China's plans to create a new civil aviation company in the first quarter of 2008 could signify much more than prospective competition in the regional jetliner class. The shift is emblematic of an evolving mindset in China's defense industry--one with far-reaching consequences.
Huang Qiang, secretary-general of China's commission on science, technology and industry for national defense, confirmed rumors in January that the nation would create a new aviation company before March.
In 1999, five bulky state-owned administrative entities of the domestic defense industry were reorganized into 10 major military-industrial groups, two of which have since seen success as Aviation Industry of China (AVIC) I and AVIC II. Working together, the two groups are responsible for the design of the advanced regional jet of the 21st century (ARJ-21), China's first indigenously produced civilian jetliner.
With passenger, executive and freight versions, the ARJ-21 was designed from the ground up with the needs of the Chinese regional aviation market in mind. Despite its homegrown design, however, some 50 percent of its components are foreign made. While the ARJ-21 is probably not destined for major sales in the U.S. market, certification will be sought from the U.S. Federal Aviation Administration, a process that will provide Beijing with much insight into standards and procedures of the U.S. aviation industry.
Focusing on larger civilian aircraft, the new Chinese company--to be named AVIC III--will represent the next milestone in the shaping of China's aircraft manufacturing sector, even as it results in infighting for resources among the three groups. Ultimately, AVIC-produced civilian aircraft--and military variants--could well find a market among countries that cannot afford state-of-the-art Western technology.
Reform in China's aircraft manufacturing sector is part of a larger shift in mindset from Soviet defense industrial thinking to more Western models in which the crossover between military and civilian technological applications is recognized and exploited. In April 2005, testifying before the U.S.-China Economic and Security Review Commission, a senior fellow in trade and productivity at Manufacturers Alliance/MAPI Inc. said the Chinese defense industry went through "a fundamental restructuring" from 1997 to 1999 that shifted control of defense enterprises from the military to the civilian government.
The move "integrated their operations with commercial advanced technology enterprises, including competitive bidding for defense contracts," said Ernest H. Preeg, who had been executive director of the Economic Policy Group at the White House before his MAPI fellowship. "In effect, China shifted from the discredited Soviet model toward the U.S. model for weapons development and production."
The full course of this transition--by no means a simple one--remains to be seen. Nevertheless, recent developments with the ARJ-21 and AVIC III are starting to show the potential for more significant progress and the maturation of organizational changes begun in the late 1990s.
Production of the ARJ-21 regional jet and an agreement with Airbus to produce similarly sized A319/320 airframes in China are two ways Beijing is trying to address the massive expansion of domestic air travel and leverage that expansion for high-end domestic production. In line with that expansion, China's civilian radars and air-traffic-control systems will have to keep up.
The country's airspace traditionally has been shaped by military demands, with civilian access and mutes a secondary priority. Civil aviation currently has access to less than a third of all Chinese airspace. The People's Liberation Army (PLA) is reportedly the ultimate decision-maker regarding domestic air routes, an issue that still must play itself out.
But while the pace of China's domestic aviation expansion might make for a steep learning curve and some points of friction with the PLA, the management of heavier and heavier volumes of air traffic will also begin to inform and alter China's management of military air operations. …