China Goes Shopping

So China has learnt something from the Japanese experience. One way to calm things down is to go shopping. This purchase can kill two birds with one stone: cool down the overheating Chinese economy, and lower the political temperature in Washington. As a bonus you get some smart technology thrown in. Of course later you will have to ask how many years will it be before they are manufacturing something - not a copy, of course - but something very similar inside China.

China is poised to buy as many as 30 planes worth about $2 billion from Boeing Co., the world's largest aircraft maker, allowing the country to narrow its trade gap with the U.S. Carriers including Air China, Shandong Airlines Co. and Xiamen Airlines Co. will buy the 737s from the Chicago-based company, an official at China's State Development Planning Commission said in a phone interview from Beijing, speaking on condition of anonymity. The commission approves purchases of planes for Chinese airlines, all of which are state-controlled. The order may be announced during Chinese Premier Wen Jiabao's Washington D.C. visit, scheduled for this month, Boeing officials said. The purchases are a part of China's efforts to ease U.S. concern about its $130 billion trade gap with Asia's second-largest economy, said investors such as Louis Chan.

The order will help Boeing limit the loss of market share to Toulouse, France-based Airbus SAS. Boeing last month said sales of commercial aircraft dropped 17 percent in the third quarter. Airbus has won 263 orders this year, compared with Boeing's 169. Airbus expects to deliver 300 airplanes this year, which would give it more deliveries than Boeing for the first time in its history. Mark Hooper, a spokesman of Boeing in Hong Kong, said airplane order announcements should be made by the airlines. Shandong Airlines said it will buy seven 737s, while Xiamen Airlines said it will purchase five of the planes and Air China said it will also take five aircraft from Boeing. Air China spokesman Wang Yongsheng confirmed the airline's order in a telephone interview, without specifying what type of planes.

Chinese Trade Minister Lu Fuyuan and other officials have said China will bolster imports to close its trade surpluses with the U.S., European Union and Japan.

U.S. Commerce Secretary Don Evans last week denounced China as a closed market and predicted that the U.S. trade deficit with the world's most populous nation will reach a record $130 billion this year. Chinese airlines will buy 2,400 new aircraft worth $197 billion in the next two decades, according to Boeing, as they expand their fleets to meet demand in one of the world's fastest- growing economies. The Chinese economy, the world's sixth-largest, is expanding at an estimated 8 percent annual rate, three times as fast as the Group of Seven industrialized economies.

Shandong Airlines, which is based in the eastern city of Jinan, will take delivery of the 737s as soon as 2005, said Gao Zhu, the carrier's general manager, in a phone interview. The carrier, which has a fleet of 30 planes including those made by Boeing and Canada's Bombardier Inc., plans to expand its fleet by a third to 40 planes by 2007 as it prepares to offer flights to South Korea and Japan next year, Gao said. Shandong Air, which had earlier sought government approval to buy 15 Boeing planes, will order the remaining planes later, Gao said.

Xiamen Airlines, 60 percent owned by China's biggest carrier China Southern Airlines Co., will expand its all-Boeing fleet with the purchase, said its Chairman He Ping. The airline, based in southeastern China's Xiamen city, has 27 737s and 757s. Xiamen Air operates more than 110 domestic routes and four international routes to Singapore, Seoul, Bangkok and Kuala Lumpur. The airline expects to get approval to start flights to the Malaysian island of Penang this year, he said. The 17 planes on order and confirmed by the three carriers will cost an estimated $1.1 billion, based on catalogue prices. The list price for a 737-700 is as much as $55 million, while a 737-800 is as much as $64.5 million. There are usually discounts to these prices.
Source: Bloomberg
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