"China's Airport System: Opportunities & Challenges"

Thursday, May 30, 2002 

CHINA'S AIRPORT SYSTEM: OPPORTUNITIES & CHALLENGES
Centre for Asia Pacific Aviation www.centreforaviation.com 


Chinašs aviation market is experiencing rapid growth.  In 2001, China's
143 airports handled 148.7 million passengers, up 11.3% year-on-year.
3.4 million tonnes of freight were handled in 2001, up 9.7%
year-on-year.

The CAACšs policies on airports and airlines are broadly coordinated,
but synchronising development will be complex. The airline policy
focuses on consolidation around three major airlines, each with a strong
regional alignment, but each with a focus on national and
international-scale operations.  This seeks to promote a strong aviation
sector capable of responding to the challenges of rapid growth.   That
growth, however, is likely to remain concentrated for some time to come.

Airport policy, on the other hand, favours dispersal.  While heavy
investment in the countryšs major international gateways and national
hubs is inevitable, the focus on airports as development infrastructure
creates a countervailing pull towards less developed areas. 
Also, the emerging policy of corporatisation and privatisation of
airports, with a tendency towards over-investment may lead to excessive
inter-airport competition which would reduce the prospect of commercial
viability for some airports.  This could lead to uneven development
among airports, as they become independent entities.

Finally, as has been seen elsewhere in the world, the emergence of a
distinctive and successful tier of secondary airports depends upon
aligning airport and fleet capacity with demand.  The result is
increased utilisation of aircraft and airports. At present, aircraft
fleet orders do not point to the alignment necessary to achieve this
outcome.

The search for a funding solution
In face of strong growth, the greatest challenge in the development of
Chinašs airport system will be its funding.  Beijing, Shanghai,
Guangzhou and several of the provincial capitals have multi-million yuan
capital works either under construction or close to commencement.  
Attracting investment will be challenging, as return on investment is
low and airport commercial revenue streams are at an embryonic stage.
However, the promise of rapid growth offers an incentive and opportunity
to private financiers.

Beijing Capital International Airport Co Ltd is a key potential investor
and plans to spend up to 600 million yuan to acquire shares in Shenyang,
Xišan and Chengdu airports and up to six others for which it has signed
letters of intent to invest. Delays to the corporatisation of Xišan
Airport are reportedly holding back the completion of that agreement,
while negotiations over management control and ownership structures are
continuing with other airports. Also, a planned merger with neighbouring
Tianjin Binhai Airport is in abeyance until Binhai lifts its profits to
satisfactory levels.

Chinašs major provincial airports also require significant investment to
improve and reconfigure terminals for transit traffic.  The CAAC has
stressed the development of hub and spoke networks as "the key to
sustainable development of Chinašs civil aviation in the 21st century".
Airport facilities require enhancements to accommodate greater levels of
domestic and international transfer passengers and expansion for retail
and commercial development opportunities.

The CAAC, concerned by the extent of losses in its airport system, has
announced that the sector will be restructured. Corporatisation and
privatisation are likely to feature as key strategies.

Developments and data in China are updated every month in The Monthly
Essential China, Airports, Airlines & Tourism, www.centreforaviation.com



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