Chinese Challenge to Boeing and Airbus

By Richard McGregor in Beijing, Kevin Done in London and Doug Cameron in Chicago

China plans to mount a head-on challenge to the dominance of Boeing and Airbus in the global market for big passenger jets by setting up a state-owned company to build the aircraft.

A statement on the government's website issued late yesterday said the state council – the cabinet – had taken an “important strategic decision” to begin research and development to enter the market.

China is one of the biggest target markets globally for both Boeing and Airbus. The European group's latest forecast places China in second place behind only the US by both the number and value of jets needed between 2006 and 2025 with a market for 2,929 large aircraft worth $349bn.

The move, backed by technical know-how developed over the industry's 50-year history in the country, reflected “the wish of the entire Chinese people for many years”, said the statement.

It gave no details about the company or how it would be funded, nor did it set out any timetable. The decision was taken on February 26, but there was no explanation for the delay in the announcement.

Boeing of the US and Europe's Airbus have a duopoly in the market for big jets of 100 seats or more. Both manufacturers estimate the market to be worth about $2,600bn over the next 20 years with forecast deliveries of about 23,000 new jets excluding regional jets of below 100 seats.

It would take decades for China to develop a full range of big jets to compete fully with Airbus and Boeing, but the US and European aerospace industries take the long-term challenge seriously, not least as the country will be able to draw on the support of potentially huge demand from domestic carriers. It has taken Airbus nearly 40 years to develop a complete family of large jets.

Steven Udvar-Hazy, chairman and chief executive of International Lease Finance Corporation, one of the world's top two aircraft leasing companies and one of the most influential purchasers of new aircraft, said last week that both China and Russia could develop aircraft capable of competing with the Boeing 737 and Airbus A320 families of single aisle jets within 15 years with government backing and technology gained from both companies.

He said there was no reason why companies other than Boeing and Airbus could not enter the business.

China has never hidden its ambition to become a major force in the aviation and aerospace industries, requiring foreign companies, which sell into its increasingly lucrative market, also to manufacture parts there and transfer technology.

It is due to begin deliveries of its first home-made regional jet, the ARJ21, in 2009, and is also adding other joint ventures with foreign companies to assemble aircraft in the country.

Airbus signed a framework agreement with the Chinese authorities last October to build its first aircraft assembly plant outside Europe at Tianjin in eastern China.