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Why Investors Can't Afford to Miss Flight to China


Country's domestic market prepares for takeoff.

Individual investors who still hold any doubts about mainland China's future growth potential should take a long hard look at Airbus SAS, the Pan-European commercial-airliner maker that's now building airplanes in that country.

When Airbus recently announced the delivery of its first China-built passenger jet, it was more than just the usual bit of corporate PR. It was an admission that any company that wants to remain a global leader in its industry will have to embrace China as a customer -- and probably as a partner.

Airbus -- a subsidiary of defense-giant European Aeronautic Defense and Space Co. NV, also known as EADS NV -- said it assembled the A320 passenger jet in a plant in Tianjin, China's sixth-largest city. The factory is 49%-owned by a Chinese consortium, and is expected to produce another 10 passenger jets this year alone.

The China connection doesn't end there, either: The just-completed A320 will be sold to a leasing company and eventually put into service by Sichuan Airlines Co. Ltd., a regional carrier.

Both Airbus and its US rival, Boeing (BA), understand that the Chinese market is crucial to their futures. Boeing has said that China will become the largest aviation market outside the United States by 2028, with the mainland set to require 3,700 additional aircraft -- worth more than $350 billion -- in that time. Airbus, which projected a slightly lower figure of about 2,800 aircraft, hopes to see its market share rise from about 30% now to about 50% in the next couple of years.

In the near term, the global downturn has left China's carriers feeling the pinch, too, but it's the long term that has companies such as Airbus and Boeing feeling both excited and anxious.

In many industries, partnerships represent the price of entry. And in the long haul, China has ambitious plans of its own. In the commercial airliner business, for instance, it's already developing a regional airliner, and more recently has launched plans to design and build a globally competitive jumbo jet of its own.

The Rise of China as a Powerhouse Market

One of the hallmarks of any great economy is its ability to produce technically complicated machinery. I'm not talking flat-screen TVs here, but stuff like spaceships and, closer to earth, commercial and military aircraft. While Airbus is a partner right now, the point is that China is moving up on the technology scale both hard and fast. Faster, in fact, than most Westerners realize.

But the rollout of a completely Chinese-built Airbus A320 highlights something else, the significance of which is lost on most investors: It's not really about Chinese airplanes or even the fact that China is making something new. The real key here is that Airbus -- like many companies -- understands that the Chinese market is growing so fast, and has the potential to be so huge, that it has to invest there, and do so as a partner, or risk getting left behind.
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