Chinese President Xi Jinping, left, and his wife, Peng Liyuan, arrive Tuesday at Boeing Field in Everett, Wash. Xi is spending three days in Seattle before traveling to Washington, D.C., for a White House state dinner on Friday. (AP Photo/Elaine Thompson)

President Richard Nixon flew in on a Boeing 707 when he traveled to China in 1972 to reestablish diplomatic ties with the former Cold War enemy. Just weeks after Nixon departed from Beijing, China’s top leaders ordered 10 Boeing 707 airliners, a technology without compare in China at the time.

On Tuesday, when Chinese President Xi Jinping arrived in Seattle, he also flew in on a Boeing. And at a visit to the company’s Everett, Wash., factory on Wednesday, Xi, too, put in some orders.

Boeing announced Wednesday that Chinese airlines and leasing companies agreed to purchase 300 Boeing aircraft, a package with a total value of $38 billion. (The package included some planes that had previously been ordered, reported The Seattle Times.) The company also announced plans to build a factory in China in partnership with the state-owned Commercial Aircraft Corporation of China, or Comac, to complete interiors and paint 737s.

Manufacturing airplanes is a symbolic industry for the United States -- a feat of advanced engineering, one of the nation's major exports and a bastion of American manufacturing jobs, many of which have left U.S. shores for China in past decades. It’s also an industry that has benefited hugely from China’s growth. One of every five commercial airplanes made in Boeing factories last year was sent to China, a trend analysts expect to continue as the country's rising middle class increases demand for air travel. In August, Boeing said its Chinese fleet could almost triple in the next 20 years, for sales of $950 billion.

Yet, as for other American companies in China, this success may come at a future price. China has long demanded that foreign companies transfer technology and manufacture some of their products in China. In exchange for access to one of the world’s most valuable markets, foreign companies must help China build brands that may one day put them out of business.

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Over the decades, Boeing and other American companies, including General Electric, Honeywell and Rockwell Collins, have helped China to build the broad foundation necessary for an aerospace industry. That same Chinese industry is now getting close to producing its own commercial jets that could one day take much of the profitable Chinese market back from Boeing and rival Airbus.

U.S. businesses that operate in China are increasingly complaining of an uneven playing field for local and foreign businesses. Companies are often hesitant to speak independently for fear of displeasing Chinese customers or partners, instead relying on business associations or the U.S. government to air their concerns. But in the run-up to Xi's visit, President Obama urged a group of U.S. businesses to speak out, despite their fear of retribution.

One of the most common complaints has been about Chinese pressure to transfer intellectual property that could ultimately be used to erode U.S. business advantages -- for example, recent requirements to share proprietary source code with Chinese authorities.

There is a long history of Chinese companies acquiring foreign intellectual property through coercive or illegal means. General Motors, for example, was surprised when Chinese car company Chery beat it to market with a car that was nearly identical to one GM had in development. AMSC, a Wisconsin-based wind turbine manufacturer, found that its Chinese partner, Sinovel, had acquired its proprietary source code and used the technology to manufacture turbines that were sold to customers in Massachusetts. Sinovel alleges that the theft resulted in a loss of $800 million and 500 jobs.

Boeing maintains that all of its China ventures have been valuable and prudent, and analysts say the company zealously defends its intellectual property. But Marc Allen, president of Boeing International and the former president of Boeing China, also said that Boeing recognizes China’s homegrown commercial jet, made by Comac, as its biggest new future competitor.

Boeing has expected potential new competition in the large commercial airplane space from Canada, China, Russia, Brazil and Japan. But, Allen said, “of those, we’ve also said that we believe Comac is the best positioned to succeed.”

Along with its major competitor, the French consortium Airbus, Boeing has dominated the commercial airplane space for decades. The two companies roughly split the global market, though Boeing says it has produced more than 50 percent of the commercial jets operating in China. The two-company dominance isn't expected to last.

“If you ask folks who follow the industry will there be a third competitor, it’s inevitable,” said Ron Epstein, a senior equity analyst at Bank of America Merill Lynch and a former research scientist at Boeing.

China’s efforts to build its own jet to compete with international makers like Boeing, Airbus, Embraer and Bombardier have faced plenty of challenges.

China originally planned for its homegrown commercial jet, the Comac C919, to take its maiden flight in 2014 and begin commercial production in 2016. But its manufacturing is behind schedule, and Chinese media report those dates could be pushed back by years.

Building a large commercial airplane is perhaps one of the biggest challenges of engineering and systems engineering that a country could undertake. The Boeing 747, for example, requires about 4 million to 5 million parts to come together, said Allen. “Getting the parts to show up on the right days, to work the right way with each other, to do so with a 100 percent safety guarantee is, as you could imagine, difficult,” he said.

Part of the challenge is that, since China’s aviation industry is so new, Comac has to cobble together parts and technology acquired from various countries around the world. Everything that’s going to go on their airplane is going to be either acquired abroad or assembled domestically in a [joint venture] structure, but based on technology that is not theirs,” said Epstein.

Another challenge is China’s reputation for low-quality products. “For better or worse, China has become synonymous in the global marketplace with a place where you can produce cheap goods in mass quantities,” said Anish Goel, a former director of geopolitical affairs for Boeing Commercial Airplanes and current senior fellow at the New America Foundation, a Washington think tank. “And they’re going to have to shed that to compete in the airplane market. Because that industry is one where people want high quality, and they’re willing to pay for it.”

But Allen of Boeing said Comac’s efforts to produce a competitor are likely to succeed eventually, for a few reasons.

First, Chinese leaders are putting a lot of money and political will behind the program. China has invested billions of dollars in its aviation industry, and Beijing recently named aerospace equipment as one of the 10 key sectors in which it aims to be a global manufacturing power.

Second, the Chinese have a huge market they will be able to sell into. Most of the Chinese airlines are partly state-owned companies, said Goel. The Chinese government is likely to put a lot of pressure on them to buy domestically.

Third, the Chinese have already built a strong and broad aerospace infrastructure -- with the help of Boeing and other foreign companies. Boeing has a huge array of partnerships in China, including manufacturing airplane components, converting old commercial planes to cargo planes, training pilots and air traffic controllers, and researching biofuel.

Indeed, while most people think of Boeing as being made in America, the jets are more made-in-China than you might think. Eight thousand Boeing airplanes flying around the world have Chinese-made parts. On the 737, the rudder, vertical fin, passenger doors, components of the wing and many other parts are manufactured in China.


Courtesy of Boeing

Boeing's newly reported plans to build a factory for finishing 737s in China are likely part of this overall strategy. Epstein said a local plant would give Boeing two advantages: It would give the company a location where it can more easily interact with Chinese customers, like a "storefront," he said. It would also demonstrate Boeing's willingness to be a good corporate citizen in China.

News of the planned China factory angered Boeing's strong unions in Washington state. Boeing declined to comment on labor complaints in an interview with The Washington Post on Monday. On Tuesday, however, The Wall Street Journal cited an internal Boeing memo that said that any agreements reached with Chinese partners would not result in layoffs in Washington state.

Epstein cautioned that it will probably take many years for China to develop a world-class product that could erode Boeing’s sales. He said Comac’s second- or third-generation aircraft is likely to be more competitive with Boeing or Airbus outside of China.

But one day, China is likely to put a competitive plane in the air. Boeing says it recognizes this, and is exploring partnerships.

“[W]e see in China absolutely a great company that is well on its way to putting a competitor in the marketplace," said Allen. "What we’ve done over the last several years, is we’ve acknowledged that they are going to be a great competitor, and we’ve also said, look, we think we can find ways to collaborate."

Xu Yangjingjing in Beijing contributed research.

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