Biden Administration Sanctions Chinese Comac Jet Ending Chinese Home-grown Commercial Jets Dream

The Trump administration is close to issuing a list of 89 Chinese aerospace and other companies that would be unable to access U.S. technology exports due to their military ties, Reuters reported, a move that could escalate tensions as the Biden administration prepares to take over, reports Bloomberg.

A spokesman for the U.S. Department of Commerce declined to comment, Reuters said. Commercial Aircraft Corp. of China Ltd., or Comac, and Aviation Industry Corp. of China Ltd. are among the firms named, Reuters reported, citing a draft copy of the list from the U.S. Commerce Department.

The move could fuel already-heightened tensions between the U.S. and China on fronts ranging from trade and Taiwan to the handling of the coronavirus as President-elect Joe Biden prepares to take over from Donald Trump.

Pressure Is On China

AVIC is a state-owned conglomerate with 100-plus subsidiaries and more than 450,000 employees. The Trump administration in June put AVIC on a list of companies it said were controlled or owned by China’s People’s Liberation Army. The firm also runs a civilian business that makes airliners and private jets — some built with parts made by joint ventures with American companies.

State-owned Comac is manufacturing alternatives to Boeing Co. and Airbus SE planes and now delivering them to the major Chinese carriers. The company is producing a single-aisle model designed to rival the Boeing 737 and Airbus A320 and it is in the early stages of developing a widebody aircraft. AVIC is a shareholder in the planemaker.

In its latest forecast on China’s commercial aviation market, Boeing said the country’s airlines are likely to buy 8,600 new planes over the next 20 years for a total of $1.4 trillion.

One company especially at risk is General Electric Co., a supplier to Comac. For its C919 narrow-body plane that’s now in testing, Comac uses engines from CFM International, a 50/50 joint venture between General Electric and France’s Safran SA.

GE also has exposure through Aviage Systems, its 50-50 joint venture with AVIC. The C919 has Aviage-made equipment such the flight recording, flight management and onboard maintenance systems.

Beijing’s hopes of challenging the lock held by Boeing and Airbus on the large commercial jet market rest primarily on Commercial Aircraft Corporation of China, or Comac.

With China forecast to be the biggest source of demand for such planes in the coming years, Comac has been winning an increasing share of local orders for smaller jets with its ARJ21 model. But it is seeking to move into the midsized market with its C919, which is still undergoing flight tests.

The US Department of Defense said on January 14 that it would add Comac, phonemaker Xiaomi and seven other Chinese companies to a list of companies judged to be linked to the Chinese military and thus meriting special scrutiny.

Under an executive order signed last year by then President Donald Trump, American investors must halt investing in such companies. Unlike Xiaomi, Comac is not a publicly traded company, so the investment ban will probably have limited direct impact, though the company has sold bonds domestically.

The risk, though, is that the addition to the military list sets up Comac’s addition to the so-called entity list maintained by the US Department of Commerce. That would then restrict the ability of US companies to export products to the plane maker.

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