A Chinese state-run aircraft and missile manufacturer linked to military programs and past espionage is attempting to purchase interests in major U.S. aircraft manufacturers.
According to Trump administration officials, the Aviation Industry Corp of China, known as AVIC, is seeking to gain access to advanced technology through attempts to buy minority stakes in major aircraft companies.
The attempts were detected by U.S. intelligence agencies several months ago and reported internally within the U.S. government.
One unit that has been tracking the activity is a special Air Force group known as the Office of Competitive Economic Analysis.
Spy agencies are concerned about the buy-in effort since AVIC already has made inroads into the U.S. aircraft supply chain by buying aviation support companies and those involved in commercial aviation.
"AVIC is a bad actor that is one of several state-owned enterprises that is working to mop up western technology," said an administration official familiar with the AVIC activities.
No details of the Chinese efforts to buy into American aircraft companies such as Boeing, Northrop Grumman, General Dynamics, and Lockheed Martin could be learned.
However, information on AVIC covert operations targeting American industry may have come from a source in the state-run conglomerate. The Hong Kong newspaper Apple Daily reported in May 2016 that Guo Enming, deputy director of AVIC's Science and Technology Commission had dropped out of sight and was suspected of spying.
AVIC espionage was revealed in the case of Dongfan "Greg" Chung, an aerospace engineer for Boeing who was convicted of economic espionage in 2009 for supplying aviation and space secrets to China.
Chung worked with another Chinese spy, Chi Mak, who worked with a Gu Weihao, who is described in court papers as a senior official of AVIC that is under the direct leadership of the PRC State Council."
The court papers describe AVIC as a consortium of aircraft manufacturers, including companies known as Chengdu, Harbin, Xian, and Nan Chang, that make up a total of 111 enterprises, 36 research institutes, and six universities and colleges with a total staff of 560,000 people.
Chung supplied information to China on the B-1 bomber, the Space Shuttle, and U.S. rocket launchers and was sentenced to nearly 16 years in prison and Mak was sentenced to 24 years in prison.
AVIC builds fighter aircraft, helicopters, and drones for the Chinese military and also is involved in automobile manufacturing and other ventures.
The company was founded 1993 when the Ministry of Aerospace Industry was corporatized into AVIC and later split into AVIC I and AVIC II before being recombined in 2008.
Its military fighters include the FC-20, FC-1, and F-8 jets.
The company also makes military transport aircraft, commercial aircraft, air-to-air missiles, surface-to-air missiles, and anti-ship cruise missiles.
Boeing spokesman Chaz Bickers said he was not aware of the AVIC attempts to buy a minority stake in the company but would look into the matter. He did not respond to a follow up email.
A spokeswoman for Lockheed Martin declined to comment.
Spokesmen for Northrop Grumman and General Dynamics did not return emails seeking comment.
Administration officials said AVIC already has made inroads into the U.S. aviation sector by purchasing companies that are suppliers to U.S. corporations.
The Pentagon's Defense Innovation Unit Experimental (DIUx) warned in a report on Chinese technology acquisition that China is now posing risks to U.S. national security.
"China's transformation to be the manufacturer for the world means more supply chains are owned by China which creates risks to U.S. military technology and operations," the report said.
"For example, the Aviation Industry Corp. of China (AVIC) is a Chinese-state owned aerospace and defense company which has now procured key components of the U.S. military aircraft supply chain."
AVIC has been a target of tougher White House policies toward China's unfair trade practices and covert technology acquisition efforts.
A U.S. Trade Representative office report published in March on Chinese technology theft included an extensive section on AVIC.
The state-run company is playing a major role in the China's technology acquisition program by buying aviation-related companies, the USTR report said.
"Chinese firms have acquired at least 11 U.S. aviation companies, established three joint ventures, and signed five cooperation agreements since 2005," the report said.
"The central state-owned Aviation Industry Corp. of China (AVIC) leads this investment effort, and, since 2010, has spent more than $3 billion acquiring U.S. and European aviation companies to address key gaps in general aviation technologies."
AVIC in addition to building commercial aircraft is the sole domestic supplier of military aircraft to the PLA, the report said.
"AVIC's acquisitions have facilitated the transfer of engine, avionics, and production processes to China, resulting in so-called 'breakthroughs' in domestic piston engine technology, solutions to production bottlenecks, and the development o advanced Unmanned Aerial Vehicles (UAV) manufacturing (for both Chinese military use and for export to foreign countries)," the report said.
AVIC also has purchased companies that provided China with a full-scale general aviation aircraft engine business.
General aviation companies bought by China include Epic Aircraft in 2010, including all the company's intellectual property and technology; Teledyne Technologies that developed full authority digital engine control technology; and Cirrus Aircraft, a large manufacturers of piston-engine powered aircraft.
AVIC also bought Southern Avionics & Communications Inc. a leader in avionics; United Turbine and UT Aeroparts that provides turbine aircraft engine services; Align Aerospace involved in supply chain services for the aerospace industry; and Danbury Aerospace that specializes in engine design and certification.
The USTR report quoted AVIC President Tan Ruisong as saying the company is engaged in "coordinated development" of both civilian and military products.
AVIC in 2010 created a $3 billion private equity fund to buy dual-use technology companies and to invest in research and development for Chinese aviation.
Chinese government support for AVIC purchases in the United States has included funding from the People's Bank of China, the state bank, and the China Ex-Im Bank.
The tech transfers have allowed China's defense industry to achieve a breakthrough in indigenous production of turbine and piston aircraft engines.
"Key breakthroughs were achieved in gasoline modified heavy oil technology, electric fuel injection technology, and turbocharging," the report said.
The defense firm Jane's IHS Markit, in a report on China's advanced weaponry noted that AVIC also has purchased non-U.S. aircraft companies, including Germany's Thielert Aircraft Engines, which makes diesel aircraft engines; and Britain's AIM Altitude which makes both civilian and military aircraft components, including radar panels, missile containers, radomes, and sensor probes.
The Chinese also invested $30 million in Britain's Gilo Industries, a company the produces rotary engines for unmanned vehicles.
The Jane's report said China is seeking to invest in U.S. aircraft companies that are seeking access to the Chinese commercial aircraft market. Recent mergers and acquisitions by AVIC have included deals with Henniges, Align, Southern Avionics, Mooney, Enstrom, Glasair, Cirrus, Nexteer, Teledyne, Superior, and Brantly, the report said.
Joint ventures in the aviation sector have included deals between AVIC and GE, Cesna, and Brantly.
Greg Levesque, an expert on AVIC with the consulting firm Pointe Bello, said AVIC activities "greatly enhance China's aviation manufacturing and technical capabilities which contribute to advances in PLA programs." Sectors that benefit include advanced aircraft materials and engine technology.
"AVIC has through mergers and acquisitions filled critical gaps in its domestic general aviation industry over the last decade," Levesque said.
"We've seen evidence of AVIC partnering with U.S. corporates to bid on U.S. government aircraft programs," he added, noting a failed deal to build the VXX Marine One helicopter.
Rick Fisher, senior fellow at the International Assessment and Strategy Center, said the AVIC effort to buy into American firms is dangerous.
"If the Chinese become significant minority stakeholders in U.S. defense-aerospace or U.S. defense contractors, their strategy may be to have Chinese officers appointed to the leadership of these companies, constituting a very crude but obvious espionage threat," Fisher said.
"If such Chinese, or loyal-to-China officers have access to company data bases, or even 'keys' to the headquarters building, that poses a significant espionage threat."
The U.S. government should prohibit any stake by a Chinese state run company in any U.S. defense or aerospace firm, Fisher said.
China affairs expert Gordon Chang agrees.
"Beijing, with its attempts to buy American aircraft companies, looks absolutely determined to make CFIUS the most important agency in the Federal government," Chang said of the Treasury Department-led Committee on Foreign Investment in the United States.
"There ought to be a law: No acquisitions of U.S. assets by Chinese state-owned entities unless Congress approves," he said. "The last thing we should do is permit a militant Chinese state to buy assets, especially assets with military applications."
Published under: China