Price Hikes Caused Cancellation of Jet Deal, China Says

China says that it canceled a huge deal with Grumman Corp. to modernize its jet fighters because the company raised its prices.

The Defense Department said last Tuesday that Beijing had pulled out of the deal, under which Grumman would have modernized 55 of China’s F-8 fighters with cockpit electronics and targeting radar.

Estimated at $502 million, it would have been the biggest U.S.-Chinese military deal.

“The project to renovate the F-8 fighters can no longer proceed according to the original agreement now, simply owing to the considerable increase of prices by the U.S. side,” the Foreign Ministry said in a statement Friday.

Work under the deal had already been blocked by the current U.S. ban on arms sales to China, imposed in reaction to Beijing’s bloody crackdown on dissent last June.

China gave no indication of the size of Grumman’s price increase, nor did it comment on speculation by military analysts that China would look elsewhere for advanced cockpit technology.

The U.S. Embassy in Beijing declined to comment, except to say cost overruns on military projects were common.

China’s cash flow has worsened since last June because of a freeze on Western government credits.