GDP growth in China begins to decrease, the Chinese air travel market is expanding rapidly. Chinese have increased their use of air travel by over 700% since 2000, and China is predicted to overtake the U.S. as the world’s largest aviation market by 2033. Many of the aircraft manufactures are struggling to keep up with demand, as Chinese airlines begin to make up an increasingly larger proportion of the companies orders. Last year a quarter of the 500 737s Boeing manufactured went to Chinese airlines. Of the 44 aircraft Boeing delivered to customers in January 2017, 9 of those aircraft were Boeing 737s commissioned by Chinese Airlines or companies. To keep up with China’s increasing demand for aircraft and reduce transportation and, potentially, labor costs Aircraft manufacturers have begun opening and constructing plants in China. In 2009, the France-based Aircraft manufacturer, Airbus, opened up an assembly plant in Tianjin for A320s, their most popular commercial aircraft, and construction is already underway for a second plant near the first to manufacture A330s with local parts and labor.
The American based aircraft manufacturer, Boeing, has been slow to open up shop in
China. Boeing essentially has a monopoly in the U.S. Commercial aircraft market and prides itself on being strictly U.S. based. This has some investors worried as Airbus may begin to overtake Boeing in the Chinese market. However, in late 2015 Boeing signed a cooperation document with the Commercial Aircraft Corporation of China (Comac) to open a jointly owned completion center in China where unfinished 737s destine for China would be painted and have their cabins fitted. With President Trump’s recent election and his general push for decreased outsourcing and increase domestic jobs, Boeing has taken some heat with concerns of American lost jobs. However, Boeing has assured the public that their decision to open up the completion center in China will not take away any U.S. jobs. In fact, Boeing claims that opening the completion center will create more U.S. jobs as U.S. assembly plants can allocate more of their resources towards increased production and assembly to meet the growing demand in China. Trump’s recognition of Taiwan as an official country also stirs concern in Boeing as future trade relations with China could change due to this political statement. Trepidations also arise as investors propose the possibility of Comac stealing Boeing designs and technology. Comac is currently working on a design similar to the Boeing 737 and Airbus A320, hoping to rival the foreign duopoly.
It will be interesting to observe the competitive landscape within the Chinese air travel market as more assembly plants and completion centers open in China and Chinese aircraft manufactures begin production.
Sources:
- http://money.cnn.com/2016/12/09/news/companies/trump-boeing-china/index.html?iid=EL
- https://airwaysmag.com/industry/boeing-vs-airbus-in-2016/
- http://www.boeing.com/commercial/#/orders-deliveries
- http://data.worldbank.org/indicator/IS.AIR.PSGR?locations=CN
- https://seekingalpha.com/article/4045083-boeing-moves-jobs-china
- http://money.cnn.com/2017/01/25/news/companies/boeing-backs-china-plans-as-trump-friendly/
- https://www.oag.com/pressroom/chinese-marketshare
- https://airwaysmag.com/industry/boeing-vs-airbus-in-2016/
- http://www.businessinsider.com/airbus-china-factory-a320-2015-8/#with-over-1150-airbus-planes-operating-in-china-it-only-made-sense-for-the-french-aerospace-conglomerate-to-have-a-presence-in-the-country-1http://www.euronews.com/2016/03/02/airbus-bets-big-on-china-with-new-factory
It is interesting to see this airline growth and goes in concert to other growth trends we have seen in China throughout the course of the semester; specifically, growth associated with the burgeoning middle class. As I highlighted in a blog post a couple weeks ago, Boeing recently announced plans to open a finishing plant in China. As others have commented, it will be interesting to see how China’s historical national control of the airline industry will affect this continued growth and investment in Chinese airlines.
Bullet trains are actually priced higher than air fare in China for some locations. The Chinese military controls around 70-80% of airspace, hence the constant delays in flights in China. Bullet trains are not subjective to the same delay problems. Regardless, airline industry is still expanding rapidly in China.
Clearly the need for more planes indicates growing demand for air travel, but I am curious to see just what that looks like. Are members of the middle class traveling for leisure? Is demand more driven by business needs?
That’s a great thought. In addition I would wonder how much of the increased air travel is intranational and how much is international; are business people simply flying between US cities in much the same way executives commute from Boston to New York? Or is the demand mainly driven by international business travel needs?
Similarly, I would like to know where people are going. Is this international travel that is booming? Or are people traveling within China itself? The former would be expected as international trade and business grows in China. The latter might indicate a middle class well off enough to travel for business or even go on vacation to visit family.
Chinese transit in general is on the upswing. Ghost Cities mentions that over half the cars manufactured today go to China, and I would assume, based on the data you cite, that a similar statistic might not be far behind for air travel. The question, of course, is what opening a plant in China would mean. Would Boeing’s shift out of the US be more of an indicator of weakness in the American market, or of strength in the Chinese market?
Are there any major up and coming Chinese aircraft companies? I know that a pivot towards exactly this sort of high value added, domestic driven production is part of Beijing’s economic plan, so perhaps the development of a domestic aircraft production sector is not far off.
Commercial Aircraft Corporation of China (COMAC) is a state-owned company that produces aircrafts. While they are a fairly new company, it seems as if they are becoming a prominent player in the aerospace industry. I would assume this is because of the significant investment directly from the government, which we don’t see in the United States.
In Peter’s prior post about Boeing, I observed the possibility that Chinese manufacturers/workers could take proprietary aircraft construction plans from Boeing manufacturers and potentially retain that information for the Chinese market. However, it appears the more noteworthy news is how large American transit companies are expanding into China; Ford made a similar move, with plans to produce an all-new SUV in China for Chinese customers by the end of 2019. This is a heads-u[ move, as Ford Lincoln is already doing quite well in China.