The commercial war, spy claims the cloud horizon for the Chinese airshow

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SHANGHAI / BEIJING (Reuters) – Commercial clashes with the United States and industrial espionage charges are destined to shed a cloud on China's largest aerospace meeting this week, as vendors view what the economy slows down country could mean for the boom in demand.

Red Falcon, a Chinese People's Liberation People's Air Force (PLA) aerobatic team, tests ahead of China's International Aviation and Aerospace Exhibition, or Zhuhai Airshow in Zhuhai, Guangdong Province, China, October 30th 2018. REUTERS / Traversa

The biennial Airshow China, which will take place in the coastal city of Zhuhai between 6 and 11 November, is traditionally an event for Beijing that unleashes its growing aviation capability in the face of aerospace, diplomatic and weapons buyers coming from from over 40 countries.

But analysts say that this year do not expect many announcements or big deals as a fierce trade war between Beijing and Washington and a slowdown in the Chinese economy causes companies to be cautious.

While the asphalt will be full of Airbus SA and Embraer aircraft, the main symbol of China's commercial ambitions, China Aircraft Corp. (COMAC) C919 will not be present. One executive said he was conducting trial flights.

Boeing Co, which is opening a 737 completion facility in China, will not show any of its planes, but only the models at its exhibition stand.

"This year we do not expect a large turnout," said the Chinese aviation expert Li Xiaojin. "As you know, this year the Chinese economy is not doing great, so companies that normally send 10 people will send only five."

China has become a fundamental hunting ground for foreign companies to do business as its airlines have expanded fleets to cope with the growing demand for travel, putting the country in a position to surpass the United States as the main world aviation market in the next decade.

But China's economic growth has weakened at its slower pace since the financial crisis and its relations with other countries have been put to the test by Beijing's ambitions to grow its national champions in areas such as aviation .

And while US-produced airplanes have so far escaped from Beijing's fares, analysts said they were still waiting to see what the commercial war would mean for American companies like Boeing, Honeywell and Gulfstream, who face fierce competition in China from of Airbus and other suppliers.

The United States has exported $ 16.3 billion of civil aircraft to China in 2017, the largest category of goods exported to China, according to a document published by the Federal Reserve Bank of St. Louis.

"It is not unlikely that China will be able to strategically target future aircraft purchases to Airbus rather than Boeing," said Marc Szepan, an aviation expert in China from the University of Oxford and a former industrial executive. "

"In addition, there may be a re-evaluation of the relative attractiveness of industrial partners for future China airplanes such as the CR929 which could favor Europe over suppliers of US components and structures".

STRENGTH SHOW

So far, Beijing has avoided showing its hand in both directions, while offers from Chinese leasing companies to buy foreign aircraft have been rejected or kept private.

Recent US allegations in court that Chinese intelligence has attempted to steal information from a French-US. the turbofan engine developed for commercial jetliner – a clear reference to the Safran-General Electric LEAP – could further fray relationships, analysts said.

Beijing also criticized the US decision not to send high-level officials to a Shanghai import fair that takes place in the same week as the airshow and is considered one of China's most important foreign policy events for year.

"Right now the political winds are pretty worrying," said Teal Group aerospace analyst Richard Aboulafia.

US President Donald Trump said on Friday he would probably make an agreement with China on trade, adding that much progress had been made to resolve the differences between the two countries but warning that it could still impose more duties on Chinese goods.

China is expected to show strength in space and in defense, with FTC-2000 fighter aircraft with combat cars, a historically high number of weapons and the latest unmanned aerial vehicles among the kits on display.

A woman photographs the aircraft of the Bayi Aerobatic Team of the Chinese People's Aviation (PLA) of the Chinese Air Force, in view of the China International Aviation and Aerospace Exhibition, or Zhuhai Airshow, in Zhuhai, Guangdong province, in China, 31 October 2018. REUTERS / Traversa

The Chinese Air Force said today that a number of Chengdu J-20 stealth fighters will carry out demonstration flights, having debuted at the show two years ago with a 60-second parade.

Kelvin Wong, an expert in defense technology for Asia Pacific at IHS Markit, said that this will be part of the deliberate messaging, often associated with the closely watched show.

"It appears that the PLA (People's Liberation Army) clearly shows its growing confidence in the latest J-20 fighter aircraft," Wong said.

Reporting by Brenda Goh and Stella Qiu; Additional report by Tim Hepher in HONG KONG; Written by Brenda Goh; Editing by Muralikumar Anantharaman

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