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By Root 5515 0

came the world’s satellite makers and aerospace companies seeking to harvest new profits in a market that grew so quickly that success or failure in China determined a company’s future. As China struggled to build a modern aviation and space industry, American and European companies wanted both to help and to exploit the effort. Amid the competition for the China market, the Cold War–era export control agreements on technology crumbled. China’s race to obtain advanced technology triggered political warfare within the U.S. government between those who wanted to severely limit what China could purchase and those who favored advanced technology sales and cooperation with China as both a political and commercial strategy. Many businesses were caught in the middle.

This is a two-part story. The first is about how McDonnell Douglas desperately tried to save its commercial aircraft business by assembling airplanes in China while diligently trying to satisfy the often conflicting requirements of the U.S. and Chinese governments. The second part is about how Hughes, Loral, and other American satellite makers got caught in a frustrating catch-22. They were forced to launch their satellites in China because the American government curtailed launch capacity at home. As Chinese rockets failed and their satellites exploded on the launch pads, the U.S. companies felt compelled to provide technological help, but at the risk of being accused by Washington of aiding a potential enemy.

McDonnell Douglas’s failure went beyond politics. The company neglected business fundamentals and failed to keep pace with China’s constant and rapid changes. The satellite companies, in contrast, got their business and politics right, but were pummeled in Washington because conservative Republicans needed a weapon to attack the Clinton administration.

Today the U.S. government is in danger of following in the footsteps of McDonnell Douglas by failing to keep pace with China’s constant, rapid changes. Many U.S. politicians and policy makers don’t recognize fundamental changes in the global technology marketplace and ignore the fact that the voracious China market can now determine which companies win globally. The Cold War has given way to hot competition, but not everyone in Washington understands that.

The China Expert

Gareth Chang wasn’t quite sure why he had been invited to the meeting being convened by Douglas Aircraft President John Brizendine in Long Beach, California. Chang, a thirty-six-year-old engineering executive in McDonnell Douglas’s St. Louis headquarters, knew that Brizendine had recently returned from a trip to China looking for market opportunities for McDonnell Douglas’s commercial airliners. Sure, Chang had been born in China and he was known as something of a whiz kid around the company, but he had left China as a small child and his reputation was based mostly on some important advances he had made in the esoteric realm of military reconnaissance technology that had nothing to do with commercial aviation.

Brizendine was excited. He told his assembled executives that China had asked if McDonnell Douglas would be interested in setting up a factory in China to coproduce 125 commercial airliners a year. That was more than the Long Beach factory was making! A deal like that could be the key to reversing McDonnell Douglas’s fortunes. And they were fortunes in dire need of reversal. Immediately after World War II, Douglas airplanes represented 90 percent of passenger aircraft in the United States and Europe. But as Brizendine returned from China, Douglas held less than 20 percent of the market. The McDonnell Aircraft Corp., founded in 1939 by James Smith “Mac” McDonnell to make military planes, had purchased Douglas in 1967 to diversify into the commercial airplane market. The midwesterners running McDonnell from its St. Louis headquarters had never gotten comfortable with the Californians running Douglas. They suspected that the Douglas executives lived too well and managed too loosely. Brizendine resented St. Louis’s oversight. He was