One of the
themes that I regularly repeat is that the key to making money in the next
decade is to get ‘long’ whatever the Chinese are buying. A country with 1.4
billion consumers and $1.9 trillion in its government’s cash reserves is one
that you better pay attention to.
I have not,
however, spent much time talking about the corollary to that strategy, which is
to get the heck out of any companies that are competing against
China.
Let me give
you an example …
China
Launches Its First Jet …
Last Friday,
China successfully completed the first test flight of its domestically produced
jet, the ARJ21-700. After flying for an hour, the 90-seat jet landed safely at
an airport in Shanghai.
ARJ21, by
the way, is an acronym for “Advanced Regional Jet for the 21st Century.”
Regional jets are smaller than the large commercial airplanes and only have a
range of around 2,000 miles.
By starting
with smaller regional jets, China is avoiding head-to-head competition with
Boeing and Airbus. But that doesn’t mean China isn’t competing!
China has
already sold 208 jets, including five firm orders from General Electric’s
aircraft leasing arm, GE Commercial Aviation Services.
And it is
directly competing against Canada’s Bombardier (Toronto: BBD.B) and Brazil’s
Empresa Brasileira de Aeronautica (NYSE:ERJ).
So if you
own either of those two, think long and hard about whether you want to invest in
a company that will be competing against The Civil Aviation Administration of
China (CAAC), the manufacturer of the ARJ21. After all:
- CAAC is
owned by the Chinese government. This means the Chinese government can throw its
formidable weight, resources, money, and authority behind the ARJ21.
- As General
Motors, Ford, and Chrysler have learned the hard way, it is impossible to
compete against the low-cost Asian wages. You can bet your boots that Chinese
wages are a fraction of what the wages are in Canada and even Brazil.
Unfriendly
Skies Ahead …
Bombardier
and Brasileira aren’t the only companies that should be worried. I say that
because Boeing has been idiotically subcontracting the manufacturing of many of
its airline parts to Chinese companies.
Yeah, Boeing
has saved a few bucks. But it is effectively training Chinese engineers and
factories to compete against it down the road.
