`But all this is being negotiated. It has been for years. What is the point of bringing it up now?'
`Because, Andrew, this is the reason I cannot call off the military airlifts to China. This is the reason that the nationalists and Communists are winning support daily among our electorate. Your policy and I quote from Clinton at the 1994 NATO summit, "It's not a question of whether NATO will take on new members, but when and how" creating a Russian monster again. If you expand, you will transform millions of allies of democracy into allies of radicals and madmen. Russians will realize that they had been wrong to trust you. An embittered, defeatist complex would be cast over the country, of the sort that once brought Hitler and Mussolini to power and pushed the world into war.
`We are too weak to expand west. So if you expand east we have no choice but to go east as well. There's only one place to end up there and that's in Beijing. If I am not making myself clear, I will spell it out. You are bankrolling our former East European satellite states. This is only to be expected with shared white faces and civilization. But you are not bankrolling our former eastern states, filled with slant-eyed, brown-skinned Muslims. The Presidents of Kazakhstan, Kyrgyzstan, and Tajikistan, Ambassador, have been bought by China. Why don't you take a plane there and walk through the hotel lobbies in Dushanbe and tell me who you think runs the place? The tectonic plates of global power are scraping together this month. They have been activated by Dragonstrike and only your government is powerful enough to control the dangers it has released.'
Of all the American companies affected by China's strike against Vietnam and its blockade of the South China Sea, Boeing had the most to lose. The company had become deeply enmeshed in China and its rapidly growing aviation market. A Chinese engineer, Wang Tsu, helped design the new 314 Clipper seaplane, which made its first transpacific flight to Hong Kong in 1939. A Boeing 707 carried Richard Nixon to China in 1972 in a historic visit which rewrote global power alignments. Shortly after that the Civil Aviation Administration of China (CAAC) ordered ten Boeing 707s to establish itself as an international airline. Deng Xiaoping visited the Boeing headquarters in Seattle when he went to America in 1979. When Jiang Zemin, the President of China when Deng died, went to America in 1994 he met an `average' American worker and his family. That was in Seattle. The worker was an employee of Boeing. So far China had bought or ordered 224 Boeing airliners in contracts worth $9 billion. The company had field representatives in sixteen cities throughout China. A thousand pilots and engineers were trained by Boeing every year. It had installed flight simulators free of charge at China's Civil Aviation Flying College. There were joint-venture factories in Xian making Boeing 737 vertical fins, horizontal stabilizers, forwards access doors, and 747 trailing edge ribs alongside the construction of the H-6 bombers for the Chinese air force, and in Shenyang making Boeing 757 Cargo doors; a plant in Chongqing made aluminium and titanium forgings.
This was why Reece Overhalt Jr., Chief Executive Officer and leading proponent within Boeing senior management of its `China push', was in his office at the company's Seattle headquarters at 6.00 on Monday morning. His office was sparsely decorated. Someone who liked the style might call it spare. Aside from a large desk, a Reuters monitor, computer, and scale models of Boeing aircraft, the only decorative feature was an example of calligraphy hanging on the wall opposite his desk. It featured a single Chinese character, itself made up of two separate characters: the character for knife and the character for heart. The former was on top of the latter and in combination they meant endurance.
Overhalt had seen the rise of Asia coming at the beginning of the 1980s. As Executive Vice-President of Overseas Business Development he had forged links with Japanese engineering groups like Mitsubishi Heavy Industries, who would provide the `local content' needed to secure aircraft orders from Japan's international carriers. But he hadn't taken his eye off China, which was destined to become the single biggest aviation market in the world. Overhalt had spent three years in China in the early 1980s and he knew the country and its people from the ground up.
It had not been an easy time for a Western executive who had grown soft on the creature comforts of suburban Seattle. Overhalt liked to remind people how he spent three years cooped up in an ageing hotel where eager hall attendants constantly found reasons to enter his room without ever managing to replenish the soap or toilet paper. And how he worked in an unheated office in winter, and tried to monitor the work of mechanics who refused to read the manuals that explained how to maintain and repair million-dollar aircraft. Such experiences would have turned off many, but not Overhalt. He knew he was observing the first, halting steps of a giant that had been kept in the dark for so long that it was afraid of the light.
He was not starry-eyed about China. Chinese managers were chronically poor at planning; they had no concept of preventative maintenance, which they regarded as a waste of money; they were appalling communicators; and they had a `petty cash' mentality. Overhalt never tired of telling the story of how the authorities refused to fly a damaged $4 million engine to the US for repairs, preferring instead to send it by sea because it was cheaper. The repairs took thirty days but the engine was out of commission for thirteen months. Yet he admired their tenacity. His other favourite story told of how in Shanghai he saw a disassembled Boeing 707. The Chinese had bought it in the early 1970s and, by his reckoning, spent $300 million trying to copy the design and technology of the aircraft. They couldn't do it.
The years in China stood him in good stead. As an adviser to the Civil Aviation Authority of China (CAAC), which at that time operated and regulated all non-military airlines in China, Overhalt got to make friends with many officials who, like him, would rise to prominent positions in China's deregulated airline industry years later. His time in China allowed him to renew his friendship with the man who became the Chinese Foreign Minister. They had been at Harvard together. Song had responded cautiously at first to the relaxation of Communist Party rule in the early 1980s, but by the time Overhalt left in 1985 Song was the proud owner of one of the only seven Cadillacs in Beijing. Song had also cultivated powerful political connections deep within the Beijing bureaucracy. Overhalt remembered vividly the afternoon Song took him to Zhongnanhai to meet the Politburo member with responsibility for aviation. It was late winter and bitterly cold but after the meeting they had walked around the partially frozen lake e dominant feature of Zhongnanhai d talked about China and its future.
That all seemed so long ago. As Overhalt looked at his Reuters screen he saw that Boeing's share price was beginning to sag — the company's share price was $5 and three-eighths lower than Friday's close. The New York Stock Exchange had just opened and of all the high-profile US companies with business in China, Boeing was seen as a prime loser. This was mirrored in other markets by other companies in Boeing's position. In Frankfurt, Siemens' share price was off; in London, GEC was also performing worse than the market as a whole. Both companies had made strategic bets on China in the 1990s and profited: GEC sold turbines for power stations, high-speed telephone switches to local telecommunications companies, and defence communications systems. Indeed, outside the NATO countries, China was the single most important market bar none.
The impact of China's actions was most keenly felt in the oil market, and in the Lloyd's insurance market. Brent Crude, the bell-wether crude traded in London, rose $1.40 per barrel to $26.40. When New York opened West Texas Intermediate, which historically always traded around $1.50 higher than Brent, rose to nearly $28 in sympathy with European trading. The world oil market was delicately poised. The big companies had been trying to achieve a `just in time' delivery of oil to their refineries. They had taken the idea from Toyota, the Japanese car manufacturer, which organized the production of a vehicle so that the components for its manufacture arrived at the factory gate just in time for assembly. This cut the cost to Toyota of holding stocks of parts. So to the oil majors. They were trying to manage their refineries so that stocks (and attendant costs) were held to the minimum. But the winter of 2000/2001 was one of the fiercest experienced in northern Europe and the US. Demand for oil — especially heating oil — rose up sharply. This weather-induced tightness in the market was exacerbated by the change in business practice to just in time delivery added to upward price pressures. World oil stocks were at a five-year low; the South China Sea oilfields were viewed as some of the most promising of any in the world. Oil futures rose strongly. The April contract, which was the most actively traded near-term contract and the one which First China had bought most aggressively, rose sharply. It closed at $35, up $10.