Are China and the West Headed for a Cold War in the Skies?

China is the biggest single export market for Western jetliners, a fact that looms large in the current U.S.-China trade confrontation. Fast air travel growth rates coupled with a lack of current homegrown jetliner alternatives mean that China is still at the moment dependent on Europe’s Airbus and America’s Boeing, even as it balances procurement between the two jet makers as a form of trade negotiation leverage. But that could change.

Aviation is an important industry for both countries in terms of technology, economics, and national prestige. China could easily decide to go its own way, with some help from Russia. And there is a path they could follow.

Over the past few decades, China’s aviation demand growth has tracked its remarkable economic transformation. According to the International Civil Aviation Organization, China’s traffic grew from 55.9 million passengers in 1999 to 611.4 million in 2018. It has developed a voracious appetite for world jetliners, with carriers like Air China and China Southern taking delivery of 22 percent of Airbus and Boeing output last year, amounting to 355 planes, according to manufacturer data compiled by Teal Group. This represents a remarkable ride up from the 3 percent they took in 2001. Chinese money also plays a very large role in world jetliner finance, with Chinese ownership of such major jetliner lessors as BOC Aviation, ICBC Financial Leasing, and China Aircraft Leasing.

But the endless delays and performance problems associated with China’s ARJ21 regional jet and C919 single-aisle jet built by the Commercial Aircraft Corporation of China, which won’t be ready for several years, show the enormous challenges associated with creating a national aircraft industry. In fact, China has been trying to do this since the 1970s, with almost zero success at building planes. China’s civil aviation fleet stands at well over 3,500 jets, of which only 18 are Chinese-built ARJ21s.

In August, the Commercial Aircraft Corporation of China announced yet another delay to the C919, with service entry now expected in 2021 (it was originally scheduled for 2016). That will likely prove optimistic, and the C919 merely offers technology on par with the Airbus A320, which has been built at a local assembly line in China since 2009 (and in Europe since the late 1980s). Both the ARJ21 and C919 have relied heavily on Western technology transfer, with and without the cooperation of Western companies.

There may be an alternative solution. The recent deterioration of China’s relations with the West has been matched by warming ties with Russia. The two countries have begun cooperating with each other on civil aviation, something they haven’t done since the Mao Zedong era. For the past few decades, China’s international civil aviation cooperation has been almost exclusively with Western countries and companies.

To see how this might unfold, consider the old Soviet Union’s aviation industry. Aviation autarky is never pretty, but the USSR showed it was technically possible. The Soviets built local, inferior equivalents of many Western jets, from the Boeing 727 (Tupolev Tu-154) to the Concorde supersonic transport (Tupolev Tu-144). The supply chains for these aircraft were purely domestic, too. Russian firms built every part of these planes, from avionics and engines to fasteners and sheet metal, but they no longer build jetliners in any volume.

Thus, the world had two aviation universes, West and East. Boeing, Airbus, McDonnell Douglas, and Lockheed sold to Western customers but generally couldn’t export to the Soviet Union and its client states. This Eastern market was stuck with Soviet jets, which were generally only exported to the likes of Cuba or North Korea. Pre-reform China was another key client; as late as the early 1990s, the Tu-154 was the single most numerous type of plane in China’s civil fleet. Meanwhile, Western suppliers built systems and parts exclusively for Western jets, and Eastern suppliers only worked with Soviet jet makers.

When the Soviet Union collapsed, so did the Eastern aviation universe, as it simply couldn’t compete in the broader world market and Russia’s market was increasingly open to imports of superior Western jetliners. Today, Russian industry only builds a handful of legacy jets each year. Russia’s Aeroflot airline flies only Airbuses and Boeings—aside from a few Sukhoi regional jets, the only new Russian jetliner to enter development after the collapse of the USSR.

China and Russia are already working on a joint twin-aisle jet, the CR929. China probably can’t build its own twin-aisle model, but an alliance with Russia might enable a joint project. And this could easily lead to greater cooperation on more jets, and, inevitably, trade barriers designed to protect these joint products from superior Airbus and Boeing imports.

Russian industry still has the knowhow to design and build jets. Russia, notably, is the only country other than the United States to design and build its own twin-aisle jetliner, the Ilyushin Il-86/96 series. European countries only succeeded with twin-aisles by pooling their resources through Airbus. That makes Russia indispensable for the planned CR929.

There is no guarantee that China and Russia can work together. Russia tends to regard China’s aviation industry as technologically inferior; Chinese industry tends to regard Russia as financially inferior, and with a minimal domestic market. (In other words, both China and Russia are correctly informed about each other.)

But China today is a much larger market than the old USSR, not just in absolute numbers but in relative terms, too, which means they could make an autarkic aviation universe more viable than the old Soviet one was. And the evolution of China’s internet and telecoms markets show that the country is willing to create a separate industry universe. Google, the West’s dominant internet search engine, has just a 3 percent market share in China. Homegrown Baidu has close to a 75 percent share.

China’s general approach to aviation has always had more in common with the old Eastern universe. Western companies are all in the private sector, while China’s industry is state-owned. The Civil Aviation Administration of China (CAAC) refuses to conform to the Western model of an independent safety administrator. Worse, the CAAC’s recent actions against the airline Cathay Pacific—demanding that the company report employees involved in the Hong Kong protests—remove all doubt that the agency is more the creation of a closed society with little interest in good government. But the CAAC can be used to provide favorable treatment to Chinese or Russian aircraft, to create trade barriers, and to promote technology grabs from Western companies.

In addition to likely difficulties working together, there are many obstacles to the creation of a separate Chinese-Russian aviation universe. First, airlines in both countries will likely push back against being forced to buy inferior local jets, and they might conceivably prevail. Also, the more China turns its back on important Western imports, the greater the likelihood of more U.S. and Western retaliatory tariffs that will threaten the country’s export-driven economy. A China-led aviation universe is only likely if the country decides to completely turn its back on the West.

But given the sudden and remarkable damage to the China-U.S. trade relationship over the past year or two, no one knows where the relationship is headed. It’s entirely possible that an aluminum (and carbon fiber) curtain will descend and separate the East’s and West’s aviation ecosystems. That will hurt companies and passengers on both sides.