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Aviation Reforms a Slow Process
China's aviation industry is expected to flourish in the coming years from significant investment by overseas investors.

Industry analysts, however, say reforms in the domestic industry haven't done enough to embrace or encourage the inflow of funds.

At present, there has been some overseas investment in the cargo transportation sector and other aviation-related business such as aircraft maintenance, but so far, nothing of note has materialized in the lucrative area of passenger service.

In August last year, the regulation on investing in the mainland's aviation industry was extended as the Civil Aviation Administration of China allows overseas investors to hold up to a 49 percent stake in a domestic carrier. The previous regulation allowed for no more than 35 percent.

Some months ago, top CAAC officials publicly said they welcomed foreign investment and would try their best to remove obstacles to help investors.

With the floodgates proverbially opened, to date, there has not even been a trickle of overseas investment entering the passenger transportation sector, the main revenue source of the aviation industry.

Previous media reports said that overseas air carriers, such as the Hong Kong-based Cathay Pacific Airways and Singapore Airlines, were interested in joining the Shanghai-based China Eastern Airlines.

The overseas companies' reaction was one of caution, saying that it was only media speculation, but a China Eastern official admitted there had been some talks about the issue of investment.

"Both sides are only discussing the possibility of cooperation, but at present it is only talk and no deals have been reached," an unidentified China Eastern official said.

"As China's air carriers have long been owned and strictly controlled by the government, it was difficult for overseas investors to come in during the past," explained Zhu Anping, an industry analyst with Shenyin & Wanguo Research and Consulting Co Ltd.

Currently, the airline sector is undergoing signifi-cant reform. In October, nine carriers formerly under the control of the CAAC were separated from the government and merged into three major air carriers.

But to date, the majority of the reforms have yet to be completed.

Industry insiders believe that a large proportion of the aviation reform has been done. However, issues such as air fare reform and the merging of the three carriers have yet to be worked on.

"It is widely believed that overseas investment will not come until the merger of the three groups are completed. By then, the carriers will be more competitive and independent," Zhu said.

In cargo, the fast-growing mainland air freight business has attracted China Airlines Co Ltd. The Taiwan-based carrier signed a contract with China Cargo Airlines in September 2001 to purchase a 25 percent stake in the Shanghai-based carrier. The move has been given approval from aviation authorities in both the mainland and in Taiwan.

"The cooperation is going to start with four of our managers familiar with the freight business coming to China Cargo next month," said Jim SC Lee, China Airlines'cargo marketing and planning department manager in Shanghai.

"The two sides will explore how to cooperate further through making good use of the two companies' existing flight resources," he said.

(eastday.com June 17, 2003)

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