China Airborne: What China's Big Bet on ... - Yahoo! Finance

By Daniel Gross

When it comes to the economic future of China, it seems we live in a world of black-and-white, binary choices. Either it is poised to become the world's largest economy and roll on as a juggernaut for decades to come. Or it is a giant, unsustainable bubble that is poised to pop any minute now.

The reality, of course, is somewhere in between. There are, it turns out, many Chinas, with great variations between different regions and different industries. There's lots of wealth and unimaginable poverty. There are highly sophisticated industries whose products that rival anything the West can produce, and others that simply lack the hardware and software to met international standards.

James Fallows, a renowned journalist and aviation enthusiast, has lived in China, a country that, as he notes, is compressing a century's worth of development into a few decades. In his new book, China Airborne, he uses China's efforts to build a domestic aviation industry as a lens through which to examine the country's development. "The more time I spent in China, the more I thought that this aspect of its industrial ambition," he writes, "was the next great arena and test case for Chinese modernization."

As we discuss in the accompanying video, there's more to building an aviation industry than figuring out how to assemble the components of planes. A country has to build out infrastructure for fuel, components, maintenance, pilots, and air traffic control. Trustworthy and open systems must be designed. The military must cede control of the airspace to create traffic lanes for private jets and commercial aircraft.

And that's not happening yet. "There's a huge push by businesspeople in China to have the kind of business jet culture we have in the U.S. but there are many impediments, including the People's Liberation Army," said Fallows, who flew a private plane from one city in China to another several years ago. It's possible to charter a plan in China, but until recently people had to give a few weeks notice, and they still need approval from the military to take off and land. "it is one of the struggles between the Chinese security state and the economic state."

In many countries, the military has been a driver of innovation in domestic aviation industries. But that's not the case in China, where the army is a technological laggard. "China's Navy just got its first aircraft carrier," Fallows notes. "The U.S. got its first in the 1920s."

In aviation, as in so many other areas, China is seeking to make up for lost time through a top-down process. Establishing a domestic aviation industry ? jet manufacturing, airports, greater travel ? has been a central component of the current Five-Year Plan. And China has shown an amazing ability to apply engineering skills to massive projects, from the Three Gorges Dam to a high-speed rail line that soars into Tibet.

But Fallows remains skeptical about China's ability to build an aviation industry overnight. "It's not just a hardware issue. It's a very complex social engineering thing." A jet isn't like a very sophisticated computer. It has many more parts. No defects are tolerable. They must be produced to rigorous international standards. It requires an ability to integrate systems in an incredibly sophisticated way. It requires a level of cooperation, transparency, and accountability that is not yet evident in China at large. And while building an airport is relatively easy, China still lacks the broad-based consumer economy that can make mass air travel a sustainable business. "Their ambitions in aerospace exemplify every tension that's going on in China," Fallows notes.

Just so, Fallows manages to tease out many of the contradictions and issues that China is grappling with as a country and a society with this highly readable, occasionally fun investigation into China's burgeoning aviation industry. "We should take China seriously," he concludes. "But we shouldn't be scared of them because they have ten times the number of problems we have."

Daniel Gross is economics editor at Yahoo! Finance

Follow him on Twitter @grossdm; email him at grossdaniel11@yahoo.com

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