China is building its first airport free trade zone within the Beijing Capital International Airport, a move that is expected to strengthen the country's logistics competitiveness in Northeast Asia.

"We have launched the design of the bonded area and the first phase will be put into service in 2008," Liu Zhiqiang, director of Capital Airports Holding Co (CAH)'s department of planning and development, told China Daily.

The first phase of the free trade zone will cover 2 square kilometers. The whole zone, expected to span 6 square kilometers, will be completed in 2010, Liu said.

A free trade zone, or bonded zone, allows companies to ship various types of merchandise into the country without going through formal customs entry procedures or paying import duties. The zone is appealing to importers who can defer paying dues and thus increase profits.

Liu declined to disclose the total investment amount needed, but said CAH is trying to attract private and international capital to help finance the project.

"We want to attract the world's best logistics companies. We will also try to get foreign bank loans for this project," Liu said.

Liu made the remarks on the sidelines of CAH's annual work conference.

CAH is China's largest airport group. It controls and holds stakes in more than 20 Chinese airports.

Beijing Capital International Airport, fully owned by CAH, is China's busiest airport. Its annual passenger traffic exceeded 40 million last Thursday, making it the world's 20th largest airport in terms of passenger traffic capacity.

"In the era of globalization, an airport is no longer just a place for aircraft landing. It should also serve as a logistics centre," Liu said.

Unfortunately, about two-thirds of international cargo logistics business of Beijing and Tianjin are snatched up by Japan and South Korea, Liu said.

"It's not because we don't have enough capacity or we don't have enough international flights. It's because of the barrier created by taxes, customs duties and complicated clearance procedures," Liu added.

A free trade zone within the Beijing airport, Liu said, will not only help attract investment into Beijing and boost the local economy, but also level the playing field for China to compete with Japan and South Korea.

The establishment of the bonded area is part of CAH's plan to build a "capital aviation town," which will cover a total area of 100 square kilometers. The aviation town is expected to have various functions, ranging from airport operation and logistics, to residential and entertainment, Liu said.

The Beijing Capital International Airport currently covers 25 square kilometers.

"CAH is vying to become a leading airport group in Asia by 2010," Li Peiying, CAH's president, said at the work conference.

The passenger traffic handled by airports under CAH now accounts for nearly 30 per cent of the nation's total.

(China Daily December 29, 2005)