THE ECONOMIC IMPACT OF CHINA

1
VIII Air Cargo Americas Conference XXIV ALACAT
Congress

• THE ECONOMIC IMPACT OF CHINAS TRADE AND
• AVIATION AGREEMENTS WITH LATIN AMERICA
• Demetrio R. Garcia
• Director - Airport Services Marketing
• March 2, 2006 Miami

2
Contents

• A Brief Introduction to the PRC Aviation Industry
• The Latin America-China Economic Tie Foundation
  of Direct Air Services
• The Bilateral Frame That Is Under Constant
  Improvement
• The Future of the Latin America-China Air Links

3
A Brief Introduction To The PRC Aviation Industry
4
The China Aviation Industry At A Glance

• 26.1 billion RTK, the 3rd largest in the world
  today and the 2nd largest next year
• 284.4 million passengers and 6.33 million tons of
  cargo in 2005, 17.6 and 14.6 increase
  respectively
• 12 established carriers, including 4 cargo
  airlines
• After a 10-years the No New Carrier policy, a
  new wave of private airlines, including
  privately-owned cargo airlines
• 863 airplanes nationwide, including about 30
  freighters
• 142 civilian airports, 44 with international
  services
• Aviation bilateral agreement with 97 nations
• 76 foreign carriers serve China

Sources GCW China Aviation Database (2006/2)
5
A Strong Economy Drives Fast Traffic Growth
While GDP and Pax traffic doubled in the last 10
years, air cargo traffic quadrupled
Sources GCW China Aviation Database (2006/2)
6
The PRC Will Become Worlds Second Largest Air
Market in 2006
PRC Airlines RTK Growth (In Thousands)
7
Cargo Traffic Continues to Grow
PRC Airlines Cargo Traffic Growth In 1994-2005
(in tons)
3.07 million tons
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Sources GCW China Aviation Database (2006/2)
8
The Shanghai Airports Are Examples
PAX traffic growth in the Shanghai Airports (in
Millions)
40
36
32
28
SHA PVG
24
20
16
12
8
0
04
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
05
Sources GCW China Aviation Database (2006/2)
9
The Shenzhen International Airport Is Also
Symbolic
Shenzhen International Airport Cargo Traffic
Growth (1,000 tons)
500
464.1
423.3
450
400
353.6
350
288.6
300
250
211.6
200
172.0
128.6
150
87.1
72.4
100
62.7
51.6
39.0
26.7
50
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
Sources GCW China Aviation Database (2006/2)
10
Virtually Every Forecast Shows China as the
Worlds Fastest Growing Air Travel Market
Sources Airbus
11
Almost All Forecasts Predict China The Fastest
Growing Air Market
Sources The Boeing Company (2005)
12
The PRC Airlines
The Big Three Secondary Carriers Newcomers

• 4 more new carriers plan to launce in 2006, and
  one dozen more are in the application or approval
  stage. In addition, a number of PRC-foreign JV
  airlines are being established
• Domestic fares have virtually been deregulated as
  well

13
Parallel to Deregulation, LCCs Start to Emerge

• After a 10-year No New Carrier policy, a wave
  of private airlines started
• The growth of LCCs present major opportunities
  for many PRC airports, especially for the
  secondary and small airports
• 1.63 billion enplanements on railroads in 2004
• LCCs have began offer fares that are equivalent
  or lower than train tickets
• Along with bilateral liberalization and regional
  open skies, PRC and foreign LCCs will produce a
  new wave of massive traffic increase, and thus
  change the airport landscape substantially

14
PRC Airlines Cargo Market Share
Cargo Carried
Air China
China Southern
China Eastern
China Cargo
Shanghai Airlines
Haina Airlines
Xiamen Airlines
Sichuan Airlines
Shenzhen Airlines
China Postal
Yangtze River Express
Sources GCW China Aviation Database (2005/2)
15
China Is An Very Unevenly Developed Air Market
The Three Gateway Airports Counts A Big Share Of
The Market
PRC Airport Cargo Traffic
Others 44.34
Shanghai 30.9
Beijing 14.67
Guangzhou 10.04
Sources GCW China Aviation Database (2005/2)
16
Air Cargo Traffic Parallels With The GDP
PRC Air Cargo Traffic Distribution
Sources GCW China Aviation Database (2005/2)
17
The Current PRC Airports

• 142 scheduled service airports, a majority
  of which are locally owned

Hailar
Jiamusi
Atlay
Qiqihar
Fuyun
Ulanhot
Harbin
Mudanjiang
Changchun
Xilinhot
Jilin
Tacheng
Tongliao
Yanji
Tonghua
Urumqi
Chifeng
Shenyang
Kuqa
Korla
Aksu
Chaoyang
Jinzhou
Kashi
Qinhuangdao
Dandong
Anshan
Hohhot
Beijing
Dunhuang
Dalian
Baotou
Nanyuan
Jiayuguan
Tianjin
Yantai
Yulin
Qiemo
Taiyuan
Shijiazhuang
Weihai
Dingxin
Weifang
Yinchuan
Yanan
Jinan
Xingtai
Jinan Zhangzhuang
Qingdao
Changzhi
Xining
Lanzhou
Lianyungang
Jining
Yellow Sea
Xuzhou
Yancheng
Linyi
Luoyang
Zhengzhou
Xi'an
Rugao
Nantong
Bengbu
Lintong
Nanyang
Suzhou
Laohekou
Nanjing
Hefei
Hanzhong
Fuyang
Guangyuan
Shanghai Hongqiao, Pudong
Xiangfan
Wuxi
Dajiaochang
Ankang
Wuhu Huangshan
Wuhan Wangjiadun
Hangzhou
Anqing
Daxian
Guanghan
ZhoushanNingbo
Shashi
Wanxian
Wuhan
Nanchong
Chengdu Taipingsi
Yichang
Yiwu
Chengdu
Lhasa

• 4E
• 4D
• 4C
• 3C
• China United Airlines Exclusive

Chongqing
Quzhou
Enshi
Jiujiang
East China Sea
Zhangjiajie
Huangyan
Yibin
Luzhou
Jindezhen
Changde
Nanchang
Wenzhou
Xichang
Changsha
Wuyishan
Zhongdian
Fuzhou
Zhaotong
Fuzhou Yishun
Lijiang
Guiyang
Xiamen
Guilin
Ganzhou
Qiyifeng
Dali
Baoshan
Liuzhou
Meixian
Wuzhou
Kunming
Huiyang
Guangzhou
Shantou
Mangshi
Nanning
Shenzhen
Simao
Foshan
Zhuhai
Beihai
Xishuangbanna
Zhanjiang
Sources GCW China Aviation Database (2005/2)
Haikou
South China Sea
Sanya
18
Massive Aviation Infrastructure Developments Are
on the Way

• In the past five years, average airport
  infrastructure spending was over 14b RMB
• 54 airports currently have major on-going or
  to-be-launched expansion projects

Sources CAAC GCW China Aviation Database
(2005/2)
19
Mega Hub Developments In the PRC
20
What Is Happening In The PRC Aviation Industry?

• A rapid, persistent and sustainable air industry
  growth has triggered
• Domestic Market Deregulation
• Bilateral Liberalization and Open Sky
• Airline Consolidation
• HubSpoke System Development
• Airport Localization Privatization

21
The Latin America-PRC Trade And The Economic
Relations
22
The Latin America-China Bilateral Relationship
and Trade Grow

• In year 2004, Latin America-China trade reached
  40 billion US dollars, a 49.3 increase from the
  year before In year 2005, it was over 50
  billion, a 26.1 increase
• China has established diplomatic relationship
  with 20 countries and have trade with 33
  countries in Latin America
• China has good relationship with a number of
  Latin America political and economic
  organizations, and invests over half of its FDI
  in Latin America
• China has been discussing free-trade zone
  agreements with Latin America countries and has
  entered the agreement with Chile, which will
  boost the Latin America-China economic
  relationship and trade substantially
• PRC tourists start to arrive in Latin America,
  and will grow rapidly as the direct air links are
  being established

23
Latin America-China Trade Grows Consistently
From 1999 to 2005, Chinas Importation from Latin
America Grew 795
In the past seven years, the Latin America-China
trade grew at an average rate of 41.3, much
faster than the 26 over-all foreign trade growth
rate of China
24
Latin America-China Trade
Chinas Major Latin America Trading Partners In
2005
Rank by value 1 2 3 4 5
Country Brazil Mexico Chile Argentina Panama
Import Export 1,481,729 776,428 713,440 512,467 317,325
Country Brazil Chile Argentina Peru Mexico
Import 998,974 498,451 379,958 227,640 222,602
Country Mexico Brazil Panama Chile Argentina
Export 553,827 482,755 315,105 214,989 132,509
In addition to the increase of the trade volume,
Latin Americas importance in Chinas trade grew
as well. In 1999, the importation from Latin
America counted only 1.81 of the entire
importation by China. In year 2005, it became
3.55?
Data SourceMinistry of Commerce of the Peoples
Republic Department of China---Department of
Planning and Finance
25
Latin America-China Trade
Chinas Importation from Latin America in Year
2005
In Billion US Dollars
12
10
8
6
4
2
0
China has become the second largest export market
for Chile and Peru, and the third largest for
Brazil
26
Frequent Exchange of Visits by State Heads of
China and Latin America Countries Promotes The
Trade And Economic Relationships
President Hu Jintao met with President Chavez of
Venezuela in Beijing on December 23, 2004
27
Frequent Exchange of Visits by State Heads of
China and Latin America Countries Promotes The
Trade And Economic Relationships
President Hu Jintao and President Lagos of Chile
in Santiago, November 18, 2004
28
Frequent Exchange of Visits by State Heads of
China and Latin America Countries Promotes The
Trade And Economic Relationships
President Hu Jintao meeting with President Chaves
of Venezuela in Beijing on January 6, 2006
President Hu Jintao addresses the Mexico Congress
in Mexico City, September 12, 2005
29
The Brazil-China Bilateral Trade as a Example
In Million US Dollars
Export Import
Export
Import
SourceMinistry of Commerce of the Peoples
Republic Department of China---Department of
Planning and Finance
30
In Addition to Trades, A Marvelously Successful
Open-Door Policy and Political Reform Have
Created Huge New Aviation Markets
PRC Citizens Traveling Abroad
Data Sources State Statistic Bureau
31
The PRC Travelers Contribute To The Local Economy
Of The Destination Countries
Distribution of PRC Travelers By Destinations In
year 2003
SourceCCS (2003)
32
The PRC Travelers Contribute To The Local Economy
Of The Destination Countries
PRC Citizen Spending Aboard
Data Sources State Statistic Bureau
33
Seven Latin America Nations Have Obtained
Special Statues For PRC Group Travelers
As of September 15, 2005, China has granted 76
countries as PRC Tourist Designated Destination
Countries. Among these countries
Order by time Country Effective Date
28 Cuba 2003
68 Chile July 15, 2005
69 Jamaica July 15, 2005
71 Brazil September 15, 2005
72 Mexico September 15, 2005
73 Peru September 15, 2005
74 Antigua and Barbuda September 15, 2005
SourceCNTA.
34
Therefore, Latin America-China Direct Air Link
Becomes Both Needed and Viable

• Rapid and persistent growth in economic
  cooperation and tourists generate stronger
  demands for direct air links between China and
  Latin America each year
• Hub development in China is changing the
  landscape of the industry there, and is creating
  a stronger economic and operational foundation
  for the PRC carriers to plan such services
• The membership of PRC carries in airline
  alliances will further assist such efforts
• The large order by the PRC airlines on B-787s
  will improve the chance and the services greatly
• And, the PRC airlines welcome inputs from
  airlines, airports, cargo forwarders, tourist
  organizers, as well as local communities and
  local government agencies of Latin American
  countries

35
The Bilateral and Regulatory EnvironmentAnd the
Anticipated China-Latin America Services
36
A Fast Process of Opening the Sky of China
China Has Bilateral Air Transport Agreements With
95 Nations
Data Source GCW China Aviation Database (09/2004)
37
Domestic Deregulation and International
LiberalizationDominates The CAAC Agenda

• The CAAC will, as part of its effort of
  cooperating with the Shanghai Municipality in
  creating the Shanghai hub, further open the
  Shanghai air cargo market, and allow more
  Fifth-Freedom cargo rights.
  
• - Minister Yang, on The Inaugural Shanghai
  International Aviation Symposium, April 28, 2004

38
PRCs Efforts In International Open Sky and
Bilateral Liberalization

• In the past few years, dozens bilateral
  agreements were re-negotiated, and virtually all
  contains much liberal cargo rights
• Japan
• Germany
• Hong Kong
• France
• Canada
• USA
• Korea
• Australia
• Russia
• UAE
• and so on

Chinas Currently Existing Bilateral Air Cargo
Rights (2004)
Source GCW China Aviation Database
39
China Is Also Opening Its Sky To The Latin
America Nations
Six Latin America Nations Have Bilateral Air
Transport Agreements With China
1993-6-21 Cuba 1994-7-11 Brazil 1996-6-03
Chile 2000-3-30 Peru 2004-6-17
Argentina 2004-8-17 Mexico
Based on the October, 2005 bilateral negotiation
in Beijing, Chile might become the first Latin
America country to enter into an open-sky
agreement with China
Data Source GCW China Aviation Database (09/2005)
40
China-Latin America Route Planning (1)
??/Paris
??/Beijing
41
China-Latin America Route Planning(2)
??/Beijing
???/Los Angeles
???/Sao Paulo
?????/Rio de Janeiro
42
China-Latin America Route Planning(3)
???/Munich
43
China-Latin America Route Planning(4)
??/Shanghai
????/Mexico City
44
China-Latin America Route Planning

• One or two PRC carriers will be very likely to
  launch China-Brazil route in year 2006
• There are some technical difficulties in such
  planning, which include
• Relatively lack of knowledge about the Latin
  America air market, particularly the cargo market
• Lack of feeder/distribution partners at the Latin
  America destinations
• Underlying authority and traffic rights in China
  Latin America bilateral agreements, as well as
  at the intermediary nation
• Transit visa barriers for PRC citizens in
  intermediary nations
• Five or six Latin America carriers are reported
  in planning air services to China
• The PRC carriers and the airports will be more
  than happy to cooperate with Latin American
  airlines that plan to serve China
• The CAAC has been strongly encouraging such
  services

45
Conclusion

• China has diplomatic relationship with 20
  countries and trade relationship with 33
  countries in Latin America, and the economic,
  bilateral trade, tourism relationship expand
  faster each year.
• In addition to the growing economic ties, strong
  growth of PRC citizen traveling abroad also
  created demands for the PRC carriers to launch
  China-Latin America services soon.
• Airline hub development and liberalization of the
  bilateral frame provided a solid foundation for
  sustainable long-haul services by the PRC
  carriers.
• The membership of the PRC carriers in major
  airline alliances, as well as the 60 B787s
  ordered by the PRC airlines, will make the
  China-Latin America service more viable.

Economic Growth and Technology Advance Have Made
It Logic To Link The Two Greatest Markets In The
World By Air
46
And,
47
Prepare To Receive Thousands Of Friendly PRC
Visitors, Too.
48
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