New Chances in the Middle Kingdom

Alexander Gangnus and Liyuan Wang from Chinabrand Consulting discuss the ups and downs of working in China’s flourishing aviation market 
Aviation is considered an important strategic industry in the twelfth edition of the recently released Five Year Plan (2011-2015).  The shift from exports to growing inland consumption and the Chinese population’s wish for an increased standard of living, will lead to a growing demand in air travel, to domestic and international destinations.  The growth of this industry sector is also fuelled by the heavily growing demand for expensive luxury goods among the emerging Chinese middle and upper classes, which are preferably transported by air cargo.
The amount of passenger and cargo aircraft is predicted to increase significantly from 1,597 units in 2010 to 2,750 units in 2015, and even up to 5,000 units in 2020.  To reach these goals, China will put further emphasis on the development of its own aircraft industry by founding new state-funded companies like the Commercial Aircraft Corporation of China (COMAC).  Also, ground infrastructure like airports will profit from this new development.  The Chinese Government plans to invest about 160 billion RMB (US$220bn) in building and modernising airports.  Experts estimate that China will be the world’s leading aviation market in ten to 15 years.  According to the Chinese industry authorities, the ratio of investment and return of investment in the aviation industry is one to eight.
Two hundred and sixty airports are expected to be in operation for scheduled airlines by 2015, including the construction of 56 new airports, the upgrade of around 90 already in existence and the relocation of about 15.  It is claimed that 30 of the 260 will have a passenger volume of above 30 million people per year and overall passenger volume is expected to increase by over 11% per cent each year until 2020.  Figures also suggest that the overall air cargo volume will increase by ten per cent within the same timeframe.
While most of the investments serve the development of the more remote regions in central and western China, another particular example is the Beijing New International Airport. Its completion is scheduled for 2017.  This second international airport in Beijing is aiming to improve connections between the metropolitan area of Beijing and Tianjin to the domestic and international air traffic network.  Eight civil and one military runway are expected to move up to 40 million passengers each year in the first stage of expansion, which is expected to start soon.  Capacity will be about 130 million passengers in the long run, according to the ambitious plans of the Chinese Government.  Apart from a significant amount of international flights, the new airport mainly serves domestic purposes and will be planned and built according to sustainable and eco-friendly standards.  This guideline is also set by the twelfth Five Year Plan.  Western manufacturers of airport equipment are still in the lead when eco-friendly and energy-efficient products and materials are in need.  That’s why they have good chances to participate in the booming airport infrastructure industry.

Region Type of Project Cities
North China Strategic Development Beijing Capital Airport, Harbin, Shenyang, Dalian, Tianjin, Shijiazhuang, Taiyuan, Huhehaote, Changchun
New Airport Beijing New International Airport, Mohe, Daqing, Erlianhaote, Fuyuan  
East China Strategic Development Shanghai Pudong, Shanghai Hongqiao, Hangzhou, Nanjing, Xiaomen, Qingdao, Jinan, Fuzhou, Nanchang, Hefei
New Airport Huai’an, Jiuhuashan
South-central China Strategic Development Guangzhou, Shenzhen, Wuhan, Zhengzhou, Changsha, Nanning, Haikou, Sanya, Guilin
New Airport Baise, Hengyang
South-west China Strategic Development Chengdu, Chongqing, Kunming, Lhasa, Guiyang
New Airport Tengchong, Daocheng
North-west China Strategic Development Xi’an, Wulumuqi, Lanzhou, Yinchuan, Xi’ning, Ku’erle, Kashi
New Airport Yushu, Shihezi

 Table: Important Airport Projects in the next five years.  (Source: CAAC)
The general aviation sector is also starting to lift off.  Already in 2010, the State Council and the Central Military Commission announced a stepwise opening of the Chinese airspace for general aviation, which will substantially increase the demand for private and business jets.  It is estimated that there are 300,000 potential private- and business-jet buyers in China, whose newly bought aircraft need to be housed, maintained and handled.
Before entering the Chinese market, it is crucial to conduct investigative market research in order to identify current and future airport projects, the key decision-makers in governmental organisations like the General Administration of Civil Aviation of China (CAAC) and also to learn the exact allocation criteria.  The whole Chinese aviation industry was heavily regulated in the past, and still is today.  Therefore, each company has to know the specific laws and regulations which apply in this sector.  In order to always be ahead of the competitors information-wise, constant and efficient lobbying in the relevant organisations and politicians is a must.
According to the regulations issued by the CAAC, special vehicles for airport transportation services and manufacturers of special equipment for ground services must obtain a license granted by the administration.  This licence is valid for eight years and it takes about three to four years on average to obtain.  During this period, the manufacturer needs to find airlines for product testing.  The test period runs for at least six months and its result is demonstrated in a user report.  As the time cycle to obtain the licence and to build up the products’ reputation takes a while, and the required capital is high, it is not easy for small businesses to enter the sector.      
Up until 2002, the domestic airport equipment market was still dominated by foreign manufacturers.  Although products made by domestic companies have started to hit the market, they are still at the early stages of development.  However, it is still important for foreign companies entering the market to know their competitors.  This includes knowledge of their financial situation, products, and current projects as well as their detailed strengths and weaknesses.  Of course, this also applies for potential partners, no matter if it is a sales, distribution or manufacturing partnership.  It is not enough to just look for publicly available information; in China, one has to dig deep and investigate thoroughly to find out about the true situation of business associates.  When it comes to negotiations or contact with authorities, detailed knowledge of the Chinese business culture is very important in order to avoid misunderstandings or mistakes.  This knowledge also has to be continually applied in every-day business for a successful cooperation.
When it comes to the protection of intellectual property, China still hasn’t got the best reputation.  Even if the situation constantly improves, it is crucial for every foreign company entering the Chinese market to develop a comprehensive concept for know-how protection.  This includes the registration of intellectual property rights in China, as well as the protection of trade secrets.
Experts think that China, especially in the coming years, will still need the products and technology of foreign manufacturers to accomplish the government’s ambitious growth plans in the aviation sector.  International suppliers of aviation technology and airport equipment can enter this vast market and realise great profits, either by seeking local partners or by establishing their own production facilities.  However, the Chinese aviation market is still heavily restricted and western companies may face severe difficulties in finding the right contacts in business and politics.  Therefore, it is important to have a partner with good contacts in the government as well in the industry, and a good insight into this growing market.

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