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Aerospace Resource Guide: China

 

China Statistics

Summary
Market Entry

Market Trends

Current Demand

Main Competitors

Subsector Focus: Helicopters
Barriers

Trade Events/Associations

CS Contact

Capital: Beijing
Population:
1.37 Billion
GDP USD
: USD 9.4 T
Currency:
RMB
Language
: Mandarin

Summary

China is the world’s second largest and one of the world’s fastest growing civil aviation markets. The industry has grown at double-digit rates for several years. Industry forecasts expect growth to remain strong over the medium term, averaging 7% over the next 20 years. Commercial opportunities in the civil aviation market include final assembly and tier-one suppliers, small niche parts manufacturers, airport design and construction companies, and general aviation among others.

As stated in China’s 12th Five Year Plan, China plans to build 56 new airports, re-locate 16 airports, and renovate/expand 91 airports with investment totalling USD 68.5 billion during the 2011 – 2015 period. By the end of 2013, the total number of civil airports in China was 193. China will have more than 230 airports by 2015, accessible by 83% of the population, including 3 national hubs, 5 regional hubs, and 24 medium hubs.

The commercial air fleet will grow along with the number of airports, up from 2,888 aircraft in 2011 to an estimated 4,500 by 2020. China’s top three airlines, i.e., Air China, China Southern, and China Eastern, are now among the world’s top 10 carriers. Boeing’s Current Market Outlook forecasts that China's airlines will add over 5,580 new transport airplanes valued at USD 780 billion (RMB 4.72 trillion) during the next 20 years.

China has become an integral and growing part of the global aviation supply chain for a wide variety of aviation products and services and is making progress on its plans to enter the large commercial airplane manufacturing market. The increase in the number of airports and aircraft will require new infrastructure, aircraft engines and parts, pilots, controllers, communication/navigation/surveillance systems and other equipment presents significant business opportunities for U.S. exporters.

Market Entry

In July 2012, China’s “State Council Opinions on Promoting Civil Aviation Development” set several key development targets for the industry including a transport growth rate of 12.2 percent for 2011-2020, an improved safety record, general aviation growth of 19 percent, and increased access to air services for more of the population. China’s civil aviation system is forecasted to be as large as the US system in approximately two decades.

Meaningful cooperation between the US and Chinese governments on aviation is essential to realizing these business opportunities. The US Federal Aviation Administration (FAA) and the Civil Aviation Administration of China (CAAC) continue to enjoy a close partnership that has benefited both sides for many years. The US-China Aviation Cooperation Program (ACP) brings together US industry and government agencies from both countries - CAAC, FAA, the US Trade and Development Agency (TDA), and the US Transportation Security Administration (TSA) in a unique and active forum for bilateral cooperation.

Efforts to reduce constraints on the healthy and sustainable development of civil aviation in China have been largely successful, however, significant challenges remain. Further efforts are needed to open up and modernize China’s airspace system, reduce inefficiencies and congestion, realize environmental benefits, and accommodate growth.

U.S. firms without an existing China presence may want to consider hiring a local distributor or representative. This partner generally helps establish access to decision makers and gain timely commercial information about the market. They also traditionally leverage personal connections to promote the U.S. product and develop sales leads. While this is a common global practice, successful exporters comment on the need to invest significant time and attention to maintaining and managing relationships with Chinese partners. Some U.S. firms decide to enter into a Joint Venture (JV) relationship with Chinese partners, exchanging technological know-how for market access. This should only be done after significant due- diligence and cost/benefit analysis.

US firms often use training programs to establish productive partnerships with Chinese clients. Industry associations such as the US-China Aviation Cooperation Program (ACP) can serve as valuable vehicles for American firms to leverage similar opportunities.

Current Market Trends

Aircraft Parts: Manufacture and Repair

China’s import market for aircraft parts and components exceeded USD 1.7 billion in 2011 and 2012, an increase of over 21% compared with year 2010. China’s demand for aircraft parts can be attributed to a number of factors including an increasing capacity utilization rate, the age and expansion of China’s aircraft fleet, and the domestic production and assembly of aircraft.

As of 2011, China had a civil aviation fleet of 2,888 aircrafts with an average age of 6.35 years, and as the fleet continues to age, it will require parts and equipment for routine maintenance and repair. Though there are a number of major domestic aircraft and parts manufacturers scattered throughout China, the sector is still underdeveloped, creating a strong demand for reliable imported products and technologies to ensure quality standards. Boeing predicts that in the next 20 years China will need 5,580 aircraft valued at USD 780 billion.

China’s domestic aircraft parts and assembly manufacturing sector is also growing. In addition to approximately 200 small aircraft parts manufacturers, there are also a number of regionally- based major manufacturers concentrated in Shanghai, Chengdu, Xi’an, Jiangxi and Shenyang. China’s domestic manufacturing base is developing, as reflected by the commitments of large aircraft and engine manufactures to expand procurement in China over the long term. However, most highly technical and sophisticated parts and assemblies will continue to be imported until production quality meets international standards. At the present time, domestic manufacturers do not have the ability to produce all of the qualified materials and parts.

Airports

China currently has 193 civil aviation airports, including the world’s second busiest in Beijing, with plans to expand aggressively to more than 230 by 2015. The expansion will place 83% of China’s population and 96% of its GDP within 100 kilometres (roughly 60 miles) of the nearest airport, greatly enhancing the potential for aviation growth.

The airport system at present is highly concentrated, with top airports suffering from major congestion. The top three airports, Beijing, Shanghai and Guangzhou, account for 1/3 of all traffic, while the top 14 airports handle 2/3 of total traffic nationwide. Local industry estimates indicate that 40 of China’s airports are already at or near capacity, with another 29 expected to reach this limit within the next two years. To relieve congestion, China opened 19 new airports over two years from 2009–2011.

International companies will have opportunities to participate in both the airport design and in the infrastructure construction. Qualified companies can bid for design, consultation, surveillance, management, and construction of designated civil airport projects. However, the chances for international leading design and construction companies to win the bid are limited, unless partnering with qualified Chinese domestic design and construction companies. So far, the Beijing Capital Airport, Shanghai Pudong Airport, Shanghai Hongqiao Airport, Shenzhen Huangtian Airport, and Guangzhou’s new Baiyun Airport are all designed by international companies with local Chinese partners.

Ground service is another area in which foreign companies can actively participate. Beijing Capital Airport, Guangzhou Baiyun Airport, and Chengdu Shuangliu Airport have all established joint ventures with foreign partners (Singapore, Indonesia and UK) in ground services. Shanghai Airport Ground cooperated with Cargo Warehouse and Lufthansa set up a joint venture. China Air Oil Supply Corporation (CAOSC) has established many joint ventures with foreign companies to provide airport oil supply services.

General Aviation (GA)

In China, the airspace is tightly controlled by the Chinese military and the airspace class system does not segment out its GA air activities. Strict military control over roughly 70% of all Chinese airspace is the largest single factor limiting growth of this industry. GA is still underdeveloped in China regarding GA aircraft numbers, GA professionals and GA facilities.

However, a welcome change came in November 2010 when civilian and military authorities issued a joint reform document calling for liberalization of low altitude airspace under 4,000 meters (13,000 feet), setting the goal of opening up airspace below 1,000 meters by 2015 and airspace below 3,000 meters by 2020. Implementation of the reform will roll out in three stages, starting with an Experimental Phase in Guangzhou and Shenyang. The policy outlines a national rollout by 2015, and a final deepening and consolidation by 2020.

Since then, GA has been developing at a fast pace with new players coming to this market and the more involvement of local governments. GA has big potential market driven by the state and local economy development plan, the public demand for business jet, and the need for public services and individual recreations.

China currently has 123 operators registered with the Civil Aviation Administration of China (CAAC), the main stakeholder formulating policies and regulations concerning the safety and economics of GA in China. However, about 80% of Chinese operators have only 2 or 3 aircraft thus struggle to achieve operating scale and profitability. In addition, GA aircrafts are very costly to use in China due to airspace access, flight approval procedures, and operation charges such as airport charges, plus maintenance services. All of these factors contribute to low profitability for Chinese operators.

GA deregulation will accelerate in the following 3-5 years. China is gradually opening its low altitude airspace, which will trigger the booming of this industry. According to CAAC’s official source, GA aircraft operations hours will increase to 300,000 hours in 2015 from the current 140,000 hours, with an annual growth rate of 16%. The GA fleet size will reach over 2,000 GA aircraft in 2015 from the current 1124 GA aircraft.

Current Demand

According to the Civil Aviation Administration of China (CAAC), as of 2013, there were 193 civil airports operating in China, rising to more than 230 by 2015.

Airports in China, historically under military or dual military/civil control are transferring management to all civilian control. In March of 2004, CAAC granted authority to local municipal or provincial governments to own and run airports in their administrative areas, which enables faster decision making for airport projects, which in turn allows financing to be secured more effectively.

Airports across China have been and will continue to be built and upgraded to international standards. According to the China Civil Aviation, China’s yearly demand for ground support equipment is estimated to be $644 million: $242 million for new airports, $161 million for replacing old equipment, $161 million for airport upgrading/expanding projects, and $80 million for military airports. Hence, we will continue to see a steady demand for airport ground equipment these few years.

The Central Government has already shown a strong demand for general aviation aircraft in areas such as Public Security, Rescue & Salvage, Agriculture, Forestry, Firefighting, Meteorology, Surveying & Mapping, Sports, Tourism and Business Aviation industry. China is estimated to require 1,000 new general aviation aircraft during the period 2012 – 2015.

The number of corporate jets in China, according to CAAC recent news, would be around 400 units by year 2017 and possibly up to 1,100 units by year 2023. The growth in the corporate jet market runs parallel with china’s economic development. With a large number of Chinese firms gaining status on the world stage, the wealth is reflected in corporate perks such as having fleets of corporate jets.

With the further opening up of airspace, we will see a sharp increase in demand for general aviation which in turn leads to greater demand for more airports, airport services, aviation systems, MROs, etc. in various cities and towns.

Competitors

The size and growth of China’s market has attracted nearly all major international manufacturers and service companies. Traditionally, domestic Chinese firms cannot match foreign technology and compete only on price and network (access to decision makers). Joint venture programs and aggressive R&D investment is narrowing this gap in certain product categories.

The quality of most Chinese-produced airport equipment is not up to international standards yet. With few exceptions, technical airport ground equipment for operations into the next millennium still needs to be imported. Chinese companies are catching up fast to localized lots of the equipment. At present, there are over 20 Chinese companies in airport ground support equipment production focusing mostly on low-end equipment. In the short term, Chinese companies will not be able to pose any challenge in areas where U.S. firms are the suppliers.

Foreign companies are a major source for highly technical airport ground equipment supply; most of the non-American foreign suppliers are European or Japanese companies. Although European and Japanese firms take some share of the market, they do not constitute a significant threat to U.S. firms at this time. Nonetheless, U.S. firms’ retention of the current market superiority will require continued development and introduction of ever-newer technologies.

Best Prospects

Below is a partial yet representative list of best sales prospects:

Subsector Focus: Helicopters

  • Air Data & Inertial Reference System (ADIRS)
  • Airfield buses
  • Automatic Flight Control System (AFCS)
  • Auxiliary power unit, door system
  • Avionics
  • Bearings
  • Baggage sorting systems and handling equipment
  • Baggage x-ray machines
  • Crew seats
  • Composite Materials
  • De-icers/ Refuellers
  • Electric power system
  • Emergency evacuation equipment
  • Engine vibration monitoring system
  • Flight Data Recording System
  • Flight Control Actuation System
  • Flight deck control suite
  • Fire fighting vehicles
  • Fire protection equipment
  • Food loaders
  • Fuel hydraulics
  • Fuel System
  • Fuel Tank Inserting System
  • High Lift System
  • Hydraulic System
  • Integrated flight deck panel
  • Integrated Supervise & Control System
  • Interior components
  • Landing gear
  • Lighting equipment
  • On-board Maintenance System
  • Oxygen fuelling vehicles
  • Radio remote control apparatus
  • Runway friction testers
  • Pilot training
  • Signalling & Safety equipment for airfields
  • Telecommunication and Navigation System
  • Towing tractors
  • Turbofan Engines
  • Windshield heater control & wiper system
  • Windshields and opening windows

China will further open up its low-altitude airspace (below 1,000 meters) across the board by 2015 to unleash a vastly untapped general aviation market, valued at trillions of Chinese Yuan. With the rise of the General Aviation market here, China could become the fastest-growing helicopter market in the world. It is both exciting and challenging. In China, two-thirds of the country is covered by hard to reach mountains and high plateaus.

In 2008, an earthquake in the Sichuan region of China resulted in many casualties, and Chinese officials cite the failure of emergency teams to reach inaccessible areas as the reason. This has convinced China’s leaders that they must dramatically increase their helicopter fleet.

For a country similar in geographical size to the United States, China operates comparatively few helicopters, most of which are built abroad, with the rest built locally under license. But with demands growing in both military and civil sectors, change is on the horizon for China’s relatively small helicopter industry. The main civil helicopters are supplied by Airbus Helicopters, Sikorsky Aircraft Corporation, Bell Helicopters, AgustaWestland Helicopters, Russian Helicopters and Robinson Helicopter Co.. The local suppliers are Changhe Aircraft Industry Corporation and Harbin Aircraft Manufacturing Corporation. In 2012, Chongqing Helicopter Investment Co. Ltd acquired Enstrom Helicopter Corporation and entered the Chinese market.

As of October 2013, there were 381 civil helicopters in China. Over the next ten years, China’s civil helicopter needs are expected to rise up to about 1,500 helicopters. China has realized the importance of helicopters for disaster relief work and medical rescues, and the country has become a bright spot in the struggling helicopter industry.

The Chinese government has also loosened its control on helicopter manufacturing to allow local private firms and foreign companies to co-operate in developing and manufacturing civil helicopters. The growing Chinese economy provides a huge potential market for helicopters of all classes.|

Barriers


European Union companies are the main competitors of U.S. aircraft-related exporters. China is aggressively seeking new technology and many manufacturers from the European Union countries have promised technology transfers in their negotiations. Technology transfer usually serves as an advantage in obtaining a contract from the Chinese government.

International companies will have opportunities to participate in both the airport design and in the infrastructure construction. Qualified companies can bid for design, consultation, surveillance, management, and construction of designated civil airport projects. However, the chances for international leading design and construction companies to win the bid are limited, unless partnering with qualified Chinese domestic design and construction companies. A recent collaboration by UK-based engineering company Atkins and China Southwest Architectural Design and Research Institute Corporation (CSWADI) won them the contract for the conceptual planning and terminal design of the Qingdao airport in the Shandong province of China. The contract covers all design aspects of the airport development project including master-planning, transport planning, airfield design, water engineering and landscaping. The airport is expected to be completed in 2017.

In addition, U.S. firms without a significant on-the ground presence often face additional challenges building relationships, obtaining timely market information, and gaining access to decision makers.

There are several other obstacles to doing business in China. Laws and regulations are not as transparent as that of developed countries. Industry is often not given sufficient opportunities to fully express their opinions when law or regulations are being drafted. The Chinese face three key challenges that threaten to limit the industry’s growth: inadequate infrastructure, overly restrictive airspace, and limited skilled human resources.

Air Traffic Control (ATC) has been a crucial barrier hindering the development of Chinese civil aviation. The authorities have started to attach great importance to increasing airport and air-route capacities in high traffic areas.

CAAC began implementing its new airspace Reduced Vertical Separation Minimum (RVSM) system in November 2007 to satisfy the growing demands of the aircraft operations without adding new air routes. By fulfilling RVSM, the number of China’s airspace cruise altitude layers increased to thirteen. This improved the capacity and utilization rate of China’s airspace, promote reduced flight flow and flight delays. Before its implementation, China only used seven altitude layers of airspace, making for a very low use rate for a capital airport.

Facing the rapid development of civil aviation, China is experiencing a dramatic shortage in pilots, mechanics, inspectors, air traffic controllers and maintenance engineers. Currently, seven domestic universities are authorized to train pilots, and three are authorized for controller training. Also, Chinese Southern Airlines has established a flight college in Australia and Airbus has set up a simulator training center in Beijing. CAAC estimates that during the 12th Five Year Plan period (2011- 2015) Chinese aviation industry needs an additional 16,500 pilots, 50,000 mechanics, and 4,000 air traffic controllers.

Trade Events/Associations

Trade Events


China Commercial Aircraft Summit 2015

April, 2015 • Shanghai, China • www.opplandcorp.com/aero
The global aerospace landscape, aircraft manufacturing, subcontractingevent in China.

AvioniChina (China International Conference & Exhibition on Avionics & Testing Equipment)

September, 2014 • Xi’an, China • www.avionichina.com
Avionics products, system and test equipment technology and infrastructure.

China Helicopters Expo

September, 2015 • Tianjing, China • www.helicopter-china-expo.com

Air Show China 2014

November 11–16, 2014 • Zhuhai, China • www.airshow.com.cn/en
China International Aviation & Aerospace Exhibition (Airshow China or Zhuhai Airshow) is the only international aerospace trade show in China endorsed by the Chinese central government. It features the display of real-size products, trade talks, technological exchange and flying display.

Inter Airport China 2014

October 15-17, 2014 • Beijing, China • www.interairportchina.com
Airport industry, ground handling, terminal operations, airport IT and airport design

China Aerospace and Aviation Technology Show (CAATS 2014)

November 4-8, 2014 • Shanghai, China • www.caats.com.cn/en/

5th China Aerospace Manufacturing Summit 2014

November 2014 • Shenyang, China • www.galleonevents.com/2014AVIC/en/home.html
A stellar gathering which is organized by the societies of China Top FIVE Aerospace Provinces, and co-organized by AVIC Shenyang Aircraft Industry (Group) Co., Ltd. and AVIC Shenyang Liming Aero Engine (Group) Co., Ltd.

International Flight Conference General Aviation Products Expo Shenyang China 2014

August 27 -31, 2014 • Shenyang, China • aeroshenyang@gmail.com
The only state-approved trade event in northeastern China, also one of the biggest international general aviation expos in China. It covers the whole industry chain suppliers in the field of aviation production, operation and maintenance, airport management, aviation school training and industrial park.

Government Authorities

Airlines

Aircraft Manufacturers

  • Aviation Industry Corporation of China (AVIC): www.avic.com.cn
  • Commercial Aircraft Corporation of China (COMAC): www.comac.cc
  • AVIC Commercial Aircraft Co.

MRO Facilities

Aircraft Trading Companies

U.S. Commercial Service Contact Information:

Ms. Vivien Bao
Commercial Specialist
U.S. Consulate General Shanghai
Tel: +86 (21) 6279 8766
Email: Vivien.Bao@trade.gov

Ms. Daphne Chee
Commercial Specialist
American Consulate General Shenyang
Tel: +86 (24) 2322 1198 x 8145
Email: Daphne.Chee@trade.gov

Mr. Cui Shiyang (Sonny)
US & Foreign Commercial Service
American Consulate General - Chengdu
Tel: +86 (28) 8558 3992 ext. 6546; +86 (28) 8598 6546
Email: Cui.Shiyang@trade.gov

Ms. Ida Peng
Senior Commercial Specialist
U.S. Embassy, Commercial Section in Beijing
Tel: +86 (10) 8531 3947
Email: Aiqun.Peng@trade.gov

Ms. Lena Yang
Sr. Commercial Specialist
U.S. Consulate General in Guangzhou
Tel: +86 (20) 3814 5173
Email: Lena.Yang@trade.gov


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