Will the China Cycle Come for Airbus and Boeing?

Noah Smith, author of the economics Substack Noahpinion, often refers to a common trajectory in Chinese manufacturing as the “China Cycle”¹:

1. A multinational company puts its factories in China, lured by some combination of cheap production, big contracts, and the dream of huge market opportunities.

2. China appropriates the multinational company’s technology, through some combination of joint ventures, acquisitions, reverse engineering, and espionage.

3. The appropriated technology makes its way into the hands of Chinese domestic companies.

4. The Chinese companies squeeze the multinational company out of the Chinese market.

5. The Chinese companies go overseas and outcompete the multinational company in world markets.

High-speed rail and wind turbines are two industries that have gone through at least steps one through four of this cycle. The first high-speed rail trains in China were designed by several different foreign companies, chiefly a Japanese consortium led by Kawasaki but also Canada’s Bombardier and Germany’s Siemens, all of which partnered with a Chinese company to manufacture the trains. But before the initial order of 200 trains was completed, China stopped purchasing them, and began to manufacture its own high-speed trains, which bear a striking resemblance to the trains of its foreign partners.

When development of large wind-farms in China began in the late 1990s, all turbines were imported. But Chinese manufacturers acquired wind turbine technology through joint ventures, licensing, and acquisitions, and by 2009 China’s market was dominated by locally-produced turbines. Today, China’s Goldwind is one of the largest wind turbine manufacturers in the world. With both wind turbines and high-speed rail, foreign firms have accused the Chinese firms of stealing their technologies. Smartphones and electric cars are two other industries that have gone through some version of this cycle (though they haven’t necessarily followed it exactly).

Foreign and Chinese high-speed trains, via High Capacity.

One industry that hasn’t yet gone far through this cycle is large commercial aircraft (i.e: jetliners), which remains dominated by Boeing and Airbus, even within China. But this isn’t for lack of trying. China has been attempting to manufacture its own commercial aircraft since the 1970s, and has been following the China cycle playbook to try and get there.

It’s not yet clear if it will succeed. So far China has spent decades and billions of dollars in its attempts to build a successful commercial aircraft. It hasn’t had much success, likely due to some combination of the complexity of commercial aircraft manufacturing, the reluctance of existing firms to give away their critical technologies, and the leverage foreign governments and organizations such as the FAA and EASA have over China’s aerospace industry. But China seems incredibly motivated to overcome these obstacles and make the industry a success. If it continues to push, there’s a good chance it will eventually succeed.

Origins of Chinese commercial aircraft manufacturing

Y-7, via Wikipedia.

China has been manufacturing aircraft since the 1950s, and has attempted to build passenger aircraft powered by jet engines and turboprops since the 1960s. China’s first attempt at an airliner dates to 1966, when it obtained a license to build the Soviet An-24 turboprop, copied its design, and began to work on its own version of the aircraft, the Y-7. The project was greatly slowed by the Cultural Revolution and by failing certification tests in 1977 and 1979 due to underpowered engines. The Y-7 didn’t enter production until 1983, 17 years after the project started, despite being a copy of an existing Soviet aircraft. Even after production began, serious airframe problems remained, and China’s Civil Aviation Administration refused to take delivery of the first batch of aircraft.

Over the next 12 years, China manufactured a handful of Y-7s, on the order of 130 in various configurations (exact numbers vary). Most were used domestically, with a few sold to Laos as well as several African countries. An updated Y-7, the MA-60, was introduced in 2000, followed by a further updated MA600 in 2008. These were similarly produced in small numbers (on the order of 100 as of 2018), and were mostly used domestically and in a few African and Asian countries. Problems continue to dog the aircraft; Nepal grounded its two MA60s in 2022. A further updated version, the MA700, has been under development since 2007. 

China’s first attempt at a jet airliner dates from 1970, when the government decided that China should build its own passenger airliner, styled after the Boeing 707. Some have argued that China attempted to reverse-engineer a Boeing 707 after the first ones were delivered to China in 1972, while others state that it was an independent development effort. Regardless, the program resulted in the 707-esque Y-10, which was built by the Shanghai Aircraft Manufacturing Factory and first flew in 1980. It only accumulated a small amount of flying time (around 170 hours of flight total between 1980 and 1985), and the program was canceled in 1983 for political reasons as well as for its high costs compared to Boeing and Airbus. An estimated $300 million, roughly $1.5-2 billion in 2024 dollars, was spent on the project.² Many felt this was an enormous waste of money, though it wasn’t a total loss, as the experience the Shanghai factory gained ended up being useful for China’s next step in aircraft manufacturing.

Y-10, via Reddit.

Following the Y-10 program, China changed its aircraft manufacturing strategy, formulating a “three-step program." It would first partner with a foreign firm to set up a Chinese assembly operation for an existing, foreign aircraft. Then, China would jointly design and manufacture an aircraft with a foreign firm. This would allow China to obtain foreign aerospace technology and manufacturing capabilities. Once such capabilities had been obtained, China would design and build a large commercial aircraft independently. China aimed to accomplish this by 2010.

The first step of this plan took place in 1984, when China signed a deal with McDonnell-Douglas to assemble the MD-80 series of airliners in Shanghai by the Shanghai Aircraft Manufacturing Company, in part due to its experience manufacturing the Y-10. McDonnell was likely enticed by the prospect of selling aircraft to China: its Chinese assembly line was the only assembly line McDonnell operated outside of the U.S. Of the 35 MD82 and MD 83s that were assembled in China between 1986 and 1993, 30 were sold to China, with the remaining 5 sold to airlines in the U.S. Without the manufacturing partnership, these sales almost certainly wouldn’t have taken place: prior to the agreement, only five McDonnell aircraft operated in China. (Boeing, by contrast, was extremely reluctant to set up a Chinese assembly line.)

As part of the agreement, McDonnell provided China with a MD-80 flight simulator and an entire set of manufacturing drawings for the aircraft, which combined were worth an estimated $90 million. To ensure the aircraft would pass FAA certification, McDonnell “completely renovated SAIC’s factories, provided huge amounts of technical data, and had U.S.-based McDonnell Douglas employees provide 55,000 man-hours of technical training in engineering, tooling, and other areas.”³ McDonnell engineers spent extensive time in the Chinese factory, and Chinese engineers did the same in McDonnell’s factory.

In addition to the assembly work, China also manufactured the individual components for the aircraft, and the share of Chinese components gradually rose over time, from 15% at the beginning of the program to 60% at the end.⁴

MD-82 being assembled in Shanghai, via Simple Flying.

In the 1990s McDonnell introduced the MD-90 series, an upgrade to its MD-80 series, and planned to leverage Chinese manufacturing even more in an effort to beat Boeing in the race for the Chinese market. In what was known as the “trunkliner” program, McDonnell agreed to build 150 MD-90s in China, many of which would be used on major Chinese aircraft routes. Most aircraft components, “essentially everything except the engines and the avionics," would be manufactured in China. But the trunkline program was later scaled back to just 40 planes, only 20 of which would be built in China. Manufacturing and quality control problems meant that only two of the planned 20 airliners were built before Boeing bought McDonnell and canceled the program in the late 1990s.

As China was assembling aircraft for McDonnell-Douglas, it also began the second step of its program, to jointly design and build an aircraft with a major manufacturer. Talks began in 1994 for a joint development program between Boeing, AVIC (China’s state-owned aerospace manufacturer), and a Korean manufacturer, but soon stalled. In 1997, China signed a contract with Airbus to develop the AE-100 regional jet, but by 1999 this project had also stalled.

But these setbacks didn’t deter China from its goal of creating a major commercial aircraft manufacturer. In the late 1990s, it started to focus heavily on forming joint ventures with foreign aerospace firms. In 1996 it formed a joint venture with Pratt and Whitney to manufacture engine and gas turbine components; in 1998 it formed one with Rolls Royce to manufacture turbine blades. China formed another joint venture in 2003 with Brazil’s Embraer to manufacture the ERJ-145 regional jet, and another in 2005 with Airbus for final assembly of the A320 (Airbus’ first assembly line outside of Europe). By 2010, most Western aerospace firms had established some sort of joint venture in China.

Many of these joint ventures were almost certainly established in the hopes of gaining access to the large Chinese market; Chinese industry leaders have made “no secret of their desire to trade market access for technology,” and increased sales to China often follow the establishment of a joint venture. Boeing, for instance, was historically the dominant aircraft supplier in China; in the mid-1990s, 8 out of every 10 jets flown in China was made by Boeing, and 80% of China’s new plane orders went to Boeing. Ten years later, 2/3rds of new plane orders were to Airbus, and by 2010 Airbus’ market share had risen to 43%, while Boeing’s had fallen to 55%. This shift in fortunes coincided with Airbus establishing an A320 assembly line in Tianjin. Aerospace industry analyst Sash Tush noted that “It’s very hard to escape the conclusion that if you manufacture, if you assemble aircraft in China, you have a stronger market position than if you fly aircraft into China for delivery… This is an industrial policy that Airbus seems to have got very right and Boeing seems to have got very wrong.”

ARJ21, via Wikipedia.

As it began to establish aerospace joint ventures in the late 1990s, China was also considering another attempt at building its own jetliner, and in 2000 it launched a project to build its own regional jet, the ARJ21. (Regional jets are small airliners designed for relatively short distances.) The ARJ21 was based on the McDonnell-Douglas MD-90 (which meant that the tooling from Chinese MD-90 factories could be reused), but it used a new wing design provided by Ukraine’s Antonov aircraft manufacturer. In addition to the wing design, many other components and systems were provided by foreign firms.

The ARJ21 program has struggled. Its first flight was originally planned for 2005, with commercial deliveries starting in 2007, but due to development problems the first flight didn’t occur until 2008, and commercial deliveries didn’t begin until 2016. China originally planned to sell 850 ARJ21s by 2031, but as of 2024 it’s only sold 142, and is only producing about 20-30 per year. Nearly all of those are going to domestic airlines, which are reportedly not happy about being urged to buy it – one Chinese executive described it as “that stupid airplane” – and there seem to be few new orders on the horizon. Early planes that were purchased didn’t appear to fly very much. 

Its lack of success is attributed to the poor quality of the aircraft: the ARJ21 has had problems with “dodgy wiring, cracks in the wings, faulty doors and its performance in rain," and it’s outdated compared to the offerings from other regional jet manufacturers like Embraer. Aerospace analyst Richard Aboulafia has variously described the ARJ21 as “a miserable aircraft," a “pile of junk," and “a random collection of imported technologies and design features flying together in loose formation," with “technical qualities [that] resemble an aeronautical rhino’s." The aircraft weighs about 7,000 pounds more than competing offerings from Embraer, giving it a major disadvantage in range and fuel consumption. And even aside from these problems, the ARJ21 would face an uphill climb in China, given that regional jets compete with China’s extensive high-speed rail network. Outside of China, the ARJ21 has been certified by Europe’s EASA, but not by the US FAA, which further limits international adoption.

COMAC and the C919

COMAC C919.

In 2008, the year of the ARJ21’s first flight, China took further steps to try and make its aerospace industry more competitive. Since the early 1990s, both civilian and military Chinese aircraft had been manufactured by AVIC (the Aviation Industry Corporation of China), a large state-owned enterprise that had been assembled from a collection of smaller aerospace organizations and manufacturers (including Shanghai Aircraft Manufacturing Company). In 2008, AVIC’s commercial operations were spun off into a new company, the Commercial Aircraft Corporation of China, or COMAC.⁵ This was aimed at improving commercial aircraft manufacturing by having a company dedicated to it, and to (hopefully) make it easier for foreign manufacturers to supply components by splitting off commercial from military manufacturing.

The formation of COMAC coincided with another new aircraft development project, the C919. The C919 is a twin-engined narrowbody jetliner that would compete with Boeing’s 737 and Airbus’s A320 models, the two best-selling aircraft families in the world. COMAC hoped to ultimately produce 150 C919s a year, a third of China’s domestic demand and roughly 10% of international demand for aircraft in that class. By comparison, Airbus makes over 500 A320 variants per year.

With the C919, China continued its efforts to try and acquire foreign aerospace technology and manufacturing capabilities. Like the ARJ21, the C919 is heavily reliant on foreign subsystems technology; engines, avionics, control systems, communications, landing gear, and other systems are all supplied by foreign firms. But unlike the ARJ21, where many of the key components were manufactured outside China, with the C919 China required foreign-suppliers for the C919 to set up joint-manufacturing operations in China with Chinese firms, though many of the aircraft’s components, including the engines, remain imported.

Like the ARJ21 (and like most aircraft development projects), the C919 has taken far longer to develop than anticipated. COMAC initially planned to have the first C919 flight in 2014 and the first commercial deliveries in 2016, but the project was repeatedly delayed (in 2012, 2013, 2014, 2015, 2016, 2017, and 2019). Official sources haven’t provided much specific information on the delays (merely mentioning manufacturing problems or technology problems), but other sources point to issues with the large-scale integration of subsystems from different suppliers. In 2019, an anonymous source working with COMAC stated, “there are so many problems with integration, they don’t know where to start.” Other sources state that during testing “key structural components failed stress tests, requiring beefed-up fixes,” increasing the aircraft’s weight. 

COMAC also seems to have difficulty with lightweight composite materials, and reduced their usage from 20% of the aircraft to closer to 10%. More recent delays in the program seem to have been caused by more stringent US export controls on aerospace components that were put in place in 2020. The C919s first flight didn’t take place until 2017, and commercial deliveries didn’t begin until the end of 2022. As of September, COMAC has delivered 9 C919s, and three airlines have it in service.

The C919 lags in performance compared to the most recent offerings from Boeing and Airbus. One way of looking at this is a payload/range diagram, which graphs how far an aircraft can fly while carrying different weights. Below is a payload/range diagram for the C919 (both standard and extended range versions), and its competitors from Boeing and Airbus, the 737MAX8 and the A320neo. Also shown is the predecessor to the MAX8, the 737-800.

You can see from the diagram that even the extended range configuration of the C919 is significantly surpassed by the A320neo and the MAX8. While the C919 has slightly higher absolute payload capacity than the 320neo, the 320neo can in general fly farther (in some cases much farther, almost 1,000 nautical miles) carrying the same amount of weight. The MAX8 doesn’t have quite as much of a range advantage over the C919, but it has a significant payload capacity advantage, able to carry much more weight much farther. The C919 appears to be much closer in performance to Boeing’s previous-generation 737-800, suggesting that the C919 is about a generation behind the curve.⁶

Performance lags also show up in relative fuel consumption; the C919 is estimated to have significantly higher fuel consumption per seat than its competitors.

Part of this lagging performance is due to weight: COMAC appears to have struggled to keep the weight down during development, and the operating empty weight of a C919 is about 3,000 pounds more than a A320neo, and about 2,000 pounds more than a 737MAX8, even though the latter can hold about 10% more passengers. Part of it also may be due to engine performance. While the C919, the 320neo, and the MAX8 all use some variation of CFM’s LEAP engine, the version for the C919, the LEAP 1-C, appears to have reduced performance, perhaps because CFM is concerned about IP theft and is not sharing its leading-edge engine technology. Richard Aboulafia suspects that the LEAP 1-C is actually an upgraded CFM56, CFM’s older engine.

It’s not yet clear how successful the C919 will be. It’s secured far more orders than any previous China-produced commercial aircraft (more than 1,000), though not all of those are “firm" (signed contracts accompanied by down payments), and firm orders are almost entirely to captive state airlines like China Eastern Airlines and Air China. The C919’s reduced performance compared to the most recent offerings from Boeing and Airbus likely make it less attractive for airline operators, as does the higher-than-expected price. And fielding an internationally successful commercial aircraft requires more than just building the airplane: it also requires a globe-girdling network of repair and maintenance facilities that can keep jets in the air wherever they might be. Boeing and Airbus have these sorts of operations, COMAC doesn’t yet. A less than robust repair and maintenance network has hampered North American operations of Russian aircraft, in some cases forcing them to be grounded for lack of parts.

Most critically, the C919 has not yet been certified by the FAA or the European EASA (it aims to achieve the latter by next year, though this does not appear likely). Certifications from these two agencies are crucial; without them, few foreign airlines are likely to adopt the aircraft. 

But in addition to these headwinds, the C919 also has tailwinds. Chief among them are the ongoing supply chain issues at Boeing and Airbus, which are making it hard for the companies to build enough planes to satisfy demand. In June, Airbus cut its expected yearly deliveries from 800 down to 770, due in part to shortages of jet engines and aircraft interiors. It's currently making just 50 airplanes a month against its medium-term goal of 75 a month (that target has been pushed back from 2026 to 2027). Boeing is having similar struggles, with engine shortages and other issues reducing planned monthly production rates by around 25%. Both companies have roughly 10-year long backlogs. All the advanced performance in the world makes no difference if you can’t deliver airplanes, and a less-than-competitive C919 might start to look attractive to airlines if the alternative is waiting years for a new airplane.

And Boeing’s supply chain issues have been compounded by its ongoing safety and manufacturing issues; its reduced rate of production, in service of trying to address quality issues, are reportedly below the level needed for Boeing to achieve a profit, and the company has lost $32 billion since 2019. Though Boeing is not (apparently) immediately headed towards bankruptcy, these reassurances have a sort of “My ‘Boeing is not going bankrupt’ t-shirt is raising a lot of questions already answered by the t-shirt”-vibe. Making reassurances at all is an ominous signal. A bankrupt Boeing would obviously create a huge vacuum that COMAC and the C919 would be well-positioned to fill.

Because it’s not clear how these trends will play out, there’s a range of different predictions, even from experts, on how the C919 will fare. Aerospace industry experts like Richard Aboulafia and Michael Boyd have voiced skepticism that the C919 will amount to much, while folks like Airbus CEO Guillaume Faury and the head of Dubai Aerospace (one of the largest aircraft leasing companies in the world) appear more optimistic that it will capture at least some market share.

Major suppliers for the C919, via CSIS.

In addition to the C919, COMAC also has tentative plans for even larger jetliners, the C929 and the C939, but these are in the very early stages. The C929 was originally planned to be developed in concert with Russia but is now being pursued by China alone, and is currently in the detailed design process. The C939 is in preliminary design.

Conclusion

Why has China been so much less successful in applying the China cycle playbook to making commercial aircraft than it has in other industries like high-speed trains, wind turbines, and mobile phones? There seem to be a few factors at work. 

One is simply the sheer difficulty of building a modern commercial aircraft, which is probably one of the five or six most complex technical achievements of modern civilization (along with jet engines, leading-edge semiconductor fabrication, and nuclear submarines). Commercial aircraft must couple a high level of performance in some of the most advanced technologies in existence with a high level of reliability; both of these are needed not only for safety reasons but also to minimize maintenance costs and make the economics of air travel work. A modern commercial jet engine, for instance, needs to operate for tens of thousands of hours before being overhauled. Building a successful commercial aircraft is more difficult than building spacecraft. In fact, China had built a successful and reliable space launch program by the late 1990s, long before it came anywhere close to building its own successful commercial aircraft.

An illustration of this difficulty is Japan, which was widely expected to become a major commercial aircraft competitor in the 1980s, but ultimately failed. In 2023 it canceled its own regional jet project, the Mitsubishi Spacejet, after 20 years of effort and nearly $10 billion spent. 

And it’s not just that aerospace technology is difficult to master. Existing aerospace manufacturers may have been more successful in preventing their technology from being appropriated than manufacturers in other industries. Aerospace firms are well aware that their technology is their critical asset, and that setting up operations in China might allow Chinese firms to obtain it and become competitors. A 2017 RAND study of Chinese aerospace industrial policy stated that all aerospace manufacturers were aware of the importance of protecting technology when operating in China, and took steps to try and prevent it. Historically, with the MD-80 and the ARJ21, while final assembly took place in China, many of the critical aircraft components were manufactured elsewhere. Operations that did take place in China often used older, less advanced technology and manufacturing methods for their Chinese operations, though this might be less true for the C919. A 2014 RAND report notes that “even Russian companies, [which] have tended to be more willing to transfer technologies to Chinese companies than other foreign firms, have refused to set up manufacturing lines for jet aircraft engines within China.”

The ultimate goal of securing FAA and EASA certification may also make it more difficult for Chinese firms to appropriate foreign aerospace technology, as Western firms may be able to lobby these organizations to block certification in response. Per the CEO of Textron, parent company of Cessna:

“If anybody’s going to try to take our intellectual property and do a knockoff of our products, that’s going to be a very, very public thing. It’s years and years of development and a very, very difficult certification [process]. In our industry, with our kind of products, this [copying a product] is not an issue to worry about.”

Relatedly, it’s been argued that the reliance of Chinese aerospace on foreign firms for key technologies provides a barrier for them being too competitive with firms like Boeing or Airbus. Western countries might simply opt to stop selling key components like commercial jet engines, which China appears to be even farther behind in developing.

Some have also argued that the Chinese method of top-down, state-owned development doesn’t pair well with commercial aircraft manufacturing and the amount of integration of different technologies and systems it requires. Commercial aircraft manufacturing is also different from many other industries, where China has achieved success via enormous amounts of scale.

The result is that while China has had some success with the China cycle playbook in commercial aircraft, it’s nothing like what we’ve seen in other industries. It’s taken far longer, and cost far more, for China to develop commercial aircraft manufacturing capabilities, and at best it will be years before China is capable of even supplying its own internal market for narrowbody twin jets, much less building other categories of aircraft, competing in the international market, or replacing foreign-made components with Chinese ones.

But struggles so far doesn’t mean that China will never be successful. It’s clearly possible for a country to establish a successful commercial aircraft company (witness the relatively recent success of Embraer, in Brazil of all places). And China seems obsessed with succeeding as a major aircraft producer. China has been steadily working at it since the 1970s, maintaining its efforts in the face of setback after setback. Since COMAC was formed, it’s estimated China has spent around $12 billion on commercial aircraft development. Engineers working on the C919 were reportedly being paid double the prevailing wage. For China, successfully building commercial aircraft isn’t a matter of the economics (which are miserable), it’s about national pride and prestige, about not being dependent on Western countries for a key, impressive technology, and about having a greater say in international affairs.

While some experts have historically been skeptical of Chinese efforts, others think that they’ll probably succeed eventually. In the early 2000s, a former Boeing CEO stated that “the risk-averse Japanese culture will discourage the temptation. But the Chinese will eventually be there.” A vice chairman of GE justified its sales to China on the grounds that the Chinese would inevitably be a major aircraft manufacturer, stating, “They are committed for the long term and they have every probability of being successful. We can participate in that or sit on the sidelines. We're not about sitting on the sidelines.” The C919 might not be the aircraft that breaks into the international market; rather, it might be an aircraft that follows it. That, of course, depends on whether China continues to pump money into commercial aircraft development, and continues to work on developing and improving its own aircraft capabilities. Evidence so far suggests that it will.

Thanks to Ashwin Varma and Claire Larkin for reading a draft of this. All errors are my own.

If you’re interested in reading more about Chinese commercial aircraft manufacturing, a reading list of the best sources I found on the topic is available here for paid subscribers.

1. Noah isn’t the first to make this observation about China’s industrial policy playbook.

2. The Y-10 program was championed by Wang Hongwen, one of the architects of the Cultural Revolution, who was imprisoned after a power struggle following Mao’s death.

3. SAIC is “Shanghai Aircraft Industry Corporation," which seems to have been the parent company of Shanghai Aircraft Manufacturing Company.

4. There are some discrepancies in the literature here: other sources say Chinese components were never substantially used due to quality problems.

5. AVIC was actually split into two companies, AVIC I and AVIC II, in the late 1990s, then recombined as one company in 2008 when COMAC was spun off.

6. On the other hand, there have been initial reports that the C919 appears to be especially reliable, though these come from a Chinese company that is partially state-owned. and therefore must be taken with a large grain of salt.