China to Sanction Boeing, Raytheon Over Arms Sales to Taiwan


(Bloomberg) —

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 2.5% to $163.21 at 9:34 a.m. in New York amid broad market declines. The stock dropped almost 50% this year through Oct. 23. Lockheed slipped 1.7% to $367.89 Monday morning, while Raytheon declined 2.1% to $61.25.

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. In addition to making military hardware, 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.

One China Principle

Lockheed Martin said foreign military sales are government-to-government transactions. It works closely with U.S. authorities and its presence in China is limited, it said in an email.

“We do business with more than 70 nations around the world, and all of our international sales are strictly regulated by the U.S. government,” the Bethesda, Maryland-based defense contractor said.

Representatives from Raytheon didn’t immediately comment.

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.

QuickTake: Taiwan Walks Tightrope Between China and Not China

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.

Sales Limits

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.

Delicate Time

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.

(Updates shares in fifth paragraph)

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