China’s economic modernization has created ripe conditions for commercial aviation to blossom. The industry’s emergence has not only enabled individuals to travel and exchange ideas, but it has likewise connected businesses and economies. Chinese now travel by air more than ever before, and more than 500 million travelers pass through China’s airports each year. Commercial aviation is also becoming an increasingly important driver of economic development, as China is one of only a handful of countries capable of producing large passenger aircraft. How Beijing manages this growing industry may prove critical in its push to upgrade the economy.
Busiest Airports in World (interactive)
Growth of Commercial Aviation in China
Commercial aviation in China has expanded dramatically over the last several decades. Driven in large part by the country’s rising middle class and ongoing urbanization, passengers traveling by air surged from 62 million in 2000 to 551 million in 2017. This totaled one-eighth of the world’s total passenger air traffic that year, placing China second in total number of passengers served, behind only the US at 849 million passengers. In 2016, China operated nine of the world’s 50 busiest airports. Only nine airports in all of Europe ranked in the top 50 in the same year.
Increased demand for domestic air travel has spurred much of this growth. In 1990, only 11 million passengers travelled on domestic routes in China.1 By 2016, this number had risen to 426 million passengers. Over this same period, China’s middle class enjoyed rising income levels and in turn gained greater access to air travel. The number of passengers on international routes has likewise jumped, increasing from 1 million in 1990 to 52 million in 2016.
Notwithstanding this growth, China’s high-speed rail network and highway system — which are among the largest and the most comprehensive in the world — remain the primary means of domestic travel. China is nevertheless expected to displace the US as the largest commercial aviation market in the future. The International Air Transport Association estimates that Chinese airports will serve 1.5 billion passengers by 2036, compared to 1.1 billion passengers in the US.
Government reforms have played a key role in expanding commercial aviation. Amid the market reforms of the 1980s, Beijing broke up the Civil Aviation Administration of China (CAAC) — which for years had operated as a state-owned monopoly — into several state-owned enterprises, which paved the way for the entry of private capital in the mid-2000s. There are now 58 different airlines operating in China, just three short of the US and double that of India.
Beijing retains a majority share in 43 of the 58 Chinese airlines. China’s three biggest airlines, China Southern Airlines, Air China, and China Eastern Airlines, which collectively make up 71 percent of the market, are all state-owned. With the notable exception of the major airlines of Gulf states, such as Etihad, Emirates, and Qatar Airways, most of the world’s major carriers are privately controlled.
|Transportation Usage in China (% of Passengers)|
|Source:China Statistical Yearbook|
The most visible form of government support comes in the form of subsidies. In 2016, China Southern Airlines, Air China, China Eastern Airlines, and Hainan Airlines collectively received an estimated $467.8 million in subsidies. Local governments have also provided generous support to airlines in return for establishing direct routes to their cities. In 2016, local government subsidies totaled $1.3 billion, nearly half of the combined yearly profit of China’s four biggest airlines.
Chinese carriers are not alone in receiving government subsidies. French airlines reportedly receive $1.2 billion in subsidies from their government each year, and major Gulf state airlines received subsidies amounting to $39 billion between 2004 and 2015. However, financial backing from Beijing may provide an unfair advantage by enabling Chinese airlines to undercut market prices for tickets.
Other government policies have also played a role. China’s 2009 “One Route, One Airline” policy, for instance, specified that only a single carrier could operate a particular long-haul route. Initially aimed to reduce competition between state-owned airlines, the policy encouraged carriers to expand quickly in hopes of securing routes, some of which were unnecessary and unprofitable. Between 2011 and 2017, the number of international routes flying in and out of China nearly doubled, from 443 to 803. In May 2018, the government began relaxing the policy.
Beijing also plans to use state-controlled airlines to advance other aims. The coming social credit system, which will measure the social and political behaviors of Chinese citizens, is expected to limit access to air travel for individuals with below average scores. Those with good scores will enjoy perks, such as VIP check-in at Beijing Capital Airport.
China’s Commercial Aviation Manufacturing Capabilities
China’s commercial aviation industry has progressed not only in the number of passengers it carries, but also in technological sophistication. Aircraft manufacturing is a capital-intensive process that requires long research and development cycles. Only a handful of countries, China included, are capable of producing large passenger aircraft.
Beijing is actively looking for domestic manufacturers to meet the demands of the growing industry. In 1990, Chinese airlines operated a mere 462 wide-bodied aircraft (capable of seating 100 or more passengers). By 2016, this number had jumped to 2,789 aircraft. Over the next two decades, Boeing estimates that China will need 7,690 new planes, valued at $1.2 trillion.
Aircraft manufacturing provides employment for highly skilled laborers, which can help drive innovation-based growth. In the US, aerospace and defense products contributed roughly $90 billion to the economy in 2016, along with half a million jobs with an average annual salary of $83,000. To propel growth within this sector, Beijing has marked aerospace and aviation equipment as one of ten strategic industries targeted in its Made in China 2025 initiative.
Unlike publicly-held industry leaders like Boeing and Airbus, the sole manufacturer capable of producing large passenger aircraft in China, the Commercial Aircraft Corporation of China (COMAC), is state-owned. China’s first domestically-built aircraft, the Y-10, completed flight tests in 1980 but was never widely produced. A second aircraft, the ARJ-21, was developed by COMAC during the 2000s and entered service with Chengdu Airlines in 2016. There are currently four in use. By comparison, there are tens of thousands of Boeing and Airbus models operating in countries around the world.
COMAC’s latest entry is the C919, a single-aisle airplane that can carry up to 168 passengers. After a three year delay, the C919 completed its first successful test flight in May 2017, and it is expected to enter the production cycle around 2021. The C919 is reported to be less fuel-efficient and have a shorter range than similar aircraft. Working in its favor, however, is that the C919 will be noticeably cheaper. The estimated cost of the C919 is around $50 million, roughly half the cost of a Boeing 737-800 or Airbus A320.
|China's Aircraft Parts Imports by Country|
|Rest of World||17%||18%||22%|
|Source:The Observatory of Economic Complexity|
To date, the C919 has had only limited success on the international market. Over 90 percent of the 785 orders for the aircraft have come from domestic carriers.2 Lackluster international sales can be partially attributed to concerns that the C919 may still be several years away from completion, and to the fact that the aircraft has yet to obtain a safety certification from any international regulatory agency. Furthermore, Forbes observed that compared to Boeing and Airbus, COMAC does not have a well-established global support network for its potential customers, making it less attractive to prospective buyers despite its low price.
The C919 exemplifies China’s growing manufacturing capabilities, but the aircraft still relies on American and European imports for critical components, such as the engine, avionics, and landing gear. The C919’s engine – the LEAP-1C – was jointly developed with the US and France. China has plans to equip the C919 with the domestically-built CJ-1000A engine, which was derived from the military-grade WS-10 engine, but it is not yet known when this transition will happen.
Lack of critical technology will continue to impede aircraft manufacturing in China. In May 2017, China began a joint venture with Russia to develop the CR929. Seating 280 passengers, the CR929 will look to compete with other popular dual-aisle aircrafts, such as the Boeing 787 and the Airbus A350. Russia and China will design much of the aircraft, but they will still need to source the CR929’s engines, onboard electric systems, and other components from foreign suppliers.
Trends in China’s Commercial Aviation Industry
Congested air traffic and flight delays are everyday problems in China. Data released by China’s Civil Aviation Administration indicates that only 72 percent of flights departed on time in 2017. By comparison, nearly 80 percent of flights in the US were on time that year. In South Korea, nearly 87 percent of flights were on time.
China’s busiest airport, Beijing Capital, received one out of a possible five stars in the time performance ranking issued by OAG in 2018.3 Japan’s busiest airport, Tokyo International Airport (Haneda), received a five-star rating. The world’s busiest airport, Atlanta Hartsfield-Jackson Airport, received four stars. According to the Civil Aviation Administration of China, 51 percent of delays in 2017 were due to weather, but as the South China Morning Post has reported, airports with generally worse weather conditions perform consistently better than Beijing Capital.
China’s strict flight safety protocols may contribute to these delays. Chinese airports often require up to a two-minute wait time between takeoffs and landings, significantly longer than the 30-second delay used by major airports around the world. This longer interval between flights, however, factors into China’s high safety rankings. Chinese airlines have an average yearly accident rate well below the global average. In 2017, there were .24 accidents per million departures. This is significantly lower than the world average of 2.42, as well as those of Japan (1.62) and the US (3.19). Germany and the UAE had no accidents in 2017.
|China's Top 5 Airports by Passengers (2017)|
|Airports||Passengers (million)||% of Total||Global Rank|
|Source:Civil Aviation Administration of China|
Capacity limitations also hamper China’s ability to manage air traffic. The number of airports in operation in China rose from 139 in 2000 to 229 in 2017, but the country still faces capacity issues. Beijing Capital, for instance, was built to handle 80 million annual passengers, but in 2017 it had some 96 million passengers pass through its gates.
To expand capacity, China plans to build 31 new airports by 2020. Additional airports will be built in major traffic hubs such as Beijing, Chengdu, and Chongqing. The Chinese government is also working to limit air traffic to the nation’s busiest airports. In March 2018, certain airports (including Beijing Capital and Shanghai Pudong) were banned from adding additional routes until they are able to meet time performance measures.
Military and civilian airspace integration remains another roadblock. China’s military controls 70 percent of Chinese airspace and takes precedence over civilian operations, leaving only limited airspace for commercial flights. By comparison, military aviation activities in the US take place in restricted air zones. Congested airspace has contributed to disputes over airspace usage. Driven in part to relieve the heavily trafficked airspace over the Yangtze River and Pearl River Delta area, Beijing made the unilateral decision in 2018 to expand commercial aviation routes in the Taiwan Strait, sparking protest from Taiwan.
The development of China’s aviation industry is also stymied by a shortage of pilots. It is estimated that China will need around 5,000 new pilots every year for the next two decades. Currently, China’s 12 aviation schools can only train between 1,500-1,600 new pilots each year. As a result, the majority of Chinese airlines are forced to send their cadet pilots4 to Europe, Australia, or the US for training. China is also looking to source experienced captains from outside its borders, with some positions paying over $300,000 per year and covering the pilot’s income tax from his/her home country. China also faces a noticeable lack of female pilots. Globally, female pilots make up only 3 to 5 percent of all pilots. In China, the ratio of female pilots is barely over 1 percent.