China, in Snub to U.S., Will Buy 30 Airbus Planes

In a warning shot to the United States for interfering in its domestic affairs, China signed an agreement Wednesday to purchase 30 jetliners worth $1.5 billion from the European consortium Airbus Industrie.

The agreement, signed during a trade mission to Paris by a Chinese delegation led by Premier Li Peng, is a deliberate slap in the face to Boeing Co. and McDonnell Douglas Corp., currently the dominant providers of aircraft to China, experts and industry analysts said.

“We’re disappointed in China’s decision to purchase Airbus planes,” said Cindy Smith, a spokeswoman for Boeing. Smith expressed concern over the recent deterioration in U.S.-China relations that she suggests resulted in the lost order.

“It underscores the need for the U.S. to move beyond the annual debate over most favored nation status to create a stable relationship,” Smith said.

U.S. relations with China have been strained over a series of trade and political issues. The United States has threatened to impose sanctions on Chinese goods for pirating software and movies, and has publicly protested China’s reported sale of nuclear devices.

China, in turn, was outraged by the recent U.S. decision to send aircraft carriers to the Taiwan Strait in a show of support for Taiwan during China’s recent military exercises in the area.

If the Airbus order represents a tilt away from U.S. suppliers, it would be a blow to American aircraft manufacturers. Chinese airlines are expected to purchase 1,320 planes worth about $100 billion over the next 18 years.

Boeing alone has a 70% share of the Chinese airplane market. The company said it has spent $100 million in the last two years building up its support infrastructure in China, including 16 field service bases and air safety training for Chinese airlines.

The order could be a particularly hard blow to McDonnell Douglas, whose commercial jetliner operations in Long Beach are already struggling with sluggish sales. Chinese officials previously initialed an agreement to buy 40 McDonnell MD-90s, the same class of 150-seat jetliner as the Airbus A-320, which China is now buying.

McDonnell Douglas said it is confident the agreement, which calls for China itself to build 20 of the aircraft, will be formally signed and that the Airbus orders do not represent a replacement for the MD-90 orders.

“We are going ahead and building the planes,” said Don Hanson, spokesman for McDonnell Douglas. Hanson said the company’s Chinese partners have also begun fabrication of the 20 planes to be built in China.

But China has yet to sign a formal agreement and has declined to make progress payments for the McDonnell planes. There are reports McDonnell will have to take a heavy charge against its earnings because of higher finance charges resulting from China’s failure to make payments, but Hanson called those reports “ridiculous.”

French officials are hopeful that China’s Airbus order indicates it is leaning toward a partnership with Airbus rather than Boeing or McDonnell Douglas for a contract worth up to $2 billion to cooperate in the design of a 100-seat jet to be built somewhere in Asia.

But industry and government observers in the U.S. and China said it’s too early to say whether the Airbus order really represents a more fundamental shift in China’s attitude toward doing business with the United States.

“This represents a significant victory for Airbus in establishing a place in the Chinese civil aviation world,” said Robert A. Kapp, president of the U.S.-China Business Council, a trade group representing American companies that do business in China. “But it’s not necessarily proof of a trend and a fundamental sea change.”

Many experts believe China has deliberately played up the Airbus order as a way of expressing its anger at the U.S. and maintaining leverage over pending trade issues.

China has put off buying planes for a year and a half in an effort to slow the rapid growth in civil aviation that was leading to more accidents.

“The fact that they are breaking the logjam with a European supplier is a not-too-subtle message,” said Brookings Institute China expert Nick Lardy. “They are framing the issue in a way that drives home the point that China is a large market for the U.S.”

But many suggest China’s message may be more symbolic than real.

“They were probably going to buy the [Airbus] airplanes anyway,” said a senior Western diplomat in China. Analysts said it is China’s standard approach in business to play large suppliers off each other.

“The Chinese have always been tough customers,” said Wolfgang H. Demisch, an analyst at BT Securities.

Still, one knowledgeable insider reported that Chinese airlines prefer Boeing aircraft and were unhappy with the government’s decision to buy the European planes.

By delaying orders from American aircraft makers, analysts said, China maintains leverage it hopes to use to prevent the U.S. from imposing sanctions over intellectual property issues.

Chinese Foreign Trade Minister Wu Yi had been scheduled to travel to the United States this month to sign several commercial contracts, including a large order for U.S. planes.

But she abruptly canceled the trip, reportedly because the United States declined to give assurances that it would not impose sanctions on China over intellectual property rights.

The Commerce Department was closed Wednesday and the U.S. Trade Representative’s office declined to comment. U.S. trade officials are currently in China for negotiations on a range of issues.

Some China experts worry that the Clinton administration, facing an upcoming election and an expanding trade deficit with China, could be under pressure to further escalate the dispute by putting even more pressure on China in the form of sanctions.