For aircraft component makers used to seeing China as a fierce competitor, the view from the other side of the hill may be surprising. To Chinese plant managers, technical and management problems abound, wages are rocketing, and sharp rivals in such countries as Mexico and Morocco are only making life harder.

Shenyang-based SACC, an internationally focused airframe maker in the Avic group, admits to a range of such daunting challenges as it strives to achieve its goal of becoming a strategic partner of major aircraft builders. One of the answers from its president, Pang Zhen, is specialization—something that Chinese aerospace managers have not been very good at enforcing.

SACC is already a product of a strong effort by Avic over the past five years to get each of its subsidiaries focused on a limited range of activities. In their decades as closed weapons builders for a Communist military, aircraft plants tried as far as possible to make whole aircraft. With economic liberalization, they liberally began making even more things, from motorcycles to gym equipment.

Pang's company was split from Shenyang Aircraft Co., a famous fighter works, in 2008 with the task of making only civil airframe parts. It builds forward, center and aft fuselage sections for the Bombardier Q400 but Pang wants to tighten its focus even further.

In trying to build whole aircraft, “we cannot bring together the resources needed to do things properly,” he says. “So we have decided to follow the path of specialized development. Currently, we are concentrating on the aircraft tail section, doors and engine mountings to develop our business.”

The whole Chinese industry lacks scale, Pang says, noting that its international deliveries are about a tenth of Japan's. SACC, at least, thinks it is has to get bigger. Then there is technology. For all the funding that the Chinese state has lavished on the aerospace industry, Pang says that its manufacturing techniques are still mostly traditional, with SACC's automation at less than half the level commonly seen in Western countries. He aims to change that.

And management is not up to scratch. Pang tells Aviation Week that if SACC could immediately implement Western management techniques it could improve labor productivity by at least a third. That would buy the company about three years of respite from the problem of wage inflation.

It takes time to get rid of old stereotypes. One is that China offers rock-bottom wages. “In the past our labor was a fairly obvious advantage,” Pang told the China Commercial Aircraft Forum of conference organizer Oppland. “Now that advantage is not so obvious.” SACC's labor rates have risen by at least 10% a year for the past four or five years, he adds.

A Western production engineer closely watching China's progress in aircraft manufacturing endorses the move to automation—but more as a measure to ensure quality rather than save costs. SACC finds that its customers are ceaselessly demanding higher quality. The case for automation can only become stronger as Chinese wages keep rising.

Whether through better quality or lower prices, China's state industry feels a need to face intensifying competition. Once it was a developing-country rival to manufacturers in developed countries. Now it faces increasing pressure from other developing countries—and from within China itself. Private aerospace manufacturing companies are cropping up in China. Often they can get government support, just as Avic's units do. And with private owners, management in these Chinese private businesses tends to be better (or perhaps just stricter) than at the government enterprises.

Many of the private companies are suppliers to the state industry and therefore should offer a chance to lower costs. But whether Chinese suppliers are owned privately or publicly, one thing that many of them have to learn is to stick to their knitting. SACC finds that it is forever reminding its suppliers that it needs them to specialize, resisting the temptation to make parts that could be easily sourced from elsewhere.

SACC is not satisfied with making parts to designs supplied by the customer. It has already taken a step in the direction of design and development with the Bombardier CSeries, in which it is a risk-sharing partner, and sees the strengthening of this capability as one of the keys to achieving its objective of becoming a strategic partner—presumably in the way that Fuji Heavy Industries and other Japanese companies have become routine participants in Boeing's commercial aircraft programs.

Shenyang Aircraft Co. is administratively part of Avic Aircraft, the group specialist in large airplanes, as distinct from general aircraft or fighters. Shenyang Aircraft is part of Avic Aviation Techniques, the group's combat aircraft division. A similar commercial unit was split from the other Avic fighter plant at Chengdu.