Interesting things to consider

I know I'm due to post something on the Zhuhai airshow and I will get to that this weekend along with some new 054A photos and other photos. But I read an interesting article by Pat Buchanan today and I thought I'd comment on it. For those who don't know, Pat Buchanan is a prominent conservative (the old-time fiscal conservative rather than social conservative of today). You can find the article here.

Basically, he raises some interesting points about the rise of China and fall of USA. If we really think about it, the biggest gap separating USA and China is the manufacturing capability and the technology gap. Even after years of improvement, US still leads China by decades in certain areas. I think what he stressed there that's important is that China has really been moving up the value chain in manufacturing. At the same time, US manufacturing industry has been on a steady decline and the service industry is by far the largest one now. When we shift the focus to the military side, it's clear that civilian technology/manufacturing trends are also present there. We see a vibrant shipbuilding industry in China, compared to a non-existent shipbuilding industry in America. So even though there is a technological gap between the latest PLAN and USN ships, the production is a different story. China is building many new naval ships on time and on budget, whereas USN is plagued with cost overruns. It all comes down to the fact that China has the manufacturing capacity here, whereas US does not.

Automaking is an industry that is the foundation of manufacturing. US became the manufacturing center of the world due to its car making prowess. The entire concept of assembly line and mass production was started by Ford. Make no mistake, even with the big 3 in trouble, US will still be the largest card producer in the world due to the fact that all foreign automakers are building their cars in America now. At the same time, you see that China is still having trouble breaking into European/North American market due to the safety and emission requirements in these markets. However, you are finally seeing different private and public automakers in China really expanding their operations and mass producing cars. So, there is a technological gap, but the manufacturing gap is almost irrelevant here. Both countries have the manufacturing capability to produce the trucks, vehicles and tanks needed for combat operation.

If we shift our focus to aerospace, it's a totally different story. In this area, US has a huge technological edge in material science, engine technology, stealth, aerodynamics and sensor. However, US has retained its manufacturing capability here, whereas China has a very low-end aerospace industry. As a result, we see that China has to rely on Russia for engines until WS-10A can be ramped up. We see that China has to cooperate with the Russians and Europeans on advanced helicopter designs. We also see that China has to cooperate with Ukrainians and copy IL-76 in order to get its own military transport. Even after it successfully develops an aircraft, it cannot produce them at the same rate as Boeing or Airbus or Sukhoi. Just look at how much trouble SAC is having in just produce 10+ J-11Bs. At the same time, we see that it simply does not have the work force, technology and expertise to mass produce larger aircraft like Y-8, MA-60 or ARJ-21. I don't really call producing 30 ARJ-21s a year mass production. However, you see that China is really attempting to catch up in this area the same way it has in shipbuilding and automaking. It is getting an assembly plant for Airbus 320 in Tianjin on top of the assembly plant for ERJ-45 and also trying to develop its own airliner. At the same time, it has ready become a major supplier for both Airbus and Boeing. And in the recent Zhuhai airshow, we heard news that China is buying a Western aviation firm.

It's been a general Chinese practice to start by producing the simpler parts and then slowly move up the value chain while advancing technologically. Eventually, it will be able to first copy and then eventually design its own machinery. It has already happened in shipbuilding and automaking. I think it will also get there in a decade in aerospace. There really isn't much Western companies can do here. China has managed to capitalize on the competition between advanced Western companies for the Chinese market by getting them to transfer technology in certain cases, do joint venture in other cases and source parts in other cases. Unless everyone refuses to sell to China, a nation that is devoting this much resources to advance technologically will succeed. And you can also see this happening in other major industries like nuclear power plant, renewable energy and space technology (to a less degree). And I think the best point that Pat made is this one.

With her immense trade surpluses, China's reserves have surged from $200 billion in 2002 to $2 trillion. Awash in dollars, Beijing now waits patiently, writes McMillion, to cherry-pick the crown jewels of America's industrial empire—"patents, talents, natural resources, brands"—at fire-sale prices in the global crash.

It's scary that he is mentioning this, because that's exactly what I read China is trying to do in the recent years. It has already bought out Western companies in automaking, CNC machinery for their technology rather than their business value. It's a luxury that most Western countries don't have. With a huge account deficit in most G-7 countries, they really don't have the money or the public support to rescue every company that has advanced civilian technology. Remember, China is trying to improve its overall technological and manufacturing prowess. Military industry will only be helped by advancement in civilian areas as clearly shown in shipbuilding.