LI & FUNG RESEARCH CENTRE

China Distribution & Trading

Issue 57

January 2009

IN THIS ISSUE :
I. Air Transportation II. Highlights of Recent Government Policies in Transport Infrastructure in China 1 11

An update on the transport infrastructure development in China: Air transportation

I. Air Transportation
Well-developed transport infrastructure is essential for an economy to function. It facilitates the production and distribution of goods and services, as well as movement of people to meet the social, humanitarian, or economic need of the society. China clearly recognizes the importance of transport infrastructure to the success of its economic development. Indeed, the past three decades has seen remarkable development in transport infrastructure in China. In our Newsletter Issues 43 45 (http://www.lifunggroup.com/research/pdf/china_dis_issue43.pdf, http://www.lifunggroup.com/research/pdf/china_dis_issue44.pdf and http:// www.lifunggroup.com/research/pdf/china_dis_issue45.pdf), we have detailed the achievements of four modes of transportation in China, namely, road (highways and expressways), railway, water and air transportation. This Newsletter aims to provide an update on the development of the air transportation in China. We will first have a quick overview of the performance of the air transportation in year 2007, followed by details of the National Plan for Civil Airports by 2020. Finally, we will highlight some of recent policies in transport infrastructure in China.

1. Overview
According to the General Administration of Civil Aviation of China (CAAC), there were 152 civil airports with regular flights in China in 2007, 5 of which were newly built in that year: in Baise ( and Handan (
Li & Fung Research Centre 13/F, LiFung Centre 2 On Ping Street Shatin, Hong Kong Tel: (852) 2635 5563 Fax: (852) 2635 1598 E-mail: lfdc@lf1937.com http://www.lifunggroup.com/

), Kanas (

), Ordos (

), Libo (

). The total passenger throughput by air transportation climbed

by 16.8% year-on-year (yoy) to reach 387.6 million in 2007; while the total freight throughput rose by 14.3% to 8.6 million tonnes. Exhibit 1 shows the top twenty civil airports in China in 2007 in terms of passenger throughput. Among these civil airports with regular flights, 47 of them handled more than one million passengers in 2007, representing 95.4% of the total passenger throughput in China in the same year; and 10 of them even handled more than 10 million passengers, representing 57.9% of the total passenger throughput in 2007; the top four of which, located in Beijing, Guangzhou and Shanghai (see exhibit 1),

Li & Fung Research Centre Member of the Li & Fung Group

China Distribution & Trading

Issue 57 January 2009

China Distribution & Trading

Issue 57 January 2009

accounted for 35.1% of the total. As for freight throughput, 43 out of the 152 civil airports handled more than 10,000 tonnes of goods in 2007, accounting for 98.7% of the total freight throughput of the year. The four airports in Beijing, Shanghai and Guangzhou accounted for 58.8% of the total.

Exhibit 2 Air Traffic in China: Total passenger traffic and total passenger-kilometers, 2003-2007

Exhibit 1 The top-20 busiest civil airports in China in terms of passenger throughput, and their freight throughput and number of flights handled, 2007 Passenger Throughput (million Rank Airport National 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Beijing Capital International Guangzhou Shanghai Pudong Shanghai Hongqiao Shenzhen Chengdu Kunming Hangzhou Xian Chongqing Xiamen Wuhan Changsha Nanjing Qingdao Dalian Haikou Shenyang Urumqi Sanya 53.6 31.0 28.9 22.6 20.6 18.6 15.7 11.7 11.4 10.4 8.7 8.4 8.1 8.0 7.9 7.3 7.3 6.2 6.2 5.3 10.0 18.1 8.0 17.0 12.3 14.1 8.9 18.3 21.4 28.6 15.8 37.0 22.4 28.2 15.9 14.6 8.9 15.8 20.1 36.0 141.6 69.5 255.9 38.9 61.6 32.6 23.3 19.6 11.2 14.4 19.4 9.0 6.9 18.0 11.6 12.2 0.7 1.0 0.9 0.3 17.9 6.4 18.0 7.0 10.2 10.3 6.1 5.5 12.7 19.4 10.6 21.5 9.7 18.6 14.3 11.7 11.7 7.9 11.9 20.2 39.9 26.1 25.4 18.7 18.1 16.6 14.8 11.5 11.9 10.5 8.5 9.3 8.2 8.2 8.2 6.3 6.1 5.7 5.9 4.2 5.4 12.2 9.3 5.3 7.1 7.0 9.3 13.8 20.2 18.2 10.2 39.8 15.3 27.6 14.4 12.5 -1.9 16.2 14.9 28.7 Exhibit 3 Air Traffic in China: Total freight and total freight tonne-kilometers, 2003-2007 The total air freight traffic in China in 2007 was 4.0 million tonnes, representing a yoy increase of 15.0%. The total air freight tonne-kilometers in 2007 were 11.6 billion tonne-kilometers, an increase of 23.5% yoy. The growth rate of air freight tonne-kilometers of China was particularly impressive as it was much ahead of its international counterparts (19.2 percentage points higher than the international average). Exhibit 3 shows the total air freight traffic and freight tonnekilometers for the past five years.
Source: National Bureau of Statistics (NBS)

Freight Throughput yoy (%) 16.8 (10,000 tonnes) 861.1 yoy (%) 14.3

Number of Flights Handled (10,000) 394.1 yoy (%) 13.0

persons) 387.6

Source: General Administration of Civil Aviation of China (CAAC)

According to the National Bureau of Statistics (NBS), the total air passenger traffic in China in 2007 was 185.8 million persons, posting a yoy increase of 16.3%. The total air passenger-kilometers in 2007 were 279.2 billion passenger-km, recording an increase of 17.8% yoy over the previous year Such a growth rate was 10.4 percentage points higher than the international average. Exhibit 2 shows the total air passenger traffic and the total air passenger-kilometers for the past five years. It demonstrates that both air passenger traffic and passenger-kilometers have been growing steadily.
Source: NBS

Li & Fung Research Centre Member of the Li & Fung Group

Li & Fung Research Centre Member of the Li & Fung Group

China Distribution & Trading

Issue 57 January 2009

China Distribution & Trading

Issue 57 January 2009

Among the various modes of transportation in China, the growth rates of air traffic, both in terms of passenger and freight transportation, was the highest in 2007. Exhibit 4 shows the respective growth rates of traffic for the various transportation modes in year 2007. A bigger proportion of both passenger and goods are carried by air transportation now, probably due to the growing affluence of the Chinese people as well as the more affordable price of air transportation.

(2) Development Goals

Exhibit 5 shows the development goals of the Plan set by the CAAC. By 2020, there will be a total of 244 civil airports serving 82% of the total population. 80% of the cities will have at least one airports within 100 km or in 1.5 hours travel time.

Exhibit 4 Growth rates of total passenger traffic, total passenger-kilometers, total freight traffic and total freight tonne-kilometers of road, rail, water and air transportation, 2007

Exhibit 5 Development goals for civil airports by 2020 Development Goals Number of civil airports Coverage of cities (county level or above) where the nearest airport is within 100 km or 1.5 hours travel time (%) Coverage of population (%) Share of national GDP of the cites covered (%)
Source: CAAC

2006 147 52 61 82

2010 190 75 78 93

2020 244 80 82 96

(3) The Development Plan

Map 1 and Exhibit 6 shows the development plan for civil airports of China. Basically, all civil airports are divided into five clusters, with each cluster serving the corresponding geographical region in China. The development plan for each of the five clusters are as follow:
Source: CAAC

2. Development Plan
The Chinese government recognizes the shortfalls of the aviation industry, just to name a few, limited number of airports and insufficient airport coverage; uncoordinated development leading to duplicative construction and over-competition for resources and clientele; failure to develop the air transportation with other modes of transportation in an integrated manner; and most medium and large airports are almost saturated in terms of capacity, while they are not up to standard in terms of service and safety.

i.

Northern China Airport Cluster (

A total of 54 civil airports will be built in Beijing, Tianjin, Hebei, Shanxi, Inner Mongolia, Liaoning, Jilin and Heilongjiang by 2020. This cluster will not only provide aviation capacity to northern China, but will also facilitate the opening up of China to Northeast Asia and the economic cooperation among the Northeastern Asian countries. ii. Eastern China Airport Cluster ( )

A total of 49 civil airports will be built in Shanghai, Jiangsu, Zhejiang, Anhui, Fujian, Jiangxi and Shandong by 2020. The government thus sees the urgency to upgrade the industry and the CAAC formulated and revealed the National Plan for Civil Airports (the Plan) ( ) in February 2008. Details of the Plan are as follow: iii. This cluster will serve eastern China, accelerate the opening up of China globally, and promote the economic cooperation across the Taiwan Strait. Central and Southern China Airport Cluster ( )

(1) Objectives
The government has established the following objectives for the industry to be achieved by 2020: i. ii. iii. iv. v. To utilize resources in a more efficient manner To better define the function of each airport To increase coverage of service To promote quality of service To facilitate the development of the economy as well as the development of the aviation industry

A total of 39 civil airports will be built in Guangdong, Guangxi, Hainan, Henan, Hubei and Hunan by 2020. This cluster will provide aviation capacity to central and southern China, facilitate the opening up of China globally, and encourage the economic cooperation in the Pan Pearl River Delta as well as among the Southeast Asian countries.

Li & Fung Research Centre Member of the Li & Fung Group

Li & Fung Research Centre Member of the Li & Fung Group

China Distribution & Trading

Issue 57 January 2009

China Distribution & Trading

Issue 57 January 2009

Map 1 National Plan for Civil Airports by 2020

* Airports already built in year 2007 Source: CAAC, English compiled by Li & Fung Research Centre

Li & Fung Research Centre Member of the Li & Fung Group

Li & Fung Research Centre Member of the Li & Fung Group

China Distribution & Trading

Issue 57 January 2009

China Distribution & Trading

Issue 57 January 2009

Exhibit 6 National Plan for Civil Airports by 2020 Provinces/Municipalities Covered Northern China Airport Cluster Eastern China Airport Cluster Central and Southern China Airport Cluster Southwestern China Airport Cluster Northwestern China Airport Cluster

Beijing ( ), Tianjin ( ), Hebei ( ), Shanxi ( ), Inner Mongolia ), Liaoning ( ), Jilin ( ), ( Heilongjiang ( ) Airports in Use as of 2006 ), Nanyuan Beijing Capital ( ( ), Tianjin ( ), Shijiazhuang ( ), Qinhuangdao ( ), Taiyuan ( ), Yuncheng ( ), ), Changzhi ( ), Datong ( Hohhot ( ), Baotou ( ), Hailar ( ), Manzhouli ( ), Xilinhaote ( ), Chifeng ( ), Tongliao ( ), Wulanhaote ), Wuhai ( ), Shenyang ( ( ), Dalian ( ), Dandong ( ), Jinzhou ( ), Chaoyang ( ), Changchun ( ), Yanji ( ), Harbin ( ), Mudanjiang ), Qiqihar ( ), Jiamusi ( ( ), Heihe ( )

Shanghai ( ), Jiangsu ( ), Zhejiang ( ), Shandong ( ), ), Jiangxi ( ), Fujian Anhui ( ( ) ), Shanghai Pudong ( Shanghai Hongqiao ( ), Nanjing ( ), Wuxi ( ), Changzhou ( ), Xuzhou ( ), ), Nantong Lianyungang ( ( ), Yancheng ( ), Hangzhou ( ), Ningbo ( ), Wenzhou ( ), Zhoushan ( ), Huangyan ( ), Yiwu ( ), Quzhou ( ), ), Qingdao ( ), Yantai Jinan ( ( ), Weihai ( ), Linyi ( ), Weifang ( ), Dongying ( ), Hefei ( ), Huangshan ( ), Anqing ( ), Fuyang ( ), ), Ganzhou ( ), Nanchang ( Jingangshan ( ), Jiujiang ( ), Jingdezhen ( ), Fuzhou ( ), Xiamen ( ), Jinjiang ( ), Wuyishan ( ), Liancheng ( ) 37 ), Suzhong ( ), Lishui Huaian ( ), Jining ( ), Jiuhua Mountain ( ( ), Bengbu ( ), Wuhu ( ), Yichuan ( ), Gandong ( ), Sanming ( ), Ningde ( ), Pingtan ( )

Guangdong ( ), Guangxi ( ), Hainan ( ), Henan ( ), Hubei ), Hunan ( ) (

Chongqing ( ), Sichuan ( ), Yunnan ( ), Guizhou ), Tibet ( ) (

Shaanxi ( Qinghai ( Xinjiang (

), Gansu ( ), Ningxia ( )

), ),

), Shenzhen Guangzhou ( ( ), Zhuhai ( ), Meizhou ( ), Shantou ( ), Zhanjiang ( ), Nanning ( ), Guilin ), Beihai ( ), Liuzhou ( ( ), Wuzhou ( ), Haikou ( ), Sanya ( ), Zhengzhou ( ), Luoyang ( ), Nanyang ( ), Wuhan ( ), Yichang ), Enshi ( ), Xiangfan ( ( ), Changsha ( ), Zhangjiajie ( ), Changde ( ), Yongzhou ( ), Huaihua ( )

), Wanzhou Chongqing ( ( ), Chengdu ( ), Jiuzhaigou ( ), Panzhihua ( ), Xichang ( ), Yibin ), Mianyang ( ), ( Nanchong ( ), Luzhou ( ), Guangyuan ( ), Dazhou ( ), Kunming ( ), Xishuangbanna ( ), Lijiang ), Dali ( ), Mangshi ( ( ), Diqing ( ), Baoshan ( ), Lincang ( ), Simao ( ), Zhaotong ( ), Wenshan ( ), Guiyang ( ), ), Xingyi ( ), Tongren ( Anshun ( ), Liping ( ), Lhasa ( ), Changdu ( ), Linzhi ( )

), Yanan ( ), Yulin Xian ( ( ), Hanzhong ( ), Ankang ( ), Lanzhou ( ), Dunhuang ( ), Jiayuguan ), Qingyang ( ), Xining ( ( ), Golmud ( ), Yinchuan ( ), Urumqi ( ), Kashgar ( ), Yining ( ), Korla ( ), ), Hotan ( ), Altai ( Aksu ( ), Kuqa ( ), Tacheng ( ), Qiemo ( ), Narat ( ), Karamay ( )

Number of Airports (Total: 147) Airports Planned to be Built by 2020 (97)

30 ), Liangxiang Beijing II ( ), Handan* ( ), Hengshui ( ( ), Chengde ( ), Zhangjiakou ( ), Luliang ( ), Wutaishan ( ), Ordos* ( ), Aershan ( ), Erenhot ( ) , Bayan ), Dalaikubu Nuur ( ( ), Huolinhe ( ), Jiagedaqi ( ), Changhai ( ), Changbaishan ( ), Tonghua ( ), Baicheng ( ), ), Daqing ( ), Jixi Mohe ( ( ), Yichun ( ), Fuyuan ( )

25 ), Baise* ( ), Shaoguan ( ), Yulin ( ), Dongfang Hechi ( ( ), Wuzhishan ( ), Qionghai ( ), Xinyang ( ), Shangqiu ( ), Shennongjia ( ), Hengyang ( ), ), Wugang ( ), Yueyang ( Shaodong ( )

31 ), Wushan ( ), Qianjiang ( ), Kangding ( ), Leshan ( Yading ( ), Barkam ( ), Tengchong ( ), Honghe ( ), Nujiang ( ), Huize ( ), Mongla ( ), Luguhu ), Libo* ( ), Bijie ( ( ), Liupanshui ( ), Zunyi ( ), Huangping ( ), Qianbei ( ), Ali ( ), Shigatse ( ), Naqu ( )

24 ), Baoji ( ), Hukou ( ), Tianshui ( ), Shangluo ( Xiahe ( ), Jinchang ( ), Longnan ( ), Zhangye ( ), Wuwei ( ), Hangtiancheng ( ), Yushu ( ), Huatugou ), Delingha ( ), ( Guoluo ( ), Qinghaihu ( ), Guyuan ( ), Zhongwei ( ), Kanas* ( ) Turpan ( ), Hami ( ), ), Kuytun ( ), Bole ( Loulan ( ), Fuyun ( ), Tazhong ( ), Shihezi ( ) 26

Number of Airports (Total: 97)

* Airports already built in year 2007 Source: CAAC, English compiled by Li & Fung Research Centre

24

12

14

21

Li & Fung Research Centre Member of the Li & Fung Group

Li & Fung Research Centre Member of the Li & Fung Group

China Distribution & Trading

Issue 57 January 2009

China Distribution & Trading

Issue 57 January 2009

iv.

Southwestern China Airport Cluster (

A total of 52 civil airports will be built in Chongqing, Sichuan, Yunnan, Guizhou and Tibet by 2020. This cluster will serve southwestern China. It will stimulate the tourism and the economy of the minorities regions and facilitate the economic cooperation between China and the ASEAN countries. v. Northwestern China Airport Cluster ( )

II. Highlights of Recent Government Policies in Transport Infrastructure in China

Countries across the globe put forward stimulus packages to rescue their economy amid the financial turmoil. China is no exception. To reinvigorate the economy, China unveiled its massive four-trillion-yuan (nearly USD 600 billion) stimulus package in November 2008. The huge sum of money will finance investment and projects in ten major areas including rural infrastructure, major transport infrastructure, post-disaster reconstruction, low-income housing, healthcare and cultural and education facilities, environment protection, technological innovation, income subsidies to both urban and rural households, VAT tax-reform; and will be used to strengthen the monetary support to the economy. Note that the first three areas mentioned above imply there will be much more construction of transport infrastructure in the next two years. Echoing to the central government initiative, the local governments have become very zealous to promulgate their corresponding stimulus plans, with a view to driving their local economies and create employment. Many municipalities and provinces such as Beijing, Shanghai, Chongqing, Jiangsu, Zhejiang, Sichuan, Jilin, Guangdong, Shanxi and Yunnan have revealed that they would invest more in their transport infrastructure in the coming years. As for the aviation industry, the CAAC announced in December 2008 a series of measures to promote the sound development of the industry in response to the global crisis. Important measures include:

A total of 50 civil airports will be built in Shaanxi, Gansu, Qinghai, Ningxia and Xinjiang by 2020. This cluster will not only provide aviation capacity to northwestern China, but also stimulate the tourism and the economy of the minorities regions and facilitate the economic cooperation between China and Central Asia.

(4) Supporting Measures

An array of measures will be adopted to support the implementation of the Plan. They are: i. ii. iii. iv. v. vi. vii. To continue to deepen the reform and expand in scope the opening-up To strengthen policy guidance and explore new ways of financing To improve the regulatory environment To enhance the capability of innovation and accelerate modernization of industries To utilize resources in an efficient manner for sustainable development To better integrate air transportation with other modes of transportation so as to achieve synergy To coordinate the airspace for both military and civil uses

10 billion yuan (approximately USD1.5 billion) will be injected into the air safety facilities. New airlines will not be approved before 2010. Airlines are encouraged to cancel or defer purchases of new planes which are scheduled to be delivered in 2009. Taxes and fees related to the industry will be waived. Gasoline price will be adjusted and made more affordable to the airlines. Construction of new airports and enhancement projects will be accelerated.

Li & Fung Research Centre Member of the Li & Fung Group

10

Li & Fung Research Centre Member of the Li & Fung Group

11

China Distribution & Trading

Issue 57 January 2009

Copyright 2009 Li & Fung Research Centre. All rights reserved. Though Li & Fung Research Centre endeavours to have information presented in this document as accurate and updated as possible, it accepts no responsibility for any error, omission or misrepresentation. Li & Fung Research Centre and/or its associates accept no responsibility for any direct, indirect or consequential loss that may arise from the use of information contained in this document.

Li & Fung Research Centre Member of the Li & Fung Group

12