ARTICLE IN PRESS

Transport Policy 16 (2009) 215223

Contents lists available at ScienceDirect

Transport Policy
journal homepage: www.elsevier.com/locate/tranpol

Reform and opening up: Way to the sustainable and harmonious

development of air transport in China
Wei Min Liu a,, Maria K.R. Luk b
a
Institute of Air Law, Civil Aviation Management Institute of China, Peoples Republic of China
b
Hong Kong International Airport and Logistics Research Centre, The Hong Kong Polytechnic University, Hong Kong SAR, Peoples Republic of China

a r t i c l e in fo abstract

Available online 15 September 2009 The global air transport has been undergoing wings of change in the past 30 years as a result of
Keywords: deregulation and liberalisation. During this period, the air transport in China has also been undergoing
China signicant transformation and rapid growth following the reform and opening up policy of China since
Air transport policy 1978, the same year when the USA enacted the Airline Deregulation Act. Although China has become the
Civil aviation worlds second largest air transport system since 2006, few studies have analyzed the growth pattern
Airport development plan and policy evolution of this important market. This paper critically reviews the development of the air
Air trafc transport policy of China and examines the challenges in the 21st Century. Such an investigation leads
Liberalisation to the following conclusions: (A) the reform of Chinas civil aviation has been based on the national
Reform and opening up
policy in socialist market economy as well as the liberalisation of air transport; (B) the substantial
growth in the last three decades has been driven by economic growth as well as the transformation of
Chinas transport industry. (C) In order to sustain the rapid and continuous development in civil
aviation, China should continue to implement scientic management and development, deepen the
reform and opening up and continue liberalisation.
& 2009 Elsevier Ltd. All rights reserved.

1. Introduction Chinas air transport industry was administered based on the

The global air transport has been undergoing wings of change
in the last 30 years as a result of deregulation and liberalisation.
Over the same period, the air transport in China has also been
undergoing signicant transformation following the reform and
opening up policy1 of China since 1978. The 30 years of reform
and opening up for modernization has led Chinas sustainable
rapid growth which is unparallel in the world. China has become
the fourth largest economy in the world, and its import and export
volume is now the third in the world. (Chen, 2007) Chinas
economic system has successfully transformed from mandatory
planning to guidance planning [french-style planication] to a
socialist market economy which is wholly market-orientated
economy2 and from the closed, semi-closed to an open economy
(Howe et al., 2003).
As part of the Reform and Opening up, major restructuring
initiatives have been introduced to the air transport industry.
 Corresponding author.
E-mail addresses: lwm1829@126.com (W.M. Liu), maria.luk@hkairport.com
(M.K.R. Luk).
1
Reform and opening up policy of China was based on the theory of Deng
Xiaoping and enacted by Third Plenum of the 11th Party Congress of the People
Republic of China, held during December 1822, 1978.
2
Howe et al. (2003) Chinas Economic Reform, Routledge Curzon.
military system and was a typically monopolistic system. Despite
being the fundamental industry and an important component of
the national economy, Chinas air transport industry was severely
underdeveloped. The Reform and Opening up has signicantly
improved the productivity of China and has also been fostering
the rapid and harmonious development of Chinas air transport
industry. While the US airline deregulation, which also started in
1978, has been extensively studied, little attention has been given
to the reform in Chinas air transport industry. China has become
the worlds second largest air transport system since 2006. Its
burgeoning growth has signicant impact on the air transport
industry in Asia Pacic region as well as the world. Therefore, it is
important to study the policy changes in the Chinese civil aviation
market.
This paper reviews the development of Chinas air transport
policy since its reform and opening up 30 years ago and examines
the challenges and way forward on the development of Chinas air
transport policy in the 21st Century. In particular, it contributes to
the literature by achieving the following objectives:
 To review the growth pattern and evolution of policy in the
Chinese aviation market.
 To investigate the key driving factors which have contri-
buted to the substantial growth in the Chinese civil aviation
market.

0967-070X/$ - see front matter & 2009 Elsevier Ltd. All rights reserved.
doi:10.1016/j.tranpol.2009.08.007
 ARTICLE IN PRESS
216 W.M. Liu, M.K.R. Luk / Transport Policy 16 (2009) 215223
 To identify the major challenges for Chinas air transport
industry, and to propose possible way forward for airlines,
airports and regulators.
This paper is organized as follows: Section 2 reviews the
development of air transport policy in China. Section 3 examines
the challenges of air transport development in China. Section 4
reviews the policy for sustainable and harmonious development
and the last section concludes the way forward to promote fast
and good development for the industry.
2. Development of air transport policy in China
Following the national policy of reform and opening up driven
by Deng Xiaoping since 1978, the air transport industry has also
been undergoing reforms. The development in Chinas air
transport is a good example to demonstrate the signicant
implication of Reform and Opening up in strengthening China.
Chinas air transport policy is generally reviewed once every
ve years based on the national ve-year plan. The development
of Chinas air transport policy can be classied into three phases:
Phase one: owned and controlled totally by government and slow
development; Phase two: Reform and open-door policy and rapid
growth; Phase three: Deepen reform, enhance the open-door
policy and accelerated development. The key milestones are
highlighted in Table 1. The scope and scale of the civil aviation
reform in 2002 was the largest in China in terms of both breadth
and depth since the inception of reform and opening up. It has
initially established a new management and operational system
based on socialist market economy. The overall objectives and
principle of such policy change are to enable the state-owned
aviation enterprises such as airlines to privatise and operate
under prudent commercial principle, to support the overall
economic growth and anticipated demand for air transport and
to enhance service quality (State Development and Reform
Council, 2002).
Over the years, China has also been actively developing the
bilateral air service agreements with other countries, to facilitate
regional air transport collaboration and further the opening up of
the air transport market to the world. It also emphasises the
development needs of west China, northeast China and central
China to facilitate their economic and social development as well
as the construction of the hub airports for meeting the anticipated
needs of liberalising international air services. By the end of 2007,
China has signed air services agreements with 110 countries.
Following the trend of liberalisation, China would liberalise its air
transport positively, progressively and orderly.
The Reform and Opening up policy, and Chinas phenomenal
economic growth and globalization process, have led to burgeon-
ing growth of her air transport industry. The economy of China has
been experiencing compound annual growth of over 9% in GDP
and the per capita GDP compound annual growth of more than 8%
in the past 30 years while the compound annual growth in total
revenue tonne-kilometres, number of air passengers and air
cargo and mail are 18%, 16.3% and 15.3%, respectively, as shown
in Table 2. The trend of total revenue tonne-kilometres of all
airports in mainland China is shown in Fig. 1. The growth rate of
Chinas air transport was three times that of the world and its
ranking in air trafc has surged from the 37th position in 1978 to
5th in 2002 among ICAO contracted states and is 2nd since 2006.
However, the air transport development in terms of airlines and
airports in China as shown in Table 3 are considered
underdeveloped given its vast geography and large population
when compared with the USA.
Table 1
Three phases of development of air transport policy in china key milestones.
i. First phase: 19501978
Owned and controlled totally by government, and slow development
The government and state-owned enterprises (SOE) including air trafc
control, airlines and airports were centrally administered under military
leadership and had undergone six reforms during 19501980
 In 1949, established China Peoples Revolutionary Military Commission Civil
Aviation Authority
 In 1978, established socialist market economy and implement Reform and
Opening Up
ii. Second phase: 19792002
Reform and open-door policy, and rapid growth
 In 1979, established regional Civil Aviation Administration Bureau to
independently administer and audit the prot and loss as well as to examine
the economic and technical performance indicators of each region.
 In 1987, reform the administration based on separate administration and
establishment of the civil aviation administration authority, airlines and
airports.
 In 1992, established the reform objectives for the socialist market economic
system.
 In 1996, 9th Five-Year Plan and 10 Year Development Programme
J Designated Beijing, Shanghai and Guangzhou as the international hubs;
and
J Consolidate airlines to form three major airlines, Air China, China Southern
and China Eastern
 In 2001, the 10th Five-Year Plan (20012005) for civil aviation
J To separate the administration of SOE from government and decentralise
airport management to local authorities from CAAC; and
J Corporatisation of the three major airlines
iii. Third phase: 20032020
Deepen reform, enhance the open-door policy and accelerate development
 In 2003, China, at ICAOs Fifth World Air Transport Conference, agreed to
positively, progressively, orderly and safely to facilitate liberalisation of air
transportation.
 In 2004, China became a council member of ICAO
 In 2004, CAAC implemented more liberalised air services agreements
 In 2006, the 11th Five-Year Plan for Civil Aviation
J Fast growth in air transport and greater improvement in service quality
J Increase in general aviation and better structure
J Improve organisational and regulatory system
J Further modernise air trafc management system
J Comprehensive application of IT technology
J Alleviate the shortage of professionals for pilots, crews, air trafc
management, maintenance etc
J Develop a new generation of air transport system
 In 2008, CAAC issued Chinas Civil Aviation Airport Development Plan 2020
J Chinas GDP to quadruple that of 2005 with an annual average growth rate
of 7.2%
J Annual average growth rate of 11% during 20102020
 In 2008, CAAC and State Postal Bureau are merged into the new Ministry of
Transport.
Source: Liu (2008); International Culture Publishing House (1992); State Develop-
ment and Reform Council (1992); The Central Peoples Government of the Peoples
Republic of China (2005); CAAC (2006); CAAC (2008b); ICAO (2003); Chinas
Academy of Social Science (1989).
The 11th Five-Year Plan of Chinas Civil Aviation Develop-
ment is to facilitate the development of a new generation of air
transport system and the key performance indicators are
summarised in Table 4. In December 2007, the State Council of
China approved Chinas Civil Aviation Airports Development Plan
2020 which outlines the development plan of civil aviation
airports in China up to 2020 (CAAC, 2008a, b).
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W.M. Liu, M.K.R. Luk / Transport Policy 16 (2009) 215223 217

Table 2
Air trafc statistics of China 19502007.

Year 1950 1978 1980 2002 2007* Growth over 1978 Compound annual
growth (%)

No. of air passengers (000 passengers) 10 2310 3430 85,940 185,190 80.2 times 16.3
Air cargo and mail (tonnes) 767 63,815 88,866 2.02 million 3.95 million 61.9 times 15.3
Total revenue Tonne-kilometres (million tonne-km) 1.57 298.66 429.35 16,492.66 36,100 120.9 times 18

Source: CAAC (2007a), Statistical Data on Civil Aviation of China.*Preliminary results.

40,000 River Delta, Pan-Pearl River Delta, Pan Bohai and Cheng Yu
Economic area.
35,000
The key international hubs including Beijing, Shanghai,
30,000 Guangzhou and Hong Kong have been established while airports
million tonnes-kme

25,000 at provincial capitals including Chengdu, Kunming, Chongqing,

Xian, Urumqi, Wuhan, Shenyang, Shenzhen and Hangzhou are
20,000 designated as regional hubs which are to be complimented by
15,000 regional feeder airports. Although the total air passengers and air
cargo and mail throughput in China have experienced unparallel
10,000 compound annual growth of 16.3% and 15.3%, respectively, during
5,000 19782007, the air cargo and mail throughput only constitutes
0.02% of total cargo and mail throughput by all transport modes
0 while air passengers throughput only constitutes 0.8% of the total
1950 1975 1987 1992 1997 2002 2007 passengers throughput by all transport modes.
Year Despite its rapid growth, the air transport industry in China
Fig. 1. Total air trafc revenue tonne-kilometres, 19502007. Source: CAAC faces major challenges including the following ones.
(2007b).

Table 3
3.1. Comprehensive transport development plan and increasing
Comparison of demographics between China and the USA. modal competition

Items USA (2000)
Area (million km2) 9.37
Population (billion) 0.22
Total no. of airports (2000) 19,281
No. of public airports 5317
No. of airports with scheduled ights 651
Density (no. of airports with scheduled ights 0.69
per 10,000 km2)
Source: Liu, 2008.
As reected in the development of the US air transport policy
and regulation, it is reviewed that deregulation does not imply
that all aspects of air transport can be free from government
control. It is reviewed that deregulation is applied to the area that
can be driven by the market and the Government would not need
to intervene. On the other hand, for the area that cannot be driven
by the market such as international bilateral agreements,
domestic commuter air services, aviation safety and security, air
trafc control and anti-trust regulation, it is necessary for the
Government to exercise its impartial administrative role and
apply necessary regulatory control for the benet of the nation
and customers.
3. Challenges for air transport development in China
Following 30 years of reform and opening up, the airport
system in China has started to take shape since the turn of the
century, with gradual increase in density of the airports, scale and
degree of modernization. The development of civil aviation is
based on Chinas Strategic Economic Development Plan which is
to facilitate development in west China and Hainan province; and
to revitalise the industrial region in north-east China in addition
to the developing economic zones in the Yangtze River Delta, Pearl
China (2007) Transport has in hitherto been a key engine to drive economic
9.6
growth. To facilitate both economic and social development, China
1.3 has been promoting the development of comprehensive transpor-
142 tation system since the 10th Five-Year Plan (20012005). There
has been signicant progress in the development of infrastructure
for various transport modes and their service quality. The
0.148
comprehensive transportation system has entered the stage for
coordinated development and service enhancement and the
development of a modern integrated transportation system to
meet the forecast demand under the 11th Five-Year Plan as shown
in Table 5.
The total port cargo throughput and container throughput in
China are ranked Worlds No. 1 for four consecutive years. Over
90% of Chinas export depends on sea transport. With the increase
in port capacity, increase in the capacity of ocean-going vessels,
their shorter lead time and the improvement in supply chain
management, some air commodities could be shifted to sea
transport as a result of its improved reliability and lower cost.
Although China now ranks No. 2 in air transport and has
developed a total of 1400 scheduled air routes serving 61% of the
national population, there is still signicant gap in meeting the
economic needs and to facilitate social development and enhance
the quality of life. The proportion of air transport is relatively
small when compared to other modes of transport for both
passenger and cargo as depicted in Table 5. In view of the national
policy to strengthen the development of railway and highways, it
is inevitable that the domestic air transport will encounter
competition from high-speed surface transport:
 Road transport has the advantage for intercity journey within
500 km while rail transport will have the advantage for
intercity journey within 5001000 km. Following the implemen-
tation of highways and acceleration of railway, it is inevitable that
air transport for short-haul trips has been withdrawn from the
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218 W.M. Liu, M.K.R. Luk / Transport Policy 16 (2009) 215223

Table 4
Key development indicators of the 11th Five-Year Plan of Chinas civil aviation.

Category Indicators 2005 2010 Compound annual

growth (%)

Development scale Total revenue tonne-kilometres (100 million tonne-km) 261 500 14
Total no. of passengers (100 million persons) 1.38 2.7 14.5
Total cargo and mail (000 tonnes) 3070 5700 13
General aviation (10,000 h) 8.5 14 10
Proportion of air passengers of all transport modes (%) 11.8 17.8

Performance and efciency On-time performance (%) 82 85

Average ight delay (minutes) 58 o 43
Load factor (%) 65 470
Aircrafts utilisation rate (hour/day) 9.4 r9.5
Fuel consumption per tonne-kilometre (kg) 0.336 0.302

Capacity No. of aircrafts (1000) 2450 44600 13.5

Civil aviation airports 142 190

Source: CAAC, 2006.

Table 5
Chinas 11th Five-Year Plan transportation demand forecast.

Mode Unit 2005 2010 Growth rate (%) 2005 Modal 2010 Modal
distribution (%) distribution (%)

Total cargo trafc 100 million tonnes 186 232.1 4.5

Railway 100 million tonnes 26.9 35 5.4 14.5 15.1
Road 100 million tonnes 134 168 4.6 72.0 72.4
Sea 100 million tonnes 22 29 5.7 11.8 12.5
Air 10,000 tonnes 306.7 570 13.2 0.02 0.02

Total cargo revenue tonne-kilometre 100 million tonnes-km 80,257 105,154 5.6
Railway 100 million tonnes-km 20,726 27,000 5.4 25.8 25.7
Road 100 million tonnes-km 8693 12,000 6.7 10.8 11.4
Sea 100 million tonnes-km 49,672 56,000 5.8 61.9 53.3
Air 100 million tonnes-km 78.9 154 14.3 0.1 0.1

Total passenger trafc+A15 100 million 185 259.9 7

Railway 100 million 11.6 15 5.3 6.3 5.8
Road 100 million 170 240 7.1 91.9 92.3
Water 100 million 2 2.2 1.9 1.1 0.8
Air 100 million 1.4 2.7 14 0.8 1.0

Total revenue passenger-kilometre 100 million passenger-km 17,467 26,913 9

Railway 100 million passenger-km 6062 8000 5.7 34.7 29.7
Road 100 million passenger-km 9292 15,000 10.1 53.2 55.7
Water 100 million passenger-km 68 68 0 0.4 0.3
Air 100 million passenger-km 2045 3845 13.5 11.7 14.3

Source: State Development and Reform Commission, The Peoples Republic of China, 2007, Integrated Transport, 12th Edition.

market including the Shenzhen-Guangzhou, Chongqing-Chengdu
and Dalian-Shenyang routes. (Zhang, 2007)
 In view of the construction of high-speed railways, for
example, the Beijing-Shanghai route, Guangzhou-Changsha,
Changsha-Wuhan, Wuhan-Zhengzhou, Guangzhou-south,
Shenzhen-Xiamen, the competition between the railway and
the air transport will be intensied. For instance, the travelling
time of the intercity service via the new Beijing-Shanghai high-
speed railway (at 300 km/h) will be about 5 h while the total
travelling time including ight time, airport processing time
and ground transportation time to airport is about 4.5 h by air.
In addition, the relatively lower rail cost will attract more
passengers to choose the rail transport. To compete with the
railway on short-medium haul passengers, Air China starts to
create the Beijing-Shanghai Air Express and the Jing-Rong
Air Express. (Zhang, 2007)
3.2. Insufcient airports, airspace capacity and air services
Despite the substantial expansion of existing airports and
development of new airports and increases in air services, the
airport infrastructure and air services are not adequate to meet
the anticipated demand. Although liberalisation has facilitated
more international services and carriers, the network coverage of
international services and domestic services are yet to be
expanded to meet increasing demand. The increase in ight
movements also demands rationalization and optimisation of
airspace and air trafc management for civil aviation and the
division of labour between the military and civil aviation.
In 2007, the total passenger trafc of all mainland airports,
excluding the Hong Kong and Macau airports, have increased
16.8% to 388.6 billion passengers, where 35.1% was contributed by
the three main airports in Beijing, Shanghai and Guangzhou. The
distribution of passenger trafc by region is 17.1%, 5.6%, 30.3%,
25.5%, 15.1% and 6.3% for north China, north-east China, east
China, south China, southwest and the northwest, respectively.
The total cargo and mail throughput handled by all Chinese
airports excluding Hong Kong and Macau airport, has increased
14.3% to 8.61 million tonnes where 58.8% was contributed by
Beijing, Shanghai and Guangzhou airport. The distribution of
cargo trafc by region is 18.7%, 3.6%, 45.8%, 20.1%, 9% and 2.8% for
north China, north-east China, east China, south China, southwest
 ARTICLE IN PRESS
W.M. Liu, M.K.R. Luk / Transport Policy 16 (2009) 215223
and the northwest, respectively. It is revealed that the develop-
ment of air transport in China is imbalanced, especially for the
central and western regions, which are lagging behind.
3.3. Management gap between Chinas civil aviation enterprises and
international practices
It is reviewed that the development of the Chinese civil
aviation enterprises are not compatible with the burgeoning
growth of air transport and there is gap in management between
Chinas civil aviation enterprises and international practices.
 It is not apparent that the developments at various airports
which were implemented ahead of demand have brought
signicant impacts to the regional economic and social
development. The imbalanced air transport system under-
mines the function of air transport as a driver to facilitate
economic development and integration of society.
 The relatively low customer satisfaction level in air transport is
mainly due to imperfect air service network, unreasonable
route structure, inconvenient transfer of ights, low ight
frequency and delay of ights.
 The application and innovative research, and development in
scientic technology in civil aviation such as air trafc
management and control, maintenance and marketing still
lag behind the developed countries. The related regulatory
departments and the enterprises in the air transport industry
would need to enhance the calibre of their workforce in
modern public administration and management in particular
in aviation safety and security, engineering design and
management of aviation facilities, legal, nancial and scientic
management methodology to optimise the utilisation of scarce
resources. This is to ensure its sustainable development and
compliance with both national and international conventions.
 There is signicant gap in human resources to meet the
anticipated demand and development plan of civil aviation in
China where a total of over 37,300 and 70,500 civil aviation
personnel (pilots, aircraft maintenance and air trafc con-
trollers) will be required in 20062010 and 20112015,
respectively, as highlighted in Table 6. Moreover, it is also
necessary to nurture the professionals as well as senior and
middle management in all aspects of the civil aviation industry
to meet the development needs.
Although the liberalisation of air services and further opening
up to the world are progressing in China, the development of its
airline industry has not been progressing as well and is facing
erce competition from the foreign airlines. The substantial gaps
in management level and rm size between Chinas civil aviation
enterprises and international competitors have been posing major
challenges for the liberalisation process. As demonstrated by the
distribution of weekly international ights by international and
Chinese carriers at the three key international hubs in Fig. 2,
Table 6
Highlights of human resources requirement in the 11th Five-Year Plan and 12th
Five-Year Plan.
11th Five-Year Plan 12th Five-Year Plan
(20062010) (20112015)
Pilots 9100 16,500
Aircraft maintenance 25,000 50,000
Air trafc controllers 3200 4000
Total 37,300 70,500
Source: CAAC (2008b).
219
international carriers provide similar weekly air services as the
Chinese carriers. This is because Chinese airlines do not have
enough capacity in terms of eets and ight crew. For a successful
international air services, the Chinese carriers would also need to
establish comparable sales network and marketing at the
destination country to effectively increase clientele to increase
the load factors.
4. Policy towards sustainable and harmonious3 development
Following the successful reform in the past 30 years, the
Chinese government is determined to continue the liberalisation
and deregulation initiatives in the air transport industry, as
endorsed in the 17th National Congress of the CPC4 in 2008. In
particular, it is reviewed that the following policy would be
essential for sustainable and harmonious development in air
transport.
4.1. To accelerate the reform of civil aviation administrative system
It is to establish a service-oriented government which aims at
promoting scientic development, protecting and enhancing the
livelihood of the people, strengthening the integration of depart-
ments, and exploring the reorganization and consolidation of
government departments. On February 27, 2008, the 2nd Plenary
Meeting of the 17th Central Committee of the CPC, the On the
Views of Deepening the Reform of the Administrative system and
the State Councils Institutional Reform Plan were endorsed and
were enacted at the 1st Session of the 11th National Peoples
Congress convened on March 5, 2008. This signicant reform has
commenced, including the establishment of the new Ministry of
Transport (MOT), replacing the original Ministry of Communica-
tions and the Civil Aviation Administration of China. The new set
up of the Civil Aviation Administration of China and State Post
Bureau are under the MOT. The MOT is to oversee the road, air and
sea transport except railway5 to ensure better coordination among
different transport modes so as to facilitate integrated transporta-
tion planning, development, management and more effective
emergency management in response to disasters.
The restructure of MOT has horizontally merged the depart-
ments with similar role and responsibility and has thus broadened
the scope of the administration. The objective of the reorganiza-
tion is to develop a more efcient and service-oriented organiza-
tion; to optimise resource allocation according to market demand
and strengthen the enterprises and their competitiveness. At the
same time, it is to strengthen and enhance macro economy
control, optimise transportation planning, maximize the overall
benets and efciency, and facilitate the development of an
integrated transport system for all transport modes that is hassle
free, efcient and safe.
4.2. New legislation to enhance the development of socialist market
economy and to sustain development of airlines
With the transition from planned economy to socialist market
economy, the Chinese government recognised that there is a need
to safeguard the core characteristics of market economy including
level playing eld, integrity and credibility, fair competition, fair
trade and market driven pricing. To enhance the development of
3
Hu (2007). The report of the 17th National Congress of the Communist Party
of China (CPC) stated that the people of all countries should work together in
building a harmonious world.
4
CPC denotes Communist Party of China.
5
Railway is under the Ministry of Railway.
 ARTICLE IN PRESS
220 W.M. Liu, M.K.R. Luk / Transport Policy 16 (2009) 215223
Weekly Passenger Flight Movements at
PVG, BCIA & CAN
International
Airlines,
48.17%
* PVG: Shanghai Pudong International Airport;
BCIA: Beijing Capital Internatioanl Airport;
CAN: Guangzhou Baiyun International Airport
* Source: 2007 OAG data on scheduled flights of the week 3-9 Dec 2007
* Source: 2007 OAG data on scheduled flights of the week 3-9 Dec 2007
Fig. 2. Distribution of 2007 weekly scheduled ight movements at the three key international hubs. *Source: 2007 OAG data on scheduled ights of the week
December 39, 2007.
socialist market economy and facilitate the development of
airlines, the Government has enacted two legislations. On March
16, 2007, the Property Law6 was enacted and has been effective
since October 1 2007. On August 30, 2007, the Anti-Monopoly
Law7 was enacted and would be effective from August 1, 2008.
Liberalisation has intensied the competition of airlines. Under
the new Anti-Monopoly Law, the mechanism for market entry
and exit of airlines is established. The airlines could increase its
market share through merger and acquisition, reorganization,
joint venture and alliance. The new law is to ensure that airlines
would not form mega enterprise that might undermine competi-
tion. It is recognised that the development of the airlines will be
dependent on the management of the enterprises including
business development, nancial management, revenue manage-
ment and cost control as well as engineering, safety and quality
management to ensure effective design and management of
resilient facilities and systems. Chinas air transport industry is
to continue to establish a modernized enterprise system, meet the
requirements based on market driven economy, implement low-
cost development strategy, reform in air tariff mechanism,
enhance service quality, establish its own branding, develop
innovative marketing strategy and enhance market competitive-
ness both locally and internationally.
4.3. To facilitate airport infrastructure development and
decentralization of airport management to local authority
In 2002, the State Council of China endorsed the Proposal to
Reform Civil Aviation Administration System to decentralize the
airport management to local authority. Its objective was to
motivate the participation of local authority in strengthening
6
The Property Law introduces a wide range of specic improvements for the
private sector and, for the rst time, recognises that an individuals private
property rights are protected to the same level as that afforded to collective and
State property rights. It can be viewed as a symbolic step by the Government
towards creating an open market economy. It also contains a number of specic
improvements that can be seen as steps forward in moving Chinas underlying
legal framework closer to a modern, functioning, market economy (http://www.
aar.com.au/pubs/asia/foch8jun07.htm#Concl).
7
Chinese anti-monopoly law (AML) was enacted on August 30, 2007, which
is the rst comprehensive competition law in Chinas history. The Chinese AML
was drafted within the context of three principal competition concerns: regional
monopolies (local protection); sectoral monopolies by Chinese rms, including
state-owned enterprises (administrative monopoly); and a perception of alleged
abuses of dominant positions by some multinationals. (http://iblsjournal.typepad.
com/illinois_business_law_soc/2007/11/chinese-anti-mo.html).
Weekly Cargo Flight Movements at
PVG, BCIA & CAN
Domestic International Domestic
Airlines, Airlines, 50% Airlines, 50%
51.83%
* PVG: Shanghai Pudong International Airport;
BCIA: Beijing Capital Internatioanl Airport;
CAN: Guangzhou Baiyun International Airport
* Source: 2007 OAG data on scheduled flights of the week 3-9 Dec 2007
airport development so as to facilitate the local economic and
social development. However, majority of the airports require
nancial support and subsidies from the Government. It is
reviewed that there are over 90 small airports with annual air
passenger trafc below 500,000 in China, the market share of
passenger trafc accounts for only 3.3% of the total passenger
trafc in China. Many of these airports are losing money and hence
these airports have difculty to undergo expansion. In recent
years, the CAAC has closely worked with the local governments to
actively support the local authority to undertake development in
civil aviation business and to facilitate the development of the civil
aviation industry together. On February 22, 2002, the CAAC issued
a CAAC notice Document No. 34 which clearly dened the airport
infrastructure as public utility and formulated ten policy measures
to guide and facilitate the development of airports, especially for
small airports. On January 23, 2007, the CAAC convened a small
airport management forum to promote the Proposals on Further
Development of Small Airports.
To implement the localization of airport management, it is
necessary to dene the function and position of the airports. The
local government should incorporate the airport development in
its regional economic development plan. The airport management
will be managed by the local authority and administered by the
CAAC. The airport management would be standardized, adopt the
franchise operation as appropriate, ensure airport security and
safety, and operate the airport in an orderly and effective manner.
To address the inadequate infrastructure problems, the Chinese
government has approved the Chinas Civil Aviation Airport
Development Plan 2020 on 25 January 2008 (CAAC, 2008b),
which has taken into account the overall social and economic
development strategy, market demand, regional economic and
geography, interconnectivity with other modes of transport,
coordination among various civil aviation and related enterprises,
as well as the integrated principles of conservation of land, energy
and other resources as well as the ecological environment. By
2020, the total number of Chinas civil aviation airports will be
increased by 97 to a total of 244 which would be set up under ve
regions: north, east, south, southwest and northwest China. Upon
full implementation, over 80% of the county-level administrative
units within 100 km or 1.5 h ground travelling time can have
access to air services. The 2020 airport development plan will be
able to serve 82% of Chinas population, representing 96% of GDP.
In other words, the plan will serve all the provincial cities, special
economic zones, key tourist areas, airports would be linked to
medium and small cities. The establishment of hubs and spokes
airports and commuter airports would strengthen the overall
 ARTICLE IN PRESS
W.M. Liu, M.K.R. Luk / Transport Policy 16 (2009) 215223
development of air transport as well as enhance the international
competitiveness. The inter-connectivity with other modes of
transport would facilitate better integrated urban development,
increase in scope of services and enhance quality of services.
According to preliminary estimation, the completion of the plan
would require a capital investment of about RMB450 billion. By
the end of the 11th Five-Year Plan, there will be about 190 civil
aviation airports and the total estimated cost for constructing 45
new airports would be about RMB140 billion.
4.4. Reform in air trafc management and control system to
optimise utilization of airspace
The sustainable development of air transport includes the
airport infrastructure and associated ground transportation
system, airlines as well as the scarce resource of airspace. The
airspace is a scarce resource and with the increasing air trafc
demand, the airspace is subject to congestion and saturation
which may cause delays and affect aviation development. As
demonstrated in the developed aviation economies such as the
USA, the United Kingdom and the European Union, the civil
aviation administrations have recognised that they cannot forever
be increasing airport infrastructure as there is a nite capacity
constraint in the airspace. Hence signicant research has been
invested in the optimisation of airspace applying operational
research to satisfy the need of both civil aviation and national
defence (Luk, 1999). The airspace of China, covering 10.8 million
km2, plays a signicant role in the national economy and national
defence. It is essential to optimise the utilisation of airspace
resource effectively by scientic division of the airspace for the
civil aviation and military aviation development, economic
development, national defence and air travel.
According to Chinas Civil Aviation Law, Article 70 states that
Chinas airspace is under unied management while Article 71
stated that division of airspace shall take into account the needs
of national defence and national security as well as the interests of
the public so that the airspace is reasonably, fully and effectively
used. Since the reform and opening up, China has reviewed and
enhanced the direction of air trafc management such that its
purpose is to facilitate economic development during the
peaceful period taking into consideration the civil aviation as
well as the military needs. In the event of war, everything must be
subverted to the needs of war. The Chinese government8 has set
up the three-step development strategy to promulgate a steady
and active reform in air trafc management. After the rst and
second phase of reform in air trafc management, a preliminary
structure for a centralized controlled airspace is established. In
2002, the civil aviation reform initiated the establishment of the
General Administration of Civil Aviation of China and formed
several regional air trafc management bureaus and 37 air trafc
centres (stations) for the integrated and centralized operations
and management of the air trafc control and management.
Under the 11th Five-Year Plan for the development of air trafc
management and control as shown in Table 7, it has initially
consolidated an integrated air trafc management system. In April
2007, another reform was carried out to separate the
administration function of air trafc control from its operations,
and to establish vertical integration of the air trafc control
system so as to enhance the operational efciency and support
capability of the air trafc control system. In November 2007, the
CAAC has implemented the reduced vertical separation minimum
(RVSM) to rationalise the utilisation of the three dimensional
8
State Council and the Air Trafc Commission (ATC) of the Central Military
Commission.
221
Table 7
Development plan of the air trafc management and control system in the 11th
Five-Year Plan of China Civil Aviation Development.
Items Development scope
Airspace  Designation of eight ight information region and high-
management attitude control zones at Shenyang, Beijing, Shanghai,
Guangzhou, Chengdu, Xian, Urumqi and Sanya;
 designation of eight terminal control zone at Beijing,
Shanghai, Guangzhou, Wuhan, Chengdu, Xian and
Zhangjiang;
 Six Approach Control Districts are located at Qingdao,
Jinan, Zhengzhou, Ningbo, Guilin and Urumqi
Route Eleven new horizontal and four vertical routes have been
optimisation added to the existing civil aviation framework with 26
horizontal and 15 vertical routes
Radar control  Fully implement the radar control in Harbin, Shenyang,
Beijing, Xian, Chengdu, Kunming, as well as the approach
zones to reduce separation between aircrafts.
 ADS surveillance and VHF/HF or CPDLC communication
mode are provided in other areas.
Communication  Expansion and upgrading of the civil aviation ATM data
systems communication network;
 reconstruct the airport communication network;
 expansion of KU satellite communication network
expansion,
 upgrade of the route automatic reporting system
 Transformation of Beijing, Shanghai and Guangzhou as
the centre of the airport terminal system for mobile
communication and networking;
 construction of radio monitoring system
Navigation  Upgrading of the landing system of Beijing, Shanghai and
system Guangzhou hub airports to Class 3 ILS;
 Upgrade the landing system of Shenzhen and Xiamen
airports to Class 2
Surveillance  Upgrading the old radar to the Alenia radar data
system processing system;
 Establish the new secondary radar in the busy
international ight routes and the border point;
 Conguration scenes at the main airport surveillance
radar.
Meteorology  Set up the Doppler weather radar, wind prole
instrument, lightning locator such as automatic weather
observation system portfolio detection system in the
terminals of those airports having busy and complex
weather;
 Construction of the numerical prediction model systems
and operation forecasting system at Beijing, Shanghai
and Guangzhou airports;
 Establishment of the important aviation weather
warning system
Source: CAAC (2006),, The 11th Five-Year Plan of China Civil Aviation Development.
airspace between military and civil aviation. In April 2008, the
CAAC has reviewed and concluded that the successful
implementation of RVSM has increased the capacity of airspace,
enhanced the efciency of ight operations and air trafc control
while ensuring aviation safety. The CAAC stated that it would
continue to undertake research and apply advanced technology to
optimise the resource allocation airspace and would promulgate
the advancement in future air transportation system (CAAC,
2007c; CAAC, 2008a; ICAO, 2008).
 ARTICLE IN PRESS
222 W.M. Liu, M.K.R. Luk / Transport Policy 16 (2009) 215223
4.5. To continue opening up to facilitate reform and development
Following a study9 on the opening up to the world and
safeguard national economic security in September 2007, the
Chinese government10 has reinforced that China is to focus on
opening up to devise strategies in accordance with the interna-
tional developments and changes. It has been proven that by
opening to the outside world, China can optimise the domestic
and international markets and resources. In accordance with the
spirit above, Chinas civil aviation would continue the reform to
facilitate development and progressive liberalisation of the
international air transport market and steadily expand interna-
tional bilateral air services agreements. China stated that it would
actively participate in ICAOs multilateral affairs in devising the
ICAO standards and guidelines so that Chinas civil aviation can
play a constructive role in the ICAO, to continue to use bilateral
cooperation and exchange mechanism, and improve the level of
opening up and the quality of external cooperation.
5. Government plan for the future: to balance speed and
quality in the reform process
In 2007, the Chinese Government has approved at the 17th
National Peoples Congress to incorporate the concept of scientic
development, with the primary objective to achieve people-
oriented development, and to have a balanced approach on
comprehensive, coordinated and sustainable development. The
policy objectives can be summarized as follows.
5.1. To ensure that the development of civil aviation are in line with
national economy and social developments
It is recognised that the development of civil aviation is the
foundation of the national economy and a leading industry. It
should be in line with the development of the national economy
and social development and could strategically and appropriately
be undertaken ahead of demand to facilitate national economic
and social development. Chinas air transport continues to
develop and strives to narrow the gap in accordance with its
11th Five-Year Plan on civil aviation and the Chinas Civil Aviation
Airport Development Plan 2020.
5.2. To adhere to the people-oriented principle to effectively
improve the quality of air transport services
In accordance with the Governments policy, endorsed at the
17th National Peoples Congress in October 2007, it is recom-
mended that it is strategic to implement a harmonious air
transport system based on the People-Oriented principle to
promote service quality of the air transport system. Firstly, the
performance targets for air transport by 2020 including but not
limited to the following should be implemented:
 proportion of passenger revenue tonne-kilometre by air to be
at least 20% among all transport mode;
 aviation safety incident to be no more than 0.29 per million
ight movement by 2010 and no more than 0.15 per million
ight movement by 2020;
 customer satisfaction to exceed 90%;
9
The study was conducted by the Political Bureau of the CPC Central
Committee in September 2007, Hu Jintao emphasized that it was the fundamental
national policy to continue the opening up to the outside world.
10
Third Plenum of the 11th National Party Congress in 2008.
 aircraft on-time performance to be at least 85% and the average
delay to be within 0.5 h;
 respect and ensure aviation consumer protection and their
rights in accordance with the law;
 improvement in environmental management and protection to
develop environmentally friendly airports; and
 strengthen contingency management in managing ad hoc
crisis including aviation security matters.
Secondly, it is necessary to simplify the process for boarding
and alighting passengers. Thirdly, it is necessary to improve the
ground handling interfaces and access facilities to minimize any
hassles and to streamline the ground handling process.
To further enhance aviation market economy, it would be
prudent to further reform the air transport pricing mechanism to
encourage fair market competition in both pricing and service
quality, and have an effective system to protect the legitimate rights
and interests of consumers. Apart from putting customers rst, it is
also paramount for all aviation enterprises to have effective people
management system to manage and develop their staff as well as to
build up the competitive Chinese brand in air transport.
5.3. To persist on a comprehensive, coordinated and sustainable yet
fast development for civil aviation
It is also reviewed that the integrated transport (including all
transport modes road, rail, air and sea), regional planning and
environment approach for planning and development of airports
is necessary to facilitate the sustainable development of economy
and both international and domestic air transport. The Chinese
government decided that the civil aviation authorities and air
transport enterprises should have changing roles and functions in
the new era. This is to facilitate the optimisation of resource
allocation based on the market. While necessary macroeconomic
regulation and control are to be kept in accordance with
Administrative License Law and Civil Aviation Law (Adminis-
trative Licence Law, 2003), the approval process and government
control are to be streamlined.
Moreover, in accordance with the Anti-Monopoly Law and
the Anti-Unfair Competition Law, it is prima facie to establish a
good market mechanism for air transport, to standardize the
market entry and exit mechanism of airlines, to improve the
administration system to facilitate the localisation of airport
management and to clarify that the airport infrastructure is a
public utility to promote local economic development, and
to optimise the utilisation of airspace so as to facilitate the
economic development and the development of seamless air
trafc ow.
Chinas aviation industry has been undergoing phenomenal
growth in the last three decades. However, few studies have been
devoted to this important market. This paper reviews the growth
pattern and policy evolution in the Chinese market. While
economic growth has been a major driving factor, our investiga-
tion revealed that industry policy reforms have played a critical
role over the years. While many challenges remained to be
addressed, our review of the related government policy indicated
that the Chinese government would continue its reform policy,
with aims to achieve comprehensive and coordinated progress,
with a balance between speed and quality.
Acknowledgement
The authors would like to thank Dr. Xiaowen Fu (The Hong
Kong Polytechnic University) for his editorial advice and Miss
 ARTICLE IN PRESS
W.M. Liu, M.K.R. Luk / Transport Policy 16 (2009) 215223
Kathleen Yip for her support in translating the Chinese manu-
script and statistical analysis.
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