China Opens Up Aviation Market, Bringing Potential Environmental Challenges

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In mid-August, China’s aviation administration, CAAC, issued a series of new policies aimed at increasing private investment in the civil aviation sector, according to a recent report released by the Center for Asia Pacific Aviation. This marks a big step toward opening the nation’s civil aviation market to foreign investors, though the rapid growth in air traffic will likely create serious environmental challenges in the decades to come.

CAAC’s new regulations encourage private investment in key aviation infrastructure, including domestic airlines, airports, and cargo facilities, as well as in services such as fuel supply and storage, maintenance and repair, operations, catering, and distribution systems, the report said. The rules also allow for the use of private capital in the construction of airports in western China and grant foreign carriers unlimited access to the area’s six provinces and regions (Chongqing Municipality, Sichuan, Yunnan and Guizhou provinces, Guangxi Autonomous Region, and Tibet Autonomous Region).

With rapid liberalization and the gradual easing of travel restrictions, China’s aviation market is experiencing remarkable growth. According to Eurobiz Magazine, Chinese airlines earned a record US$750 million in profits in 2004, contrasting sharply with losses of US$6-8 billion for U.S. airlines, and losses of US$500 million in Europe. Overall demand for air transport within China is growing at the rate of 10 percent a year, compared with 2 percent a year in the United States, notes researcher Zoe Chafe in the Worldwatch Institute’s Vital Signs 2005. And China is already the world's second-biggest domestic market for air cargo, with an increase of 26 percent in 2004 alone, reports the China Economic Review.

China’s commercial airline fleet has long been coveted by the world’s two largest aircraft manufacturers, Airbus and Boeing, which already have a dominant presence in the country. As of March 2005, 501 of the 802 domestic jetliners operating in mainland China were Boeing planes, while more than 260 Airbus aircraft now fly on the mainland and in Hong Kong and Macau. According to Worldwatch, China's air fleet is projected to more than triple by 2023, to just over 2,800 planes—intensifying the already heated competition.

Meanwhile, foreign airline operators are penetrating both the passenger and air cargo markets. At the EU-China Aviation Summit, held in Beijing from June 29-July 1, the European Union (EU) and China discussed an agreement to open-up aviation markets and strengthen technological and industrial cooperation. A year earlier, the U.S. and China signed a landmark air services agreement that more than doubled the number of airlines that could fly between the two countries and allows for a nearly five-fold increase in U.S.-China air services over the next six years. In the freight market, both Lufthansa Cargo and Singapore Airlines Cargo have announced joint-venture freight airlines in China. And Korean Air has signed a letter of intent to purchase a “major stake” in the country’s first private carrier, Okay Airways, reports the Center for Asia Pacific Aviation.

Missing from much of the excitement about increased investment and cooperation opportunities, however, is the potential environmental impact of China’s air traffic growth. Pollution from the aviation sector already accounts for an estimated 3.5 percent of the total human-caused contribution to global climate change, and the International Air Transport Association (IATA) expects this share to grow to 5 percent by 2050. With the rapid development of Asian air markets, this is likely a low estimate, with the actual number closer to 14 percent, says the UK’s Royal Commission on Environmental Pollution.

Aviation emissions are not covered under the recently implemented Kyoto Protocol due to the difficulties of allocating emissions among countries. However, cutting airplane greenhouse gas (GHG) emissions has become a major concern in Europe, with the EU now considering capping aviation emissions and Germany, the United Kingdom, and France proposing to levee a jet fuel tax. But environmental concerns have never been high on the agenda of aviation regulators in China.

Given the global nature of climate change, any reduction in GHG emissions in one part of the world would likely be offset by a considerably larger new contribution from another. Leaving the world’s fastest-growing aviation sector—China—unrestrained from pollution regulations would be dangerous. Ideally, the rush of foreign investors and aviation industry giants to the country should bring not only more carriers, airports, and planes, but also a heightened environmental consciousness.