China's sanctions on US arms groups: what's the impact?

BEIJING – Beijing has said it will sanction several US defence giants including Boeing Defense, Lockheed Martin and Raytheon, for selling arms to the democratic island of Taiwan.

China views the self-ruled island as its own territory, despite the two having been ruled separately since the end of a civil war in 1949.

Beijing sees any diplomatic recognition of Taipei as an attack on its sovereignty and has railed against sales of missiles and military equipment by the US.

We assess the impact of any sanctions on the American behemoths.

What interests do the groups have in China?

There is already an embargo on US arms manufacturers selling military equipment to China – lethal or non-lethal – a measure taken three decades ago after the bloody Tiananmen Square crackdown in 1989. 

This long-standing embargo means the three defence groups are already unable to sell armaments to the Asian giant, which has been investing heavily in its military in recent decades.

However, the three groups have non-military activities in China. 

Boeing sells passenger planes, which are used by all the major local airlines. 

Lockheed Martin owns helicopter maker Sikorsky – which has sold choppers to China since the 1980s, and has a joint venture there with a local partner – while Raytheon is the parent company of Pratt & Whitney, a major player in the aircraft and helicopter engine market in China. 

Is Boeing facing the biggest risk?

Boeing has already been hit by the Covid-19 and 737 MAX crises, and the manufacturer has announced its intention to cut 30,000 jobs in two years. 

The potential Chinese retaliation does not help.

The American aircraft manufacturer made US$5.68 billion (RM23.6 billion)  in sales in China last year, just over 7% of its global revenues. 

"Boeing has civilian activities in China," Song Zhongping, a Chinese military commentator, told AFP.

"China's sanctions are not merely symbolic... they are of substantial significance."

Boeing told AFP that it "has worked together successfully with the aviation community in China for almost 50 years... It's been a partnership with long-term benefits and one that Boeing remains committed to".

In general, China balances its non-military plane orders between Boeing and its European rival Airbus. 

But James Char, a Chinese military expert at Nanyang University of Technology in Singapore, warned that Boeing could be affected if Chinese aviation companies decide to buy fewer planes on Beijing's orders.

And the others?

Char said Beijing may opt to punish Lockheed Martin by targeting Sikorsky.

"But there are only a limited number of Sikorsky helicopters operating across China's commercial field," he said, adding that Lockheed Martin’s business in China makes up less than one percent of its total revenue.

Lockheed Martin told AFP it "adheres to United States government policy with regard to conducting business with foreign governments".

Pratt & Whitney, on the other hand, is a major engine manufacturer in the aviation sector, and a competitor with the likes of Rolls Royce and General Electric in the country.

"I suspect the strategy will not be formal sanctions, but rather through administrative regulatory means," said Adam Ni, director of the China Policy Center in Canberra. This could include customs blockades of material.

Beijing has also indicated that it will target "entities and individuals" who played a role in the arms sale, which may mean visa restrictions for any company employees.

Raytheon did not get back to AFP when contacted for comment. – AFP, October 30, 2020