Wandering China

An East/West pulse of China's fourth rise from down under.

Will China Build 82 Unneeded Airports By 2015? You Betcha. [Forbes]

Forbes: Chinese airports – Potential for growth or sinkhole? Gordon Chang on what can be described as binge spending as China ramps up to 230 airports, up from the existing 182. Chinese state media (Small airports to ride construction boom, China Daily, July 21, 2012) points out however, that this is paltry compared to the 19,000 in the U.S and 700 in Brazil. Some criticism is leveled at the losses made by 130 of the current airports as they collectively lost more than 2 billion yuan. It does seem China’s quest for connecting its peripheral frontiers and people through planes, trains and automobiles will continue to be relentless.

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Will China Build 82 Unneeded Airports By 2015? You Betcha.
by Gordon Chang
Source – Forbes, published July 22, 2012

On Friday, Li Jiaxiang, director of the Civil Aviation Administration of China, announced his country will build 82 new airports and expand 101 existing ones during the current five-year plan, the 12th, which ends in 2015.

By then, China will have 230 airports, up from the current 182, according to Huang Min, director of infrastructure at the National Development and Reform Commission.  Most of the new facilities will be feeder airports in the central and western portions of the country.  About 80% of the population will be within 100 kilometers of an airport by the middle of this decade.  Additional building is projected to increase that percentage nine points by 2020.

Does China need all these new airports?  Beijing justifies the ambitious building program on several grounds.  State media, for instance, points to the aviation industry’s three decades of double-digit growth and suggests that is just the beginning.  China’s aviation market, according to central government officials, has the biggest potential for expansion in the world.  State media notes that, in comparison, the U.S. has 19,000 airports.  Li Jiaxiang on Friday said even Brazil and South Africa have more of them than China.  And China’s airports are a booming industry.  Last year, they earned 4.6 billion yuan according to Mr. Li.

Sounds compelling, doesn’t it?  The case gets stronger still when Li, citing a Ministry of Finance estimate, said an airport can produce output eight times its cost for a local economy.

As this projection indicates, the announcement of the airport-building program was all about the economy.  Li can tell us the State Council this month highlighted civil aviation as “a national strategic industry,” but that appears to be merely a justification for officials to spend central government cash.

In reality, the case for more airports is not as clear as Beijing makes it out to be.  For one thing, many of China’s airports are sinkholes.  Last year, about 130 of them lost more than 2 billion yuan.

Chinese officials last week made the argument that these facilities were money losers because China had too few of them, not too many.  “It’s like planting trees,” said CAAC’s Li.  “One tree will die, but if you plant more, it will become a forest, and the trees will grow higher and higher.”  The imagery does not make sense, but his concrete example was helpful.  He noted all 12 regional airports in Yunnan province were profitable due to the “network effect.”

Building a network is logical if the traffic will support it.  Yet despite what Chinese leaders tell us, the aviation market with the most potential is India’s.  India is both less developed than China and is projected to have at least a half billion more people by the middle of this century.  The Chinese population, on the other hand, will level off somewhere between 2025 and 2020, and the size of China’s workforce could peak as early as next year.

Worse, the Chinese economy is in a downswing that looks like it will last decades—think Japan’s recent trajectory as the best case for China—and Chinese per capita income is still low—21,810 yuan for urban residents and 6,977 yuan for their rural counterparts according to official statistics for last year.  The aviation market may not be there for Beijing, which has based its projections on an ever-expanding economy.

“The plan must consider future development space and not waste money on useless infrastructure,” Li Jiaxiang said on Friday.  Unfortunately, China’s recent record on adding airports is mixed.  Chinese airlines, for instance, are concerned about what will surely be the biggest project in the country, the plan to build a second airport in Beijing.

The new one is slated for a patch of land at least 50 kilometers away from the Capital International Airport.  Airline consultants point out that the government should instead be planning to expand the existing one, instead of building a sprawling facility on the other side of town, near Hebei province.

The reason?  Airlines fear they will be forced to operate from both airports, thereby increasing costs and reducing flexibility.  That’s exactly what happens in Shanghai, where Shanghai-based China Eastern Airlines has had to fly out of both Hongqiao International Airport and Pudong International Airport since 1999.  The original plan was to close the decrepit Hongqiao when Pudong was opened, but local officials convinced Beijing to allow them to not only keep Hongqiao but also significantly expand it as well.

Shanghai, for no good reason, has replicated New York’s inefficient Kennedy-LaGuardia arrangement, essentially because building-crazy officials took over from technocratic planners.  And now, the same dynamic is beginning to occur in Beijing.

The latest airport-building binge is bound to waste central government and local money, but most officials probably see that as an advantage.  It’s all about stimulating the economy, no matter how inconvenient that will be for the airlines and their passengers.

Filed under: Beijing Consensus, Chinese Model, Domestic Growth, Economics, Forbes, Government & Policy, Infrastructure, Modernisation, Social, The Chinese Identity, , ,

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