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Roughly $400 billion in revenue would be a heavy price to pay for selling 12 missiles to Taiwan, but that potentially is what The Boeing Co. (NYSE: BA) is facing as China continues to fume over U.S. arms sales to the renegade island.
The Obama administration last week approved a $6.4 billion weapons deal with Taiwan. The deal, which was brokered by the administration of George W. Bush in 2001, included UH-60 Black Hawk military helicopters and additional Patriot PAC-3 missile defenses, but not additional F-16 jets, which the government deemed "too provocative."
The sale infuriated China, which considers Taiwan its territory. Beijing has vowed to unify the region peacefully if possible and forcefully if necessary, but the 1979 Taiwan Relations Act obligates the United States to "provide Taiwan with arms of a defensive character." That makes Taiwan the most sensitive issue in bilateral relations between the two nations.
The United States has a history of following through on that promise, but this deal in particular agitated Beijing, which in the past few years has attempted to assert itself as a true global superpower. For the first time ever, China's government has publicly threatened U.S. companies that took part in such an arms deal with economic sanctions.
"Due to the serious damage the U.S. arms sale to Taiwan has inflicted upon Sino-U.S. relations," announced the Chinese Foreign Ministry, "China has decided to postpone part of the Sino-U.S. military exchange programs, as also vice-ministerial level consultation on strategic security, arms control and non-proliferation, etc.; China will also impose related sanctions on those U.S. companies which participate in the arms sales to Taiwan," read an article in the People's Daily Online, the official mouthpiece for the Communist Party of China.
The companies involved in the arms sale include The Boeing Co., Lockheed Martin Corp. (NYSE: LMT), United Technologies Corp. (NYSE: UTX), and Raytheon Co. (NYSE: RTN).
The least affected of that group would be Lockheed Martin, which hasn't done business with China since 2002. The sum of Lockheed's Beijing operations consists of one part-time receptionist. However, Boeing and United Technologies stand to lose much more.
United Technologies, through its Sikorsky Aircraft subsidiary, sells Otis elevators and Carrier brand heating and air-conditioning systems in China. There are 160 Boeing employees in China, and more than 5,800 employees at Boeing subsidiaries and joint ventures, while UTC employs about 16,000 people in China.
In September 2009, Boeing forecast China would need 3,770 new airplanes valued at $400 billion over the next 20 years. Over the past three years, Boeing has derived about 4% of its total revenue from China. Worse, the launch of the company's vaunted 787 Dreamliner has been obscured by repeated delays.
"If there is an embargo, it would hit Boeing very, very badly," Tom Ballantyne, chief correspondent for Orient Aviation Magazine, told the BBC. "It could be horrifying news for Boeing."
Of course, there is still a chance that Boeing and others will be able to emerge from the row relatively unscathed. Companies like Boeing are protected under the rules of the World Trade Organization (WTO), which prohibit open discrimination against foreign suppliers of civilian equipment. The United States would no doubt challenge in international court any measures taken by China to penalize its aerospace juggernaut.
Additionally, China needs Boeing's technology and support to build its own global aerospace competitor.
It's more likely that China will simply reallocate its aircraft purchases to favor Boeing's European rival Airbus SAS.
"I don't think they'd discard Boeing completely because they want to have something to wield over the Europeans," Peter K.N. Lok, Hong Kong's former director of civil aviation and a former board member of Air China and China Eastern, told The Financial Times. "What could happen is what they've done before – tilting the sales of aircraft slightly more in favor of Airbus."
Airbus has won slightly more orders from China than Boeing in recent years, but its aircraft make up just 36% of China's total commercial fleet, compared with 53% for Boeing.
As of today (Monday) Boeing had not been notified of any sanctions by the Chinese government.
News and Related Story Links:
- BBC:
Chinese warn Boeing over Taiwan - People's Daily Online:
What an outrageous Cold War mentality! - Financial Times:
Beijing sanctions over arms sales could backfire - Money Morning:
Airbus Deal Shows Investors That China Profits Are Cleared For Takeoff - Money Morning:
Latest Delays With Boeing's Dreamliner Puts Program Two Years Behind Schedule - Money Morning:
China's Commercial Aviation Sector to Enter "Important Period," Top Official Says - Money Morning:
Boeing Will Test Dreamliner in 2009 but Delays Delivery… Again
What is this "renegade island" thing? Taiwan struggled to resist the clutches of the communists, and has become a jewel of culture and industrial success that the communists want to grab. The writer is obviously a student of the revisionist history touted by the socialist media and classroom propaganda. He needs to read the biographies of the participants in the struggle against the communists for all of china who survived to create the culture and economy that is now Taiwan. These stalwart people were, and are, our allies against the communist encroachment. We must not betray their trust if we expect to be trusted and respected in the world community.
My fellow Americans,
China should not even THINK of threatning USA. As reported on the article there are over 25,000 Sino jobs t stake, great transfer poduction somewhere else, there are plenty of places to sell Otis elevators, heating and cooling systems.
Chinese Gvt can't dictate our sovereign political stance, furthermore before they even blink they should:
Get out of Nepal , Tibet, etc.
Clean the mess they did in Mongolia
Stop supporting corrupt violent governments in Africa.
I respect the chinese people but the regim and pilitics are dreadful.
I am fed up of listening to how should we fear the Chinese, guess shat I am declaring a boycot on every Chinese product.
Join me fellows let's stop buying, what bet they back off?
I concur with both the replies to this topic. One thing that needs to be mentioned is that CHINA needs to get out of covert support operations in Myanmar / Burma, where it interferes politically as often as the Sun rises on this planet. Hopefully, the world will stop buying chinese made goods and teach these fellows a lesson. "Communism", in the modern man's dictionary is just a synonym for dictatorship, Mafia,etc. etc. It is because of EU and the U.S.A that they can get $3trillion in their vaults and also not be questioned about its human rights debacle which the world saw in 1988 Tianamen sqaure. That legacy still continues.
Militarily- Osama Bin Laden sold two Tomahawk (unexploded)missiles which were meant to kill Bin Laden. The chinese have been busy, covertly, reverse engineering them. The U.S is selling "DEFENCE" equipment legally to taiwan in full world view. Beijing has spat the dummy 'cause it makes it so much harder for one of their errant missiles to penetrate taiwanese skies. May be instead of the feet binding culture they should start to bind their tongue.
Chinese appears to act all over the world through covert agencies. Probably, all that started in India by a series of factional fights in India at times when India was trying to project as a rising global economic player. It appears that ISI was extensively inspired/used to create communal problems that repelled foreign investors in India in eighties and nineties. Factional fights in Asia, Africa, and South America are economic good news to China. Such fights distract even developed nations around the world from focus on economic issues. Or drains out resources of nations, especially when unwise decisions are made by world leaders. Did such a thing happened even in Iraq?
read this to get an idea on the sale of the by Boeing Corp. to Taiwan