China to Sanction Boeing, Raytheon, Lockheed Over Taiwan Arms
China will impose unspecified sanctions on Boeing Co.’s defense unit, Lockheed Martin Corp. and Raytheon Technologies Corp. after the U.S. State Department approved $1.8 billion in arms sales to Taiwan last week.
The sanctions will be imposed “in order to uphold national interests,” Chinese Foreign Ministry spokesman Zhao Lijian told reporters Monday in Beijing.
The action follows the State Department’s approval last week of $1.8 billion in sales of new weapons for Taiwan and submission of the package to Congress for a final review. The deals, and an earlier one involving Lockheed F-16 fighters, are taking place amid rising tension between the superpowers ahead of the U.S. election next week.
The new package includes 135 SLAM extended-range land attack missiles from Boeing, Himars mobile artillery rocket systems from Lockheed, and Raytheon surveillance and reconnaissance sensors to be mounted on aircraft.
Boeing fell 3.7% to $161.11 at 11:32 a.m. in New York as the broader market slumped on concerns about rising coronavirus cases. Lockheed dropped 2.7% to $364.24, while Raytheon declined 3.7% to $60.23.
Boeing’s 50-year relationship with China in aviation has helped the country’s “safe, efficient and profitable aviation system to keep pace with the country’s rapid economic growth,” the company said by email. Boeing sells civilian aircraft such as the 787 Dreamliner and 737 Max to Chinese airlines.
“It’s been a partnership with long-term benefits and one that Boeing remains committed to,” Boeing said.
Raytheon, which makes Pratt & Whitney jet engines and other aeronautics equipment, also touted its connections to China’s civil aviation industry. “We remain committed to its success,” the company said by email.
Raytheon and Lockheed noted as well that foreign military sales are government-to-government transactions, made in cooperation with U.S. authorities. Lockheed said its presence in China is limited.
In August, the U.S. and Taiwan completed the sale of 66 new model F-16 Block 70 aircraft from Lockheed. Zhao, the Chinese foreign ministry spokesman, condemned it at the time, saying it violates the One China principle, interferes in China’s internal affairs and will have a “major impact” on U.S.-China relations.
In July, China -- which considers Taiwan part of its territory and resists any recognition of its de facto independence -- had announced sanctions on Lockheed Martin for a previous arms sale to the island.
Taiwan will continue to urge the U.S. to fulfill its security pledge and sell weapons to the Asian country for defense needs, its foreign ministry spokeswoman, Joanne Ou, said in a statement delivered by text.
U.S. arms manufacturers face strict limitations on what kind of business they can do with countries deemed by Washington to be strategic rivals, such as China. Lockheed generated 9.7% of its revenue in the Asia-Pacific region last year, according to data compiled by Bloomberg, though that’s not broken down by individual countries.
China has previously threatened to sanction U.S. companies, including General Dynamics Corp. and Honeywell International Inc., on numerous occasions over arms sales to Taiwan. It also warned it could blacklist FedEx Corp., while Ford Motor Co.’s main joint venture partner in China was fined 162.8 million yuan ($24.3 million) last year, days after the U.S. put a ban on doing business with Huawei Technologies Co.
While China has often invoked the threat of putting U.S. companies on a blacklist -- or list of “unreliable entities” -- in response to various actions by U.S. President Donald Trump’s administration over the past year, it has yet to name any, at least publicly.
What Bloomberg Intelligence Says:
“China’s sanctions against Boeing’s defense unit have no effect as China accounts for no military sales, yet the manufacturer would be hurt considerably if commercial aircraft are included because a large portion of backlogs are for Chinese airlines. Slapping sanctions on U.S. aerospace makers is difficult because key components including narrow-body engines are made by U.S. companies such as Raytheon and General Electric, which both sell military gear to Taiwan.”
George Ferguson, Senior Aviation and Defense Analyst
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For Boeing, China’s action comes at a delicate time. The company, reeling from the hit to air travel from the coronavirus pandemic, is trying to get its besieged 737 Max plane back into the air after two fatal crashes saw it grounded around the world. China was the first place to ground the plane also has the world’s biggest 737 Max fleet.
“There are a number of intangibles that could affect recertification of the Max in China and this could potentially add another dimension,” said John Strickland, director of JLS Consulting. “China took the lead in grounding the Max and it is very conscious of its role in aviation safety. There’s also the dimension of the trade tensions with the U.S., as well as the U.S. presidential election and how that turns out.”
Europe’s top aviation regulator said earlier this month the plane will be safe enough to fly again before the end of this year. U.S. Federal Aviation Administration chief Steve Dickson flew the Max in September and said the controls were “very comfortable.”
China, which had nearly 100 Max planes in operation prior to the grounding, doesn’t have a clear timetable for allowing the plane back into the air, Feng Zhenglin, director of the Civil Aviation Administration of China, told reporters in Beijing last week.
©2020 Bloomberg L.P.