Comment: China's balancing act

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The Chinese government has been skilfully balancing the need to reform and open up its booming air transport market over the past decade, with much success. But is the strain beginning to tell on the nation's airlines, airports and air traffic control system?

Last month's Asian Aerospace event in Hong Kong was an eye opener for many who attended, as in some ways it represented a lesson in the delicate balancing act being played out by China. There, in one of the fastest-growing air transportation markets in the world, regulators are trying to balance calls from some carriers for continued protectionism with the need to encourage greater competition. The regulators are also learning to take a more hands-off approach and at the same time trying to meet the need for rapid infrastructure improvement.

The Chinese air transport market has undergone dramatic change in its short history, growing from just one airline in the 1980s that almost nobody flew to having dozens of airlines that carry tens of millions of passengers annually. According to official forecasts drawn up early this year, passenger numbers were expected to grow around 16% in 2007 to around 185 million. But growth has been significantly faster, causing justifiable concern at the Civil Aviation Administration of China (CAAC) about whether the overall system is able to cope.

The statistics tell the story best. Passenger traffic is doubling roughly every five years and is expected to continue growing at rates well over 10% through the end of this decade, before slowing to around 14% annually in the next decade, according to the CAAC. Forecasts from Airbus and Boeing predict that China's airliner fleet will more than quadruple over the next 20 years. Put another way, one in 10 new aircraft produced by the world's manufacturers will be destined for China over the next two decades.

This seems a rosy picture, but there are problems behind the scenes, as highlighted by airlines and Chinese government officials speaking at the three-day Congress element of Asian Aerospace.

Apart from the well-documented problem of staff shortages, airport development has been rapid but there are worries over whether it is going to the right places. There are a little more than 140 airports in China but by 2010 there are expected to be 186 and by 2020 around 220. Many will be built to serve outlying communities in line with government efforts to promote development in more remote parts of the country, but the reality is China remains a market where hubs will still be the focus of air transport for years to come, requiring further development of the larger airports.

Air traffic control is also an increasingly frustrating problem for airlines flying to and within China and the delays are growing at a worryingly high rate - delays caused primarily by air traffic capacity shortfalls. China has spent tens of millions of dollars improving its air traffic control system hardware but much of its airspace remains controlled by the military, leaving not enough for civil use. That must change, but the military does not appear ready to move quickly just yet.

With a few notable exceptions, China's airlines also remain generally inefficient and either barely profitable or not profitable at all. They too need radical reform and fast.

Some believe China's air transport market could be growing at much faster rates if the various government departments eased certain controls. For example, the government still controls aircraft purchasing, restricts which airlines can fly which routes, regulates airport pricing and controls airfares.

To be fair, the market is not ready for complete change overnight, as easing all controls in a market where there is still little fiscal discipline among airlines would lead to disaster. Airlines would grow for the sake of it, fares would reach uneconomically low levels again and all the progress that has been made over the years to make the industry stronger would be lost.

In many ways the CAAC has done a remarkable job in introducing change at the right pace. It has also fundamentally improved the nation's safety record. But there are still deep fundamental concerns that some feel are being glossed over. China should be proud of the progress made in its civil aviation development to date, but there is still much more to be done.