Thursday, March 7, 2019

For Company and For Country: Boeing and US-China Relations (BA)

Speaking of Boeing.*

From Macro Polo:
When Henry Kissinger embarked on his secret mission in 1971 to lay the groundwork for President Richard Nixon’s historic trip to China, he was shuttled from Islamabad to Beijing in a Boeing 707. When Chinese President Xi Jinping arrived in Washington, DC in 2015 for a state visit, he stepped off a retrofitted Boeing 747 emblazoned with Air China insignia.

In those intervening 44 years, Boeing had been the preferred aircraft for every American and Chinese head of state between Nixon and Xi. In fact, every Chinese leader since Deng Xiaoping has visited Boeing’s factories outside of Seattle.

Boeing is hardly a nation-state, but perhaps no company exemplifies the complex and nuanced layers of the US-China relationship as much as this American multinational, the world’s largest aerospace company. From hiring a Chinese student as its first engineer in 1916 and co-founding China’s first aircraft manufacturer in the 1930s, to the latest debates on trade and technology transfer, Boeing’s story is a unique window onto the forces that have both fortified the bilateral relationship and might now pull it apart.

As the Cold War ended, Boeing became a leading advocate of economic globalization. After all, the company has long been the United State’s largest exporter by dollar value, has built supply chains around the world, and makes a product whose very purpose is to link distant corners of the globe. It was only natural that Boeing would be fully invested in this international system that the United States was seen to lead—its business depended on globalization.

A significant part of globalization was integrating China into that international system. Boeing, as one of the earliest beneficiaries of the US-China rapprochement under Nixon, played a starring role both in prying open markets in China and in American debates on China’s eventual accession to the World Trade Organization (WTO).

Assuming an outsized role in bilateral relations meant the company has both reaped rewards and suffered consequences. Beijing has regularly played Boeing against Airbus, its European rival, translating its market power into bargaining power during political negotiations.

Four decades since the formalization of US-China relations, China has grown to become Boeing’s most important national market except the United States (see Figure 1). But with plans for its own commercial jetliner, China is also the only country that can upset the global aviation duopoly that Boeing and Airbus have long enjoyed. This development is forcing Boeing to balance Chinese demands for technology transfer with protecting its bottom line and future prospects.

Yet Boeing’s increased dependence on China is reciprocated by the country’s continued dependence on its planes to fly not just its leaders but also hundreds of millions of Chinese citizens. Even as Beijing aspires to build a world-class commercial aviation industry, Boeing’s star in the China market has not dimmed.

Irony would have it that for a company whose China market entry was made possible by an American strategic pivot during the Cold War, Boeing’s fortunes in China may now depend on whether the specter of a new economic winter becomes a reality.

Indeed, Boeing’s place in US-China relations shows how structural changes in the international system over the past five decades have affected the commercial calculus of a powerful multinational firm. Of course, Boeing was not the only one affected by these sweeping changes. But understanding how this single company sought to adapt to the evolving environment yields valuable insights into commercial diplomacy, US-China politics, and how the future dynamics of globalization might be shaped.

The First Sale: Boeing and Cold War Strategy
When Nixon went to China in 1972, the American president “personally approved” a request from Chinese leaders to buy ten B707s, according to his interpreter Chas Freeman. The White House’s decision was motivated not simply by commercial considerations but also by Cold War maneuvering against the Soviet Union. This would not be the last time that Boeing had a hand in broader geopolitical machinations.

In the administration’s view, the Boeing sale would weaken China’s dependence on Soviet planes. Such a deal would signal to Moscow that Washington could help Beijing “become a strong, modern industrial state—on Russia’s flank—much faster than she could without American aid.” Aligning Washington and Beijing against Moscow was a strategic imperative shared by Nixon and Mao, and it superseded US concerns over technology transfers.

While the Nixon administration hoarded business opportunities as bargaining chips with the Soviet Union, China became the only Communist country except Yugoslavia to have US jetliners in its civilian fleet. Perhaps the New York Times captured this sentiment best when its editorial board argued “the Chinese are entitled to buy products of advanced American technology even when…these products could have ancillary military significance.”

At the same time, the United States found an eager customer in China, whose civil aviation industry was in total disrepair. It was estimated that China’s civil aviation fleet included only 350-500 planes, mostly based on Soviet designs and many of which were “obsolete and inefficient.” It was no surprise that American airline executives saw China as “one of the biggest untapped markets in the world for commercial aircraft.”

Sensing that international competitors were ready to pounce on the China market, Boeing hastily dispatched a delegation to Beijing just two weeks after Nixon’s visit. On September 9, 1972, two months after the White House granted Boeing an export permit, the company closed the deal with the Civil Aviation Administration of China (CAAC)....

*Nailed the March 1/March 4 top at $446/$444.50
March 4
Boeing Has Accounted for ~1000 Points Of the Rise In the DJIA Since December