China has been the biggest manufacturer of commercial goods for a very long time. It has accomplished this market by following a strategy of low-cost production which gave the country the ability to flood any market especially with its mass produced electrical, computer appliances, and clothes.

But China, now the world’s largest economy by some measures, looks to compete globally in something other than low-cost products – namely the aircraft manufacturing industry. Thus with years of preparation, they have just unveiled their first homemade passenger plane, the C919, to help Chinese aviation challenge the duopoly of Boeing and Airbus.

There are a few reasons it makes perfect sense for the country to manufacture its very own aerial vehicle.

First, despite the global downturn that has affected the Chinese economy deeply, the China’s aviation industry is the second largest market and is still experiencing extremely high growth. The first quarter of 2015 saw the number of international passengers flying in and out of China sky-rocket to over 7 million boasting a 57% increase from last year’s.

International air travel is not the only area that is rapidly expanding. Growing, but not as fast, is domestic air travel. In fact domestic fliers broke the 100 million mark for the very first time with a growth of 13% in Q1 of 2015.

The Chinese aviation market is expected to continue growing at an annual rate of no less than 10% for the next 20 years which is 5 times the predicted growth of the US market.

Second, the establishment of more aircraft factories in the country will draw in more foreign investment (FDI). China has come a long way and has in fact surpassed the US as the world’s top destination for foreign investment in 2014. Looking to further strengthen its place, Chinese officials realized that this move will attract not only investment in airline production but also in the domestic airports in terms of improving already existing ones and constructing new ones all across the nation. The Chinese aviation market was born.


Globalizing the Chinese Aviation Market

2008 saw the conception of COMAC (Commercial Aircraft Cooperation of China), China’s very first aircraft manufacturing company. This marks a milestone in China’s ambitious attempt to change the status quo of the aircraft manufacturing industry, one dominated by a duopoly between the American company Boeing and its European counterpart Airbus.

The journey to successfully unveiling its first aircraft was not without turbulence.

COMAC functions as a state-owned limited liability company and therefore is not open to foreign direct investment. This hinders foreign direct investment into COMAC itself.

There is still somewhat of a lesser stigma surrounding the products made in China. China has a long way to go to set up a reputation for itself globally that Chinese airplanes are up to standards and will not be breaking down midair due to cost savings. The only airplane on the company’s portfolio has yet to be certified by the major aviation organizations from both the United States and European Union, effectively preventing the model from servicing any flights involving the US and EU for now.

However, not all is lost as the country still attracts foreign investment into companies that supply parts to COMAC.

Even though certification from both the US and EU is a lengthy process, it is not impossible. For example, it took Boeing about 200,000 hours of which 4,000 were test flights to be given the thumbs up by the American organization that grants the certification, the Federal Aviation Administration.


Introducing China’s C919

The C919, China’s very first plane with a range of 5,555 KM and a capacity of 168 passengers, was revealed earlier this week.

As this marked a significant milestone, COMAC held a huge ceremony to unveil the fruits of its many years of labor China’s civil aviation chief graced the ceremony with a speech in which he said that a great nation must have its very own commercial aircraft.

With the goal of making a dent in and changing the current duopoly, COMAC has already 517 orders for the model even though the first test flight is scheduled for next year in 2016.

COMAC’s entrance into the market has not gone unnoticed by the competition. The head of Airbus’ strategy and marketing, Marwan Lahoud, publicly acknowledged that by 2020 COMAC would actually be a force to be reckoned with.

About Reid Kirchenbauer

Reid Kirchenbauer is the Founder of InvestAsian. He's experienced with trading stocks and buying property in Thailand, Cambodia, and elsewhere. He's been featured in publications such as Forbes, Nomad Capitalist, Property Report, and Seeking Alpha. Download his free investment guide by clicking here.

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