Foreign companies will be allowed to invest in all domestic airlines following the institution of the new regulation, and their shareholding limitation will be lifted to 49 percent from the 35 percent in effect at the moment.

The limitation is to be lifted further in airport investment. The new regulation modifies the 49 percent shareholding cap for foreign investment to a vague description, saying that Chinese companies must hold relatively major shares in such cooperative investments.

The new foreign investment regulation was co-drafted by the General Administration of Civil Aviation of China (CAAC), the State Development Planning Commission, and the Ministry of Foreign Trade and Economic Cooperation, and has been approved by the State Council.

It will displace the former regulation, which has been in effect since 1994.

Investment mechanisms are varied in the new scheme. Besides the former mode of joint ventures, foreign companies can also obtain their shares through buying stocks and other authorized means of investment.

The general aviation market is also being opened wider to foreign companies. Except for some sensitive fields that might involve China's defense security, most air services will be open to foreign investors.

The regulation states for the first time that officials from foreign companies investing in the field can also act as presidents or general managers of the companies or airlines they invest in.

CAAC, China's aviation industry watchdog, stated that the modifications coincide with China's opening-up process, especially the expansion of market demand after China's entry to the World Trade Organization.

Yang Guoqing, vice-minister of CAAC, said the new investment regulation is good news to foreign investors.

"Foreign companies will have the chance to share in the fast development of one of the world's biggest aviation markets," Yang said.

Under the former regulation, only a few Chinese airlines were open to foreign investors, and the share-holding limitation was strict.

Yang said CAAC took suggestions from domestic airlines into consideration when drafting the new policy, and agreed that extensive foreign investment could help push the development of China's aviation industry.

"The larger shareholding percentage of foreign players will stimulate foreign investors to inject advanced management and mature business models into their ventures with Chinese partners," Yang said, adding that their experience would push domestic airlines to cut operation costs and improve efficiency.

Xu Donghua, a researcher with the Development Research Center of the State Council, said the new regulation was a big step toward the opening up of China's aviation market.

"There are no countries in the world allowing foreign companies to hold all the shares in domestic airports, so China's airport investment structure, following the new regulation, is reasonable," Xu said.

Domestic airlines carried 74.5 million passengers last year, with the business expansion rate reaching 9.6 percent.

"It's roughly two times that of the world average development rate of the industry, so I am optimistic about foreign investors' enthusiasm," Xu said.

(China Daily July 31, 2002)