Prestowitz: Chinese goose and American gander

Posted By Clyde Prestowitz Wednesday, January 19, 2011 - 3:20 PM Share

Chinese President Hu Jintao's arrival in Washington yesterday was accompanied by the announcement of the imminent signing of a major joint venture between General Electric and China's state owned Avic to produce sophisticated avionics (airplane electronics) in China for sale to Chinese and other airplane producers.

No doubt intended as a way of pouring oil on the troubled waters of U.S.-China trade relations by demonstrating mutually beneficial cooperation between U.S. and Chinese industry, the announcement instead demonstrated precisely why the waters are troubled.

Let's start with GE Chairman and CEO Jeff Immelt. About a year ago, in the course of a dinner he thought was private, Immelt complained that China is a miserable place in which to do business. It was bent on expropriating GE technology and made selling in China very difficult if not impossible unless a company also produced in and transferred technology to China, he opined. A few months later, Immelt spoke of having an epiphany about the dangers of off-shoring too much GE production. In the GE annual report, he wrote of the need for and his intent to put more investment in the United States and to bring some of GE's foreign production back to America.

But the announced deal will take things in the opposite direction. The investment and production will be in China and the technology (much of it initially paid for by U.S. tax payers and the Defense Department) will be transferred from the United States to China, thereby enabling China's aviation industry to move more quickly toward its goal of overtaking the U.S. and Europe in commercial and military jet production.

So what's going on? GE's Vice Chairman John G. Rice put it bluntly in commenting on the fact that China is expected to buy $400 billion of airplanes over the next twenty years: "We can participate in that or sit on the sidelines. We're not about sitting on the sidelines." Rice added that: "This venture is a strategic move that we made after some thought and consideration with a company we know. This isn't something we were forced into by the Chinese government."

Okay, but why can't GE sell to that big market without a joint venture with a state owned Chinese company? Why can't it just make the avionics in the United States and export them to the Chinese aircraft makers and airlines? After all, China doesn't have this technology right now. So GE is a lower cost and infinitely more sophisticated producer than Avic.

Well, one reason might be that if GE doesn't do this deal, another avionics maker might. But hold it. That has to mean that the Chinese are effectively making access to this big market conditional on producing in and transferring technology to China. So who is Rice trying to kid. Maybe the Chinese government didn't call him up and shout directly over the phone that "Mr. Rice we command you to do a joint venture with Avic and to transfer your technology and production to China." But Rice is not as dumb as he thinks we are. He was afraid that if he didn't produce in China, he wouldn't have a chance at the business.

And Immelt did say that he had cleared all this with the U.S. Departments of Commerce, Defense and State.

But that raises an even more interesting question. Will we be hearing of any joint ventures between U.S. and Chinese companies that will transfer Chinese technology and Chinese based production to the United States? I'm sure your guess was "no." And you're right. But why don't Obama and his Commerce, Defense, and State Departments make it clear to the Chinese that if they want to sell in the U.S. market they need to produce something here and transfer some technology here? China is way ahead of the U.S. in the production of solar panels for example. This is a technology being fostered by the Obama administration. Why not get the Chinese to help us in solar panels just as Immelt and GE (with the apparent approval of the Departments of Commerce, State, and Defense - and the White House) are helping them with avionics?

After all, isn't what's good for the Chinese goose also good for the American gander?

EXPLORE:CHINA, ECONOMICS, U.S. FOREIGN POLICY
 

SLIGHTLY_OPTIMISTIC

5:36 PM ET

January 19, 2011

Political will?

Why doesn't Washington insist that companies selling in the US market should operate in the US?

No doubt in part because the global supply chain means components can be manufactured all around the world. Nevertheless a minimum local content percentage could be specified - if there is sufficient political will.

In fact this week the US president seemed to bemoan the lack of political will. He wrote in the WSJ about regulation, saying his administration has tried to strike a balance between business and the responsibilities of elected stewards to protect the public interest. The president admitted this wasn't always possible, and the public had been let down badly for example in the run-up to the financial crisis.

 

MARTY MARTEL

9:22 AM ET

January 20, 2011

Goose makes it cheaper than the gander

Simple answer is ‘Chinese goose makes it cheaper than American gander’.

And hence what s good for the goose is NOT good for the gander in this case as Clyde Prestowitz has to know.

Only way for GE to manufacture the avionics system in US is for US wages to crash to Chinese level.

That won’t happen until US declares bankruptcy, dollar crashes or China owns so much US treasury bills that China can dictate US economic policy.

 

RICKKENNEDY

11:37 AM ET

January 20, 2011

You Are Playing With The Facts

This article is grounded in numerous inaccuracies as it pertains to the GE/AVIC joint venture in avionics.

For more than two years, GE has consulted with leading experts in global trade and commerce to ensure the highest level of security with regards to intellectual property in creating a global joint venture company with a Chinese partner that will expand our avionics business while creating GE jobs in the U.S.

The technologies involved in the GE/AVIC JV are not from the government. They are technologies developed by GE and AVIC.

Now, for the issue of jobs. GE Aviation has developed a fantastic relationship with China’s aerospace industryt. Today, 2,500 GE engines power aircraft for Chinese airlines, with another 1,000 engines on back order. GE Aviation expects to reach $1 billion in revenues in China alone this year – a business volume that maintains 1,800 full-time, high-paying GE jobs in the U.S. and hundreds more around the world.

Those jobs would not exist without GE Aviation being a significant supplier to Chinese aviation.

The GE/AVIC in commercial avionics will allow GE and AVIC to grow a business together that will create jobs globally, including hundreds of new jobs in the US, the UK, and China.

GE Aviation has operated successful joint companies with international partners for more than 30 years. In 1974, GE teamed with Snecma of France to create CFM International. Today, it is the most successful international joint venture in aviation history. GE knows how to protect its technology in a global economy while pursuing common goals with an international partner. This joint venture with China is no different. In fact, the GE/AVIC venture is our fourth 50/50 joint venture company, joining CFM International, GE Honda Aero Engines, and The Engine Alliance.

After GE purchased the avionics technology of Smiths Aerospace three years ago, the focus has been to grow that business into a tier-one, commercial avionics supplier by marketing integrated systems globally.

This venture has already launched its first integrated systems product with COMAC’s new C919 narrow-body aircraft, which will also be powered by GE engines. The joint venture already maintains 300 U.S. jobs at GE.

GE and AVIC have agreed to significant compliance safeguards as part of the deal, to protect the GE and JV technology. GE will control compliance within the JV, with a permanent GE CEO, Compliance Officer and Compliance Committee, which will exercise the power of the Board of Directors.

GE Aviation has long operated in a complex global economy that you apparently don't understand. You act as if GE has created the first significant joint venture between AVIC and a U.S. aerospace company.

Where on Earth have you been?

Rick Kennedy
Mgr., Media Relations
GE Aviation
Cincinnati, Ohio

 

TAYWRAY

1:13 PM ET

January 20, 2011

Wow, hit a nerve, huh?

Despite Kennedy's protestations above, Prestowitz does identify a potential trend among formerly-American-now-multinational companies whose interest alignment with U.S. national interests can no longer be assumed. As they've followed profits overseas, such mega-firms have developed interests and incentives of their own in far-off places, any number of which might conflict with U.S. security or IR interests.

Kennedy has a stronger argument if he instead emphasizes that business ties with China inevitable decrease incentives to go to war between the two nations, so FP scholars should praise cooperation, even if it comes at a higher ethical price than Western companies are normally willing to pay. Sure, there's monstrous profit motive to back up such partnerships, and the U.S. labor force might not be reaping grand rewards (yet), but the foreign policy implications are what Prestowitz is really concerned with, and those are still debatable.

Anyway, kudos to Clyde for an interesting piece that elicited an even more interesting corporate reaction.

 

OLDERTIMER

2:34 PM ET

January 20, 2011

Chinese investments and technology transfer

1 - China wants to invest and build high-speed rail in California.
The Chinese government has signed cooperation agreements with the State of California and General Electric for this project. China is willing to transfer the technology and to build the coaches in USA. Also, it offers to bankroll the project.

**China Is Eager to Bring High-Speed Rail Expertise to the U.S.
http://www.nytimes.com/2010/04/08/business/global/08rail.html

2 - Another Chinese company is engaged in a joint venture with some American companies to build large scaled wind farm in Texas. The turbines are to be imported from China. The project is to be financed largely by Chinese banks

**China-U.S. Group Plans to Build Texas Wind Farm
http://www.nytimes.com/2009/10/30/business/energy-environment/30wind.html

I just hope that the American people do not reject these offers out of protectionism or ideologies.

 

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