How GE Is Arming China to Compete With Boeing -- and America
General Electric (GE) plans to sell its aircraft electronics to Chinese companies, and if you don't have a problem with that, maybe you should. After all, China just flight-tested a prototype stealth fighter (pictured), it continues to build up its military -- and we can only hope it's not planning to expand its territory in ways that threaten the U.S.
But if China does decide to get aggressive with the U.S., GE will have provided it with the aircraft technology it will be using.
According to The New York Times, GE is signing a deal to sell avionics technology -- electronics that control an aircraft's basic in-flight operations -- to Commercial Aircraft Corp. of China (CACC), which aspires to build commercial and military aircraft. GE will do this through a joint venture with a Chinese company, Aviation Industry Corp. of China (Avic). Avic makes avionics for CACC and for China's military -- including its stealth fighter.
Sure, GE is based in the U.S., but that doesn't mean its shareholders expect it to be loyal to U.S. interests. Still, selling technology it developed for U.S. companies like Boeing (BA) to Boeing's Chinese competitors -- which are trying to build a competing aircraft company -- may be going too far. The question facing American policymakers is how to keep GE from crossing the line before it's too late.
A $400 Billion Market for Aircraft Products
Officially, this GE/Avic venture will be making a commercial aircraft for CACC. The Times reports that together, they'll build CACC's C919 -- a single-aisle plane capable of carrying up to 200 passengers and designed to compete with the Boeing 737 and Airbus 320 -- to be delivered in 2016. The avionics technology that GE/Avic will supply is the same as GE is providing to Boeing for its 787 Dreamliner, an industry-leading concept vehicle that is proving awfully hard for Boeing to deliver.
Is GE betraying its customers and its country? I think so. And the reason it's doing so is simple: GE believes that China will be a $400 billion market for its aircraft products over the next two decades. To be fair, GE is making all sorts of noises about how China's aircraft industry isn't sophisticated, so it won't be able to make use of all GE's advanced technology against Boeing or the American military. GE also claims it briefed the U.S. government before selling this technology to China, and that its joint venture will keep a Chinese Wall (pun intended) between its commercial and defense units.
I don't find that at all comforting. Here's one reason why.
In my Babson College classes, I've taught a Harvard Business School case titled Taiwan: Only The Paranoid Survive, which demonstrates how Taiwan famously built up its semiconductor industry from scratch in the 1970s: The country bought obsolete technology from RCA and paid Taiwanese nationals working in Silicon Valley to share their technical knowledge with the island nation's government-owned companies. Sure, Taiwan was dealing with old technology at first, but it had skilled people who quickly helped it climb up the ladder and build a world-leading semiconductor industry.
Are CEOs Selling Out America?
If China follows Taiwan's footsteps, its aircraft industry should surpass the U.S. in a much shorter time. Unlike Taiwan, China is starting out with state-of-the-art technology from GE, which will save it decades of development time as it seeks to build its own industry to compete in both commercial and military markets.
Meanwhile, let's not feel sorry for Boeing. After all, a source who spent 20 years inside Boeing told me in 2009 that CEO Jim McNerney was musing about moving Boeing to China.
All this corporate maneuvering raises an important question: Who's in charge? To me, it looks like big-company CEOs are making the decisions that will determine America's fate. These execs may live in the U.S., but they're making big money by selling our best technology to China. And since China is lending America $907 billion through its government bond holdings, our nation's financial system is also under China's thumb.
Just as the gun lobby that has the economic and political power to make it easy for mentally unstable people to buy semi-automatic weapons -- even after the Tucson tragedy -- so does America's military industrial complex have the power to put its economic interests above those of its home country.
But just because one has the ability to do something doesn't make it a good idea. Let's hope someone can make GE realize that while there's still time.