Overview of Chinese Aviation（Part 2）

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Chinese firms are themselves proving adept at airplane component assembly.

Brazil’s Embraer is in an assembly plant joint venture in the northern city ofHarbin where they have already sold six 45-seater planes to China Southern，andAirbus has committed itself to procurements from local factories worth US $120 million a year by 2010.China also has plans for its own aircraft construction including the manufacture of turbofan airliners.In one venture，the China Aviation Industry Corp One is working with GE to produce regional sized planes for the domestic market.They are hoping to have them in service by 2008.

Although entitled to own up to 49%few foreign investors have chosen to buy into Chinese airlines，nor does this trend seem likely to change in the near future.

Foreign airlines however，are very active in China and the numbers involved will continue to increase.In 2004 China signed its first open skies agreement with Thailand as well as a liberalization agreement with America that will see weekly flights increase from 54 to 249 by 2007 and allow in new carriers and routes.Talkswith European countries about a similar agreement are ongoing.In addition，regionalairlines are now flying direct to China’s second tier cities and both European andAmerican airlines are increasingly involved in code-sharing with Chinese partners.

The open sky/liberalization agreements have come about despite complaints from Chinese airlines who risk losing out to the better services of their foreign competitors.

The government’s thinking however，is to the wider picture of increased air traffic and visitor numbers，and in part，a belief that healthy competition will encourage domestic carriers to restructure.China is predicted to become the fourthlargest tour destination in the world by 2020 with both the 2008 0lympics and 2010 World Expo acting as landmark events.And by 2020，there are expected to be 100 million outward-bound Chinese tourists a year.Many of these will be traveling by The predicted extra traffic will also have a positive impact on domestic airports，some of which are listed and almost all of which lose money due to under utilization and poor management.Seen as a must have for any self-respecting city.

local governments have tended to spend lavishly on their airport terminals，often employing award winning foreign architects.

Opportunities，though，do exist in the provision of airport and air traffic control equipment.In some cases foreign companies have invested directly in theairports，for example，Lufthansa in the southern city of Shenzhen and French firm Thales won the contract to upgrade the national air traffic control system.

A lack of oversight，though，has led to overcapacity such as exists in the Pearl River Delta where there are now five international airports within a 350 square kilometer zone-Hong Kong，Guangzhou，Shenzhen，Zhuhai and Macau.But overall，observers say there is plenty of room for growth，especially in cargo，as at present the three major hubs of Beijing，Shanghai and Guangzhou account for 44%of the market，suggesting big potential for other centers.On the other hand，the government is upgrading road and rail links，obvious competitors to airfreight.One way the government could assist provincial airports is through encouraging the growth of low cost airlines（LCA），a possible area for foreign investment at some point in the future.In 2004，for the first time，100%privately-funded airlines were permitted to enter the market and already，a number of both cargo and passenger carriers have been formed.

Ticket prices are centrally controlled，but the discount bands were widened in 2004 to 45%below and 20%above the set price.A Chinese equivalent for the low-cost airlines in other markets could tap a whole new，and considerably wider，consumer market.This is not expected in the immediate future due to the impact such an airline could have on the existing operators.