GSE With ‘Chinese Characteristics’

Say what you will about the Chinese government, it sure knows how to make the planes run on time.

Much of the promotion certainly had an impact. Earlier last year, the Chinese government announced that it would open up its skies – or at least that part that rises 1,000 meters above sea level – to general aviation.

As for commercial aviation, Chao says its overall capacity is currently only at 30 percent of America’s capacity.

“There are going to be a lot more airports,” he says, “and those airports are going to need a lot more equipment.”

We first met Chao in the pages of “China Airborne,” a book published last year by journalist and instrument-rated pilot James Fallows. In the book, Fallows chronicles China’s ambitious aviation plans and describes Chao as the consummate middleman who becomes an indispensable guide to anyone from the West looking to navigate Chinese culture and business.

“On one side are international companies large or small who sense that somehow that have to ‘get into’ China because of its vast potential,” writes Fallows in his book. “On the other side are the complexities, confusion and constant changes of customers and operating rules on the Chinese side.”

Our first thought was that electric equipment could be a trend for GSE in China, considering the recent headlines we’d read about how bad air pollution is in China. But Chao wouldn’t hear any of it.

“I read news about Chinese aviation all the time,” he says, “and some parts I may not agree with. But I never read anything about electric equipment whether by the government offering a subsidy to purchase it or through enacting regulations that it has to be used.”

And while air pollution is certainly a factor in the country’s large cities, the smog can’t be blamed on the country’s relatively small numbers of airports.

Chao reiterates much of what we’ve heard about the country’s politics – that growth is the main source of legitimacy for China’s current rulers.

“Buying electric GSE will not make anyone any money necessarily and everyone is only interested right now in buying equipment that will generate revenue,” Chao advises.

As for selling GSE with Chinese characteristics, Chao offered two broad strokes of advice:

  • Partner Up: GSE is not so sophisticated that it can’t be – to use Chao’s choice of two words – “copied” or “borrowed.”

“Once the Chinese learn how to make something,” Chao explains, “it’s ‘Thank you very much, but we don’t need you any longer.’”

When Chao first began consulting, there was an imaginary line running somewhere between China and his clients, which were typically operating facilities anywhere, but inside China.

But as the country modernized and began moving past simply operating factories on Chinese soil for the export of low-cost consumer goods, the Chinese government began to put pressure on manufacturers to operate in China.

Airbus, for example, set up its only plant outside Europe in Tianjin to assemble most of the planes China has agreed to buy. GE shares engine technology with a subsidiary of the Chinese Aircraft Corporation of China in order to supply engines to China’s own narrow-body jet. General aviation manufacturers have also set up production plants in China - and China made headlines in 2011 for buying Cirrus for $210 million.

Once the Chinese learn how to make something, however, it’s likely to be another game entirely.

Nothing stands in the way of the fact that the Chinese can build more of most anything at a lower cost (although not necessarily better, Chao adds) with a naturally bigger share sold to its own home market. The scale of such a large domestic market can lead to exports around the world. And from that point, it’s all China’s gain.

For the moment, the pressure to build inside China isn’t all political, of course.

“With a relatively small country like Taiwan,” Chao says, “you can make product elsewhere and sell it there. But China is such a large country geographically that it only makes economic sense to build or assemble in China when you factor in the extra cost of shipping, duty fees and other transaction costs of importing.”

  • Be A Landlord: Land is “free” in China if only because the government owns and controls this resource. As a result, this free commodity becomes very valuable indeed.

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