When the sale of Cirrus to the Chinese-based China Aviation Industry General Aircraft Co. closed exactly a year ago, there was much hand wringing in the aviation industry. It was just another example of how the Chinese were relentlessly hollowing out the U.S. industrial base. I was less concerned about that than how this fit into the larger scheme of things. Why did the Chinese pick Cirrus? It has a terrific product line, sure, but like every other aircraft manufacturer, it was struggling and seemed to repel rather than attract Western capital. Did the Chinese know something we didn't?
In his new book, China Airborne, veteran journalist and pilot—and former Cirrus owner—James Fallows explains that the Chinese do in fact have a master plan. It's called the 12th Five Year Plan. While Cirrus certainly wasn't named specifically, the plan generally calls for major investment in aircraft and aerospace manufacturing as part of a larger effort to move China away from an economy based on cheap-labor manufacturing jobs to one buttressed by high-value technology creation. This is often called the "smile curve," an inverted arc that describes the inherent value of an economy—or a product—with the high value parts of the continuum at the upper ends of the curve where things are designed at one end, retailed at the other. The middle of the arc--where China resides now—is the low-margin manufacturing element of the equation.
Fallows reports that then Cirrus CEO Brent Wouters actively courted the Chinese, trying to recover the capital invested by the Bahraini-funded Crescent Capital, which bought into Cirrus in 2001. With China's Five Year Plan calling for aerospace investment, Wouters had the perfect ingredients for an opportunity sale. Whether it made a lick of sense, no one knows and it may be some time before we do. In this podcast, I asked Fallows about his views on the Cirrus acquisition, among several topics we discussed.
From the book, one thing seems certain, however: The Chinese adherence to face saving doesn't seem to extend to the sort of business babble that American executives love, where clerks are "associates" and firings are "right sizing." During the official ceremony marking the sale in Duluth, Cirrus put up a banner enthusiastically welcoming its new "partners" from CAIGA. But the Chinese officials present had the banner removed. "We are not partners. We are the owners." Welcome to the new world.
In his wide ranging travels in China, Fallows saw what the rest of us have only heard about second hand. A giant, new airport at Weinan, in central China, 600 miles southwest of Beijing in a region best known for its army of terra cotta warriors at Xi'an. It's but one of perhaps 100 or more new airports completed or under construction in China. Quite ahead of any approval from a central planning authority and fueled by local boosterism, the town built a runway suitable for DFW. No airplanes in sight to use it, no facilities to support it and not even a town on the horizon. This sort of frenzied infrastructure building is common in China and not just for airports, but for roads, bridges, hotels and factories. It is so overwhelming that Fallows asked himself, "how long can this go on?" No one knows.
As part of the 12th Five Year Plan, China wants to make its mark in the world of commercial aviation, one of the most difficult global industries to enter, much less survive. It currently has under development a regional jet and a transport similar to the Boeing 737. Whether these can ever rival the quality of Boeing and Airbus and be suitable for the export market is debatable. Fallows reasons that to get there, China will have no choice but to tilt toward Western values of openness and competitiveness and to draw back from its obsession with secrecy and security. It will have to reform as it grows, reshape itself continually to suit the sheer scale of the country's geography and human mass.
Having spent five years studying and reporting from China, Fallows closes China Airborne with this humble observation. "Anyone who says China is destined to succeed or fail, to open up or close down, either knows much more than I do, or much less. Anyone so sure is not willing to acknowledge the great unknowability of life in general and life in this quarter of mankind."
Find China Airborne at amazon.com, among other sources, and click here to hear the podcast with author Fallows.