Amid the chaos of the Trump administration’s final weeks, the U.S. Commerce Department made a little-noticed announcement that has the potential to derail China’s aviation industry. On Dec. 21, 2020, the department published a new Military End User (MEU) export list, which essentially prohibits technology exports to entities that “represent an unacceptable risk of use in or diversion to a ‘military end use’” in China and other countries. If left as is, the list will hinder U.S. trade with more than 100 Chinese and Russian companies and entities. And the list implies that China’s aviation industry in particular will need to restart its commercial aircraft development plans from scratch.
Suddenly, the elaborate technology transfers and international sourcing arrangements that China needs to make its own aircraft have become impossible—or at least extremely difficult. Currently, China’s aviation industry only works if foreign companies sell it the equipment needed to get its planes off the ground. Right now, when it comes to domestic manufacturers, it’s presenting Potemkin jets, a homegrown facade concealing an imported core.
The aggressive move, which occurred surprisingly late in then-U.S. President Donald Trump’s term, continued his administration’s efforts to disregard the international status quo and trade norms with China. The list has its pros and cons, but it creates a high-priority problem for the Biden administration, which needs to quickly decide whether to precipitate a crisis in U.S.-China aviation relations or to go back to business as normal. Although it’s unlikely that President Joe Biden would have made such a drastic move himself, his campaign promise to be “tough on China” may make revoking the new list difficult, so there’s a good chance it’s here to stay.
Like many other Trump-era trade rules, the new MEU list comes with a host of possible loopholes and uncertainties. For example, all Aviation Industry Corporation of China (AVIC) companies are on the list, but the Commercial Aircraft Corporation of China (COMAC) is not, even though COMAC’s products are effectively AVIC products (albeit with an uncertain legal status). But despite its general lack of clarity, the list’s purpose is clear: to get China to completely change its aircraft industry strategy, pushing the country either to abandon its vainglorious aviation pursuits or go its own way altogether.
The Trump MEU list reveals difficult truths about China’s heavily self-promoted civil aviation industrial policy, since it includes almost everything needed to make aircraft functional. That is, without the technology in the list, China’s aircraft can’t fly.
After many decades and tens of billions of dollars, China’s airliners are case studies in failure. A few dozen dysfunctional turboprops and 43 ARJ21 regional jets are the only products in the air, and they represent less than 0.5 percent of China’s air service capacity. China’s air fleet comprises thousands of much larger Airbus and Boeing aircraft, which are from Europe and the United States. The turboprops have a dismal safety record, and the ARJ21 is overweight and obsolete with last-generation technologies. Meanwhile, the MA700 and the C919 single-aisle jetliners have been in development for years, with numerous delays, and merely aim to replicate Western products that have been flying for decades. And the proposed CR929 twin-aisle transport airliner is aspirational at best.
Even China’s minimal aviation achievements thus far would be useless without Western engines, avionics, systems, and everything else needed to get chunks of metal off the ground. The point of China’s joint ventures with Western companies is to make this possible domestically, but it still has a long way to go, and the MEU list might stop it altogether. Without Western equipment, China’s jetliners would be hollow shells.
The list also shows that developing these necessary systems with Chinese rather than U.S. technology would be highly impractical. Currently, China makes its own airframes, the structures of aircraft. Yet while airframes are complex objects, the technologies that make them fly are even more complex. They have more in common with semiconductors (and China’s semiconductor production has been difficult, to say the least). A crash program to develop engines, avionics, and other necessary technologies at home would take well over a decade and tens of billions of dollars, even if the country looks to Russia for assistance. It would also guarantee inferior, less reliable, and less efficient products fit only for a domestic market. No country has achieved this level of self-sufficiency with the possible exception of the Soviet Union in the 1970s and 1980s.
While the MEU list would be devastating for China’s aviation industry, it’s easy to see how it holds a certain appeal in Washington, regardless of who’s in office. For years, Beijing has looked to Western aerospace industries as a source of technology. But China’s government and industries haven’t respected U.S. intellectual property rights and have been accused of extensive cybertheft.
Admittedly, aviation trade between the two countries has strongly benefited the United States. At the market’s peak in 2018, China was receiving more than 24 percent of all jets built by Boeing. But aviation is really the only major manufacturing industry where this has been case. And with China’s new plans for domestic development, Beijing is trying to remove even this advantage, effectively making mutual trade relations less appealing to Washington.
So the new strategy gives the United States greater agency in its dealings with China. In the past, any kind of diplomatic kerfuffle saw China use jet orders as leverage, threatening to switch from Boeing to Airbus, a European corporation, (or back again) as a favored provider. But the MEU list tells Beijing that it, too, has something to lose. Its cherished national platforms will be useless without imported technologies and will remain so for at least another 10 to 15 years until China creates substitutes, if it can at all.
If the Biden administration does decide to continue Trump’s initiative to stop any kind of trade in aviation technology, there are three possible outcomes.
The first is the happy but unlikely scenario that Beijing admits its aviation industry development plan is flawed. In this case, China would finally agree to abide by the World Trade Organization’s Agreement on Trade in Civil Aircraft, which forbids government-mandated purchases of national aircraft. Beijing would likely still use jetliner purchases from Airbus or Boeing as a way of rewarding or punishing the United States or the European Union—and would thus attempt to drive a wedge between Washington and its allies. But more importantly, China would agree to respect aerospace intellectual property rights and strive to maintain strict firewalls between civil and military applications for aviation technology. Chinese aircraft development would continue, but its real focus would be on joining the global aviation supply chain, emulating Japan’s supplier-focused approach.
What’s somewhat more likely to happen is that Beijing won’t drastically change its approach. Maybe it will agree to a few concessions—for instance, a well-publicized purchase of Boeing jets and a promise of greater intellectual property respect—in exchange for removing China’s aviation companies from the MEU list. But it would find a way to return to the exact same aircraft development strategy it had pursued before the MEU list was imposed. Or perhaps China will fight back aggressively against the MEU list, especially since Beijing announced rules in January 2021 permitting companies harmed by new U.S. restrictions to sue U.S. companies for damages in Chinese courts. In the long run, China would bolster its domestic capabilities and continue its national aircraft and technology programs. In this case, Beijing would take a long view and prepare for a decoupled future where its industry could meet domestic market needs with self-sufficient products.
But perhaps equally probable would be aggressive—and fast—decoupling between Washington and Beijing, which may lead the latter to shift toward Moscow. Here, Beijing would react to the MEU list by ending China-Western aviation cooperation. It would embark on a crash program to create substitutes for Western equipment. It may even cooperate with Russian industry to help accelerate this process, albeit at the price of tying China’s aviation future to commercial technology drastically inferior to that in the United States. Purchases of Western jets and financing of Western jets by Chinese institutions would be kept to a minimum, even if the country’s aviation market growth slowed.
This third option might seem drastic, but it’s less so when seen in a broader context: In the past few years, Beijing has shifted away from the private sector and global trade and toward a government-managed economy that prioritizes state-owned enterprises. Essentially, this third outcome would align with China’s recent move away from fast economic growth and toward a “moderately prosperous” state-managed economy.
China’s response to the MEU list might not be clear for months—or even years. This month’s move to allow Chinese companies to sue Western ones implies that Beijing will take a hard line on trade with Washington, but it could also just be a prelude to negotiation, especially now that there is a new U.S. president.
Of course, the Biden administration’s approach may also not be evident for months to come, especially as it continues to clarify its China strategy more broadly. Assuming Biden does continue to be “tough on China,” his team will hopefully recognize that the Trump administration’s go-it-alone approach to confronting China—in aerospace, in trade, and in geopolitics—was flawed and counterproductive. By working alongside other countries, Washington has the best chance of achieving its goals—in this case, making sure China finally respects free trade and intellectual property rights.
Update, Feb. 16, 2020: This article was updated to specify the percentage of Boeing’s jets being bought by China at the market’s peak in 2018.
