Airbus over Beijing
Airbus over BeijingReuters

China has made good on her threat to retaliate against the European Union in response to an EU carbon tax imposed on all airlines flying in and out of European airports - irrespective of the flight's duration over European airspace.

The Chinese government has blocked the sale of long haul Airbus jets. EADS (Airbus' parent company) CEO ,Louis Gallois, is talking about losing sales on at least 2 dozen A330 long-haul Airbus planes. Hong Kong Airlines was on the verge of canceling a $4 billion order for 10 planes.

Gallois, at a news conference, effectively sided with the opponents of the carbon tax, that include China, the United States, Russia and India, to name a few heavyweights.

"We ask the European Union to take into account the global position of almost every country outside of Europe against this scheme," said Gallois.

Airbus has been riding high on record earnings and a recent 10% jump in corporate shares. There has been solid demand for company jets and problems on the troubled A380 super jumbo are being contained.

The EU is not backing down and will maintain the carbon tax, announced Danish climate minister Martin Lidegaard (Denmark currently is in charge of EU's rotating presidency). The EU believes that its policy is the best way to force international action on the issue.

Airbus' troubles with the Chinese government are helping arch rival Boeing, that expects to sell many jets to the burgeoning Chinese market.

An additional move by Boeing to win points with China is the setup of a jointly funded research center in Beijing with Commercial Aircraft of China (Comac). The center will focus on fuel-efficient technologies. Boeing and Comac will also have annual leadership meetings

Airbus opened a production line in China in 2008.

This may again be a case where western companies, in a frenetic desire to win the Chinese market, are ignoring the possibility that they may be creating a Chinese company that will prove a major competitor in a shorter time than they bargained for.