GE-Avic Deal Highlights Old Suspicions

 - February 12, 2011, 11:12 AM

Protectionists have sounded the familiar alarms over GE’s joint venture with China’s Avic, formalized during January’s state visit to Washington by Chinese president Hu Jintao. The venture, an equal partnership between GE Aviation and Avic, will involve the development and marketing of integrated, open-architecture aviation electronic systems to the global commercial aerospace industry for new aircraft programs, according to GE. On the other hand, critics such as the Washington Post’s Steven Pearlstein accuse GE of selling some of the “crown jewels” of U.S. technology for access to China’s “rigged” market, jeopardizing America’s competitive advantage in aerospace technology. Others, such as the right-wing blog Family Security Matters, insist the U.S. cannot trust the Chinese to honor agreements meant to prevent transfer of the technology for military purposes, and they’ve found a perfect symbol in the ominous images of the new Chinese J-20 stealth fighter to support their case. 

GE and Avic plan to collaborate on the central information system and backbone of the Comac C919‘s networks and electronics, meant to host the airplane’s avionics, maintenance and utility functions. Under the plan, GE and Avic would continue to support their legacy programs and honor existing contracts with customers. Of course, the agreement remains subject to government approvals for which the likes of Pearlstein have called on President Barack Obama to block. Rather, they say, the U.S. should emulate the Chinese by offering subsidies and directed credit for local companies, adopting “buy-American” provisions for government agencies and government contractors, manipulating currency and adopting rules on “conditional market access” and “indigenous innovation.” Ironically, the same conservative critics remain steadfastly opposed to what they regard as illegal subsidies at European airframer Airbus.

For her part, GE Aviation Systems president Lorraine Bolsinger insisted that the partnership resulted from more than two years of consultation with “leading” trade and commerce experts to ensure intellectual property protection. More important, she said, the partnership’s goal centers on the joint creation of intellectual property and its sale to customers around the world, not just China.

GE estimates that its business with China already sustains 1,800 full-time jobs in the U.S., including 300 committed to the GE/Avic venture.

In fact, U.S. aerospace suppliers see little choice but to engage with the world’s second-largest economy. Chinese airlines now operate more than 2,500 jet engines produced by GE and its joint venture with Snecma, CFM International, and hold orders for another 1,000 engines on back order. In business with the Chinese aerospace industry since the mid-1980s, GE and, indeed, the likes of Boeing, already derive a large part of their revenues from the business the People’s Republic generates.