CIVIL AVIATION AND AEROSPACE BUSINESS IN CHINA FLANDERS INVESTMENT & TRADE MARKET SURVEY
CHINA'S CIVIL AVIATION AND AEROSPACE BUSINESS
October, 2014
Flanders Investment & Trade Guangzhou
CONTENT
1 The Civil Aviation Business...... 3
1.1 The Aviation Manufacturing...... 3
1.1.1 The Domestic Development of Aviation Manufacturing...... 3
1.1.2 The Foreign Investment of Aviation Manufacturing...... 6
1.2 The Aviation Transport...... 7
1.2.1 The Hardware of Aviation Transport...... 7
1.2.2 The Human Resources of Aviation Transport...... 9
2 The Aerospace Business...... 10
Annex 1 List of China's Civil Aviation Industrial Enterprises in 2012 (in Chinese only)
2 European Business in China Position Paper 2013/2014 (Aerospace Working Group)
2
1 The Civil Aviation Business
1.1 The Aviation Manufacturing
1.1.1 The Domestic Development of Aviation Manufacturing
In 2012, China's civil aviation industry realized a gross output value of CNY 152.68 billion, the output value from the industrial products was CNY 37.27 billion (10% of the figure of the USA):
aircrafts,16.06 bn
parts for aircrafts,7.63 bn
parts for aeroengines,3.3 bn
maintenance of aircrafts,3.35 bn
maintenance of aeroengines,2.61 bn
airborne equipments,0.34 bn
others,3.98 bn
Total: 37.27 bn
In 2012, there were basically 132 civil aviation industrial enterprises in China (see Annex 1, List of China's Civil Aviation Industrial Enterprise in 2012, in Chinese only): Number Description Main Business % in the Industry's Output Value 60 subsidiaries of manufacture of 40.9% Aviation Industry Corporation of China civil aircrafts and aero (www.avic.com.cn) engines
7 subsidiaries of ibid 1.2% Commercial Aircraft of China, Ltd. (www.comac.cc)
65 others maintenance of 57.9% civil aircrafts and aero engines
China's Civil Aviation and Aerospace Business | October, 2014 3
Among the 132 enterprises, the top 10 in terms of the income in 2012 were: Rank Name Income (CNY 10000) 1 Airbus (Tianjin) Final Assembly Co., Ltd. 1180287 (http://www.airbus.com.cn/contact/) 2 AVIC Xi'an Aircraft Industry (Group) Co., Ltd. 693379
3 MTU Maintenance Zhuhai Co., Ltd. 260302 (http://www.mtu.de/company/mtu-worldwide/mtu-maintenance-zhuhai/) 4 Guangzhou Aircraft Maintenance Engineering Co., Ltd. 171903 (http://www.gameco.com.cn/) 5 Taikoo (Xiamen) Aircraft Engineering Co., Ltd. 135755 (http://www.taeco.com/) 6 AVIC Xi'an Aero-Engine (Group) Ltd. 115272 (http://www.xaec.com/) 7 AVIC Harbin Aircraft Industry Group Co., Ltd. 74966 (http://www.hafei.com/) 8 AVIC SAC Commercial Aircraft Co., Ltd. 63085 (http://www.sacc.avic.com/) 9 Weihai Guangtai Airport Equipment Co., Ltd. 60244 (http://www.guangtai.com.cn/) 10 AVIC Xi'an Aircraft Industry (Group) Co., Ltd. 59391
The leading civil aircrafts made in China Modern Ark 60 and Modern Ark 600 turboprop regional aircrafts
Airbus A320 aircrafts, by Airbus S.A.S.'s joint venture in China
Y-12 IV and Y-12 E twin-engine turboprop general aircrafts
Y-5 B single-engine piston general aircrafts
DA40 TDI light-scale general aircrafts
4
Straight-9 and Straight-410G 4-ton helicopters
A2C ultra-light seaplanes
C919, the first large passenger jet to be made by China, to be assembled at the end of 2014 and to take the first test flight in 2015
In 2012, China's subcontracting production for foreign companies amounted to USD 1.35 billion (35% of the figure of Japan).
(Source: 中国民用航空工业年鉴 2013)
China's Relative Imports January-July, 2014 Description Volume Amount (USD) turbojet engines 207 units 1,193,160.00 Aircrafts 570 units 13,877,708.00 parts for aircrafts 2530 tons 1,332,411.00 aviation and aerospace technologies 19,378,433.00 (Source: http://www.customs.gov.cn/tabid/2433/InfoID/716642/frtid/49667/Default.aspx) See Annex 2, European Business in China Position Paper 2013/2014 (Aerospace Working Group).
The Mid-term Development Plan of the Civil Aviation Industry (2013-2020) (can be downloaded at http://www.miit.gov.cn/n11293472/n11293832/n12843926/n13917012/15421628.html, in Chinese only) announced by China's Ministry of Industry and Information Technology sets the aims of the industry till 2020: size of the market The civil aircrafts made in China will realize a turnover of CNY 100 billion. civil passenger aircraft The ARJ21-700 turbofan regional aircraft will be mass-manufactured. Capable for mass-manufacturing of the 50-seat Modern Ark 60 and 70-seat Modern Ark 700 turboprop regional aircrafts. Capable for mass-manufacturing of the single-aisle 150-seat C919 mainline aircraft. Start to develop double-aisle mainline aircrafts. general aviation Develop aviation emergency rescue equipment’s, big fire-fighting and water rescue aircrafts. Develop medium-sized multi-function helicopters. Develop large-sized helicopters via international cooperation. Upgrade the existing business jets. Develop premium business jets with inter- continental flight capacity, via international cooperation. aero-engines
China's Civil Aviation and Aerospace Business | October, 2014 5
Mass-manufacturing of medium-powered turbo shaft engines (by 2015). Mainly finish the design of the engine for big passenger aircrafts. Upgrade the existing and promising engines (by 2015). Develop small engines. aviation equipment’s, systems and relative manufactures Develop airborne systems, aviation equipment’s and systems, airborne computer software and hardware, aviation materials (especially carbon-fibre composites, high- quality aluminium-lithium alloy, high-strength and high-tenacity steel, etc.), basic components, etc. geographical allocation The manufacturing of civil transport aircrafts is based in Shanghai City, Shaanxi Province, Tianjin City. The manufacturing of general aircrafts, business jets, and special aircrafts is based in Harbin City, Shijiazhuang City, Zhuhai City, Chengdu City and Jingmen City. The manufacturing of helicopters is based in Jingdezhen City, Harbin City and Tianjin City.
1.1.2 The Foreign Investment of Aviation Manufacture
Leading Foreign Investment by Chinese Aviation Industrial Enterprises Investor Project Location Year AVIC Xi'an Aircraft Industry acquisition of FACC AG (www.facc.com), a Austria 2009 (Group) Co., Ltd. manufacturer of aviation structural and interior decoration components Superior Aviation Beijing Co., Ltd. acquisition of Superior Air Parts, Inc., a USA 2009 (www.sabj.cn) manufacturer of piston aero-engines
Donica Aviation Engineering Co., set-up of overseas companies for service, USA, UK 2010 Ltd. (www.donica.cn) trading, software integration
Jr-Tech (Guangzhou) Co., Ltd. set-up of a trading and service company USA 2010 (www.jr-tech.com.cn)
China Aviation Industry General acquisition of Cirrus Design Corporation, a USA 2011 Aircraft Co., Ltd. (www.caiga.cn) manufacturer of general aircrafts
AVIC International Holding Co., acquisition of Teledyne Continental Motors USA 2011 Ltd. (www.avic-intl.cn) Co., a manufacturer of piston aero-engines
Sichuan Haite High-tech Co., Ltd. set-up of an aviation security training Singapore 2012 (www.schtgx.com) company
AVIC International Holding Co., acquisition of Thielert Aircraft Engines Germany 2013 Ltd. (www.avic-intl.cn) GmbH, a manufacturer of piston aero- engines China Aviation Supplies Holding set-up of its European company for trading France 2013 Company (www.casc.com.cn) and service
Jiangsu A-Star Aviation Industry set-up of its overseas company for trading USA 2013 Co., Ltd. (www.jsa-star.com)
6
Ningbo Great Group Co., Ltd. taking share of a manufacturer of air cargo USA 2013 (www.ngtb.cn) containers
Ma Bian Black Horse Mining Co. acquisition of Lisa Airplanes SA (www.lisa- France 2014 airplanes.com), a manufacturer of light sport aircrafts Zall Co. (www.zallcn.org) acquisition of a manufacturer of aircrafts USA 2014 and parts
In 2012, 7 Chinese aviation industrial enterprises totally made outbound investment of CNY 1.78 billion, including CNY 1.74 billion in Austria by AVIC Xi'an Aircraft Industry (Group) Co., Ltd.
1.2 The Aviation Transport
1.2.1 The Hardware of Aviation Transport
Passenger Volume of China's Civil Aviation Transport, 2013
China Southern Airlines,92 m
Air China,89 m
China Eastern Airlines,79 m
Hainan Airlines,51 m
Other Airlines,43 m
Total: 354 m Cargo & Mailing Volume of China's Civil Aviation Transport, 2013
China Southern Airlines,1.276 m tons
Air China,1.56 m tons
China Eastern Airlines,1.409 m tons
Hainan Airlines,0.652 m tons
Other Airlines,0.715 m tons
Total: 5.612 m tons (Source: http://www.caac.gov.cn/I1/)
At the end of 2013, in China there were: 46 airlines (including 7 only for cargo transport), the 2 charts below show the leading 4 airlines 189 permitted general aviation operation companies 2145 aircrafts for passenger and cargo transport (204 were newly added in 2013)
China's Civil Aviation and Aerospace Business | October, 2014 7
1519 general aircrafts (340 were for training)
The Total Income of China's Airlines
500
400
300 Turnover Profit CNY bn CNY 200
100
0 2012 2013
In 2013, among the 193 certified civil airports in China, the top 6 were: Passenger Throughput Cargo and Mail Throughput Airport Rank Number Rank Volume (ton) 1 183,712,355 2 1,843,681.1
Capital Airport, Beijing City 2 52,450,262 3 1,309,745.5
Baiyun Airport, Guangzhou City 3 47,189,849 1 22,928,527.1
Pudong Airport, Shanghai City 4 35,599,643 6 435,115.9
Hongqiao Airport, Shanghai City 5 33,444,618 5 501,391.2
Shuangliu Airport, Chengdu City 6 32,268,457 4 913,472.1
Baoan Airport, Shenzhen City 1No.2 in the world for 4 years. 2No.3 in the world for 6 years.
Locations of China's key airport expansion projects: Lukou Airport, Nanjing City Binhai Airport, Tianjin City
8
Baiyun Airport, Guangzhou City Wuwei Airport, Nanning City Xiantao Airport, Shenyang City Tianhe Airport, Wuhan City Taiping Airport, Harbin City Jiangbei Airport, Chongqing City Huanghua Airport, Changsha City Xinzheng Airport, Zhengzhou City Hedong Airport, Yinchuan City (Source: http://www.caac.gov.cn/I1/, http://www.caac.gov.cn/I1/K3/201403/t20140324_62919.html)
1.2.2 The Human Resources of Aviation Transport
The total number of China's pilots for transport aviation companies can basically meet the demand. Pilot poaching happened, mainly because of the unevenness of the human resources in different airlines. The big 3 (China Southern Airlines, Air China, China Eastern Airlines) employ 60% of the pilots in China and each of them starts to train 200-300 more people every year, then the other smaller airlines sometimes have to scramble the staffs with much higher salaries, or hire foreign pilots. China's general aviation is in bigger shortage of staff; for its flight training business, 15000 general aviation pilots are needed in the coming decade while presently only 1000 can be added per year; for the whole sector, 50000 people are needed, now there are only 13000.
Flight academies are therefore arising in China, from 1 to 12 already, some with private investments, some with foreign know-how from Canada, Germany, etc. The traditional academy is the Civil Aviation Flight University of China (www.cafuc.edu.cn), from which around 90% of the working Chinese pilots graduated. The leading airlines established their own flight academies. Many Chinese pilots receive training abroad due to the higher cost at home, around CNY 100,000 higher per pilot. (Source: http://sky.news.sina.com.cn/2014-06-18/105851529_2.html, http://finance.eastmoney.com/news/1355,20131020330422970.html)
The Number of Civil Pilot in China At the end of 2013 plane (private),1733 plane (commercial),17742 plane (airline transport),14372 2013 2012 plane (multi-crew),39 helicopter,1241 others,378
(Source: http://www.caac.gov.cn/I1/)
China's Civil Aviation and Aerospace Business | October, 2014 9
2 The Aerospace Business
China's aerospace industry has been valued at over CNY 120 billion, the business related to the Beidou Navigation Satellite System may be valued at CNY 400 billion till 2020 (Source: http://www.cb.com.cn/gongsikuaixun/2013_0710/1003745_2.html). China's authority concerned is China National Space Administration (www.cnsa.gov.cn).
China's aerospace industry is mainly run by 2 state-owned companies:
China Aerospace Science and Technology Corporation (www.spacechina.com) has tens of subsidiaries and around 159400 employees
China Aerospace Science and Industry Corporation (www.casic.com.cn) has tens of subsidiaries and around 137000 employees
China's demands for improvement of aerospace technologies, comparing with those of the advanced countries: Launchers Need to improve the carrying capacity, the preparation time and the adaptability. Need better re launchable technology. Space crafts Need better remote sensing satellites' observation system. Need to improve the communications satellites' platform which does not meet the demands of modern mass-storage communications satellites. Need to extend the navigation satellites' coverage, which covers now only China and the main part of the Asia-Pacific region. The precision of the service needs to be improved. Need better solutions for the new technology experiment satellites. Manned space crafts The number of manned space crafts is small. Not suitable for extraterrestrial/deep- space explorations. Not reusable. The operation cost is rising. All need to be improved. Deep-space exploration Needs to extend the main object of the exploration which is now only the Moon, not the main part of the solar system. Needs better technologies of self-management and intelligent control. Needs better technologies of deep-space communications and navigation Needs better nuclear reactors in space, high-power electric propulsion technologies, etc. Needs better nuclear energy technologies. Needs better Entry, Descent and Landing technologies. So far only those for the exploration on the Moon are being developed. Needs better payload technologies for deep-space explorations. Aerospace guidance, navigation and control Needs better technologies for the control on the return via earth orbit, the control on the return via moon orbit, soft landing on the Moon and other planets, etc. Now China only has docking technologies in the field of earth orbit and collision docking.
10
Needs better technologies for the astronomical body explorers. Needs better technologies for the constellation/formation flying. Needs to promote the in-orbit use of the satellite control technologies. Needs better technologies for the carrier rockets. Aerospace propulsion For the aerospace main power, needs bigger thrust and more advance technologies. For the solid-fuel rockets' engines, the diameter of the existing ones is only at 2m-class, still using metallic casing, with low pressure in the combustors. These needs to be improved. For the aspirated engines, the scramjet is under initial research only, awaiting progress. The special propulsion like Hall Thruster, nuclear propulsion, solar sail, etc., needs to be developed. Launching, tracking and controlling Needs better launching platform. Needs better technologies on the tracking and controlling in earth orbit. Needs better technologies on the tracking and controlling in deep-space. Needs better technologies on measurements and navigation. Needs better technologies on the security control. Aerospace electronic information Needs better technologies on the exploration, chasing and identification of space objects, the space payloads, the computer and micro-electronics, the electromechanically assembly, the aerospace communications, the inertial devices, etc. Fundamental technologies Needs better aerospace materials. Needs better medical engineering technologies. Needs better aerodynamic technologies. Needs better technologies of quality and reliability control. Needs better technologies of measurement and testing. Aerospace manufacture Needs better technologies of rapid response manufacturing and relative digital management. Needs better precise and ultra-precise machine tools. Needs better special process technologies. Needs better thermal processing and precision form technologies. Needs better jointing technologies. Needs better surface treatment technologies. Needs better electrical interconnection technologies. Aerospace testing Needs better technologies for the testing on strength, structural dynamics, mechanical environment, thermal environment, magnetism, reliability, and virtual testing, etc. Utilization of aerospace technologies Needs to expand the satellite navigation and communication service. Special aerospace technologies like gas desulfurization still needs to be imported. (Source: Report on Advances in Space Science and Technology 2012-2013)
Before 2017, China's foreign cooperation in aerospace business keeps focusing on: Space astronomy, space physics, microgravity science, space life-science, deep-space exploration, space debris. Use of earth observation satellites for the monitoring of the environment and inflicted damage, monitoring and forecasting of the global climate changes, monitoring of the oceans, etc. Use of communication and broadcast satellites on broadcast and television operation, distance education, distance medical treatment, etc.
China's Civil Aviation and Aerospace Business | October, 2014 11
Technologies, terminal equipments R&D, facilities construction, special business service, etc., for satellite navigation system. Space labs of manned aerospace, space station, space scientific research and tests. Aerospace tracking and control. Commercial launches of satellites, trade of satellites and the parts, trade of ground test equipments of satellites, construction and service of ground tracking/control and utilization facilities of satellites, etc. Personnel exchange and training. (Source: China's white paper China's Space Activities in 2011)
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A!ilfff0'" l"'f!J'i!lllt ~lll.illi~J:$:41: 'l<:lt!rntn:'i'J'till~mlil'* ~J'tm~,llio~~~•.fltillli!~ - :ltflllf!A!ili'ff0PJ i"'f!li!lllt Jf£1!R llti!iii*Jk~)lr*'fjj\'f!A!ili'ff0"1 - :ltflllf!A!i!i'ff0"1 flilf!j'i!Jllt fl\5! 11=!11/ ii'iflilllll'l' i!li'li:ii7Cfti1t*'flil'f!A!0Pl - :ltflllfl A!Jifff0 j(j lt.A.J'i!lllt fl\5! lti )!{f!!JCH!S i!li' 'I' llHIII.l!ilJl:iilf~@i 'PNLI!It flilff . 1tJI! (1) ~ffl7i11!_!n:5!11l.illf!A!llfff0PJ 'PNLI:ft :ltflllf!R - 112- European Business in China Position Paper 欧盟企业在中国建议书 2013/2014 Aerospace Working Group Key Recommendations 1. Deepen the Dialogue Between Chinese and European Authorities in Aviation- related Fields to Reflect the Level of Trade Between Both Sides in this Sector • Establish regular strategic-level aviation dialogue between the European Union and China. • Resume broader platforms for discussion like the EU-China Aviation Summit last held in 2005. • Consider a new programme similar to the EU-China Civil Aviation Project (EUCCAP) after it ends in 2014. 2. Remove Market Access Barriers in the Aerospace Industry • Introduce a uniform import tax for all aircraft. • Remove joint venture requirements which deter foreign manufacturers from investing or expanding Section Three: Trade in Goods in China. • Revise the process for airworthiness certification for manufacturing of foreign aviation products to avoid unnecessary duplication. 3. Improve the Operational Environment for the Aviation Industry • Continue the improvement of customs regulations for the aviation industry. • Improve pilot capacity by making better use of foreign Flight Training Organisations (FTOs) and easing medical requirements for foreign pilots working in China. • Apply the same tax incentives to domestic and international transactions between foreign original equipment manufacturers (OEMs) and airlines. 4. Promote General Aviation (GA) • Pursue the opening of the sky below four thousand meters by developing clear guidelines and processes for operators as well as maintenance, repair and overhaul organisations (MROs) in the GA industry. • Create a dedicated and horizontal General Aviation Department at the Civil Aviation Administration of China (CAAC). • Support training of pilots and technicians for both fixed and rotary-wing GA aircraft. : The red flags denote key recommendations perceived to be clearly market access related Introduction to the Working Group enjoy leading positions in all fields of aerospace manufacturing. This makes the European The European aerospace industry consists of two aerospace industry one of the most dynamic in thousand companies that employ over 730 thousand the world.1 people, with a turnover of almost EUR 171.5 billion in 2011. The sector is highly innovative; research and development (R&D) spending amounts to about 1 AeroSpace and Defence Industries Association of Europe, Key Facts and 15 per cent of revenues and European companies Figures 2011 (September 2012) Aerospace Working Group 107 The Aerospace Working Group has been an integral and airlines must remain vigilant to make sure that part of the European Chamber since the Chamber’s safety lapses do not occur. Over the last decade, the founding in 2000 and has now grown to include 20 aerospace sector has seen a series of measures aimed European multinationals in the field of aerospace. at remedying the shortage of qualified personnel, and Member companies develop and manufacture a the Working Group recognises these efforts. In addition, broad range of products: civil aircraft, aero engines, the Working Group recommends that efforts in the helicopters, unmanned aerial vehicles, as well as space development of an independent framework for aircraft systems and equipment. It also comprises maintenance incident investigation and constant improvement of and service companies that carry out repairs, training or training for qualified personnel needs to be continued. other activities linked to the different products. Air Traffic Management (ATM) In China, member companies employ over five China is undergoing a modernisation of its ATM thousand employees in subsidiaries and more than infrastructure and policies. The dialogue between the 20 joint ventures (JVs). European firms work with different national stakeholders that has taken place the Chinese industry in all areas such as design, in previous years is leading to the establishment of engineering, development, manufacturing, maintenance a coherent plan that foresees a more efficient use of and training. airspace in the future. Roughly one out of two aircraft in China is of European The complexity of Chinese airspace, which is origin. European engine manufacturers and Air Traffic fragmented and without a national integrated flow Control (ATC) system providers also enjoy a strong management unit, has strong similarities to that of position in China. European firms are also an important Europe. The contributions that European companies client to the Chinese industry, with a cumulative have made to ATM modernisation in Europe and across sourcing of close to EUR 1 billion annually, a number the world are therefore very relevant to China’s need for Section Three: Trade in Goods Section Three: Trade that is likely to increase significantly throughout the development and optimisation of air traffic, management present decade. operations and infrastructure. In this regard, the Working Group encourages Chinese stakeholders to establish a Over ten thousand Chinese professionals have been close and continuous dialogue with European industry trained by European firms through funding to Chinese to ensure that China derives maximum benefit from the universities and direct training programs provided to the available European technology. Civil Aviation Administration of China (CAAC) and other institutions. The EU has also been an active contributor Private Sector through its EU-China Civil Aviation Project (EUCCAP). The aerospace sector benefits significantly from the role that private companies play in providing new ideas and Recent Developments technologies. These companies foster innovation both on the technological and managerial side of the sector, China’s reform and opening-up policy and subsequent and are a great source of value to larger organisations growth in the aviation and aerospace sectors has worldwide. benefited many European companies. Moreover, China has provided European companies with partnerships The emergence of a more structured aerospace sector that have helped strengthen their position, both in China is moving the country one step further in internationally and in China. At the same time, recent technological prowess. While this positively contributes years have seen China streamline its own aerospace to building a more structured national industry, this has industry with the goal of making it a future leader on the resulted in high barriers to entry for small and medium- international stage. sized, privately-owned players. Furthermore, the need for a robust intellectual property rights (IPR) framework Safety is essential for smaller players to capitalise on their China possesses a good safety record in air travel. innovations and the weak enforcement in China makes However, given the rapid growth of the Chinese air them less willing to invest in R&D. Creating a supply travel market, the relevant government departments chain ‘ecosystem’ that allows for different business 108 Aerospace Working Group European Business in China Position Paper 欧盟企业在中国建议书 2013/2014 models – adapted to specialised roles – to coexist, is Key Recommendations a sure way to improve the global effectiveness of the sector, as has been proven on the international market. 1. Deepen the Dialogue Between Chinese and European Authorities in Aviation- Working Group members encourage the Chinese related Fields to Reflect the Level of Trade government to enact regulations that can again foster Between Both Sides in this Sector the emergence of these smaller players and allow foreign companies to build links with them to further Concern strengthen the sector’s capabilities. Continuous political dialogue is crucial to ensure healthy competition and safety in the complex and EU-China Civil Aviation Project (EUCCAP) highly internationalised aviation industry. The vast The EUCCAP has advanced mutual understanding scale of EU-China commercial ties in aviation and between Chinese and European institutions as well as aerospace is not matched by a regulatory and political Chinese and European businesses. Since the project dialogue to ensure the future health of trade ties. Given started in 2010, more than five hundred Chinese the strategic importance of the aviation sector for both aviation officials and experts have received training sides, the political dialogue must be deepened and trust through it. Activities include many aspects of aviation, has to be rebuilt. such as: rulemaking and enforcement; accident and Section Three: Trade in Goods incident investigation; development of general aviation; Assessment key elements of airworthiness, maintenance and Aviation trade between Europe and China has grown operations; as well as important aspects related to rapidly over the past decades – both in terms of trade air traffic management (ATM) and airports. When the in equipment (aircraft, engines, and components) as project ends in October 2014, the Working Group hopes well as international flights between EU and China. Yet that the European Commission can devise a similar political dialogue between EU and China in this area programme to continue technical exchange between is lacking in scope and depth, and does not match Europe and China. the scale of commercial ties between Chinese and European companies. EU-China Disagreements The Working Group has seen various contentious issues In 2005 the European Commission and CAAC successfully related to the aviation industry come to the fore since held an EU-China Aviation Summit, which gathered more 2011. The EU Emissions Trading Scheme (ETS) as well than 250 representatives from both sides, including as the recently issued Airworthiness Requirements for the European Commission Vice President responsible Foreign Designed Civil Aviation Products Manufactured for transport, the Chinese Aviation Minister, and a Vice 2 in China have highlighted a need to deepen dialogue Premier of the Chinese State Council. According to between European and Chinese policy-makers. the joint declaration signed by both sides, the Summit Whereas Working Group members respect and was “highly successful in bringing together all key adhere to national and international regulations, it is stakeholders and in serving as a platform for identifying important that policy-makers on both sides reflect on priority areas and ways forward in closer EU-China the wider impact that such disagreements may have. aviation cooperation for the future.” With aerospace being a truly international industry, the Working Group encourages dialogue between Unfortunately no Aviation Summit has taken place the various stakeholders to find mutually beneficial since 2005 and political dialogue in the field of aviation solutions to disagreements so the aerospace industry has not developed as envisioned at the 2005 Summit. can continue to develop smoothly. Disagreements over various issues have revealed a lack of maturity in EU-China aviation ties, and a lack of mutual trust has hampered efforts to expand dialogue. Given the rapidly expanding commercial ties between 2 Civil Aviation Administration of China, “Airworthiness Requirements on Foreign Designed EU and China in the field of aviation and aerospace, the Civil Aviation Products Manufactured in China (Provisional),” May 18 2012 Aerospace Working Group 109 Working Group urges both the EU Commission and the Import tax Chinese government to step up the bilateral dialogue Total Aircraft category Import Import in this field. As part of this process, both governments import duty VAT should negotiate agreements that avoid duplications of tax existing certification requirements and ensure that both 25,000 kg< markets remain open. MOEW<=45,000 1% 4% 5.04% kg The EUCCAP is an important tool to facilitate 15,000 kg< cooperation, and over five hundred officials and experts MOEW<=25,000 5% 17% 22.85% kg have received training through the program. However, the EUCCAP will end in October, 2014, and a new program needs to be considered by EU and Chinese This constitutes a big obstacle for foreign producers authorities to ensure continuity. of regional aircraft to enter the Chinese market, and can be considered a protection of the local aerospace Recommendation manufacturing industry. Equal treatment of all aircraft • Establish regular strategic-level aviation dialogue would give Chinese airlines greater flexibility when between the EU and China. setting up their aircraft fleet and help optimise the mix • Resume broader platforms for discussion like the EU- of regional jet aircraft and regional turboprops – which China Aviation Summit last held in 2005. all have different advantages in terms of distance • Consider a new programme similar to the EUCCAP coverage, fuel consumption and operating costs. This after it ends in 2014. would lead to an increased efficiency of China’s civil aviation industry and reduce its environmental impact. 2. Remove Market Access Restrictions in the Investment and manufacturing Aerospace Industry Selection processes for foreign companies trying to Section Three: Trade in Goods Section Three: Trade participate in Chinese aerospace programmes are Concern overly complex, with informal obstacles and a general Market access remains a concern for European players lack of transparency. in the Chinese aerospace market, including barriers to both investment and trade. This hinders their ability The Ministry of Commerce (MOFCOM) and the to contribute with advanced technology and high-tech National Development and Reform Commission (NDRC) employment opportunities, and hurts the long-term joint Catalogue of Industries for Guiding Foreign growth potential of China’s manufacturing and service Investment lists aerospace manufacturing as one of capabilities in the field of aviation. the ‘encouraged’ industries in its latest edition. Despite this, foreign players seeking to invest in manufacturing Assessment facilities in China continue to face considerable A number of regulations restrict the market access restrictions. For instance, investments in the industry of foreign players in the Chinese aerospace market. continue to be closely regulated and remain geared These restrictions can be divided into import barriers towards the establishment of joint ventures with large and investment restrictions. national conglomerates. Import tax on regional aircraft In addition, the selection processes for foreign The import tax on foreign aircraft sold to China – companies trying to supply to Chinese aerospace including import duty and import value-added tax (VAT) manufacturers are overly complex, with informal – depends on the aircraft’s maximum operating empty obstacles and a general lack of transparency. weight (MOEW). The tax is significantly higher for This results in foreign companies deciding against smaller aircraft (see below table). participating in many of China’s new aerospace programmes. These issues have negative consequences to the 110 Aerospace Working Group European Business in China Position Paper 欧盟企业在中国建议书 2013/2014 Chinese industry as a whole. It not only deters foreign Customs regulations companies from investing in the country but also To ensure the competitiveness of China’s airlines, the hinders the development of a private network of players country’s large and rapidly growing civil aircraft fleet common in other major aerospace nations. Increased will require a world-class ecosystem of component liberalisation in investment in aerospace – both for suppliers and repair organisations with operations foreign players and domestic private companies – would near the customer. The operational efficiency of these have a positive effect on China, raising the quality and companies is to a large degree dependent on customs competitiveness of its aerospace industry. and tax regulations. The Aerospace Working Group has since 2012 been engaged in a dialogue with the Regulatory issues General Administration of Customs (GAC) on a number On the regulatory front, new CAAC airworthiness of topics concerning the aviation industry. This dialogue requirements oblige foreign manufacturers to obtain has improved mutual understanding and has led to a CAAC airworthiness certification in order to manufacture number of improvements, although a number of areas or assemble aircraft or certain components in China. In require further discussions. Below are five practical the absence of a bilateral safety agreement between recommendations on how customs regulations can be EU and China, this duplicates existing requirements for improved to the benefit of the Chinese aviation industry. foreign manufacturers and discourages investment. 1) Allow for 'deliver first, declare later' for qualified Section Three: Trade in Goods Recommendation aviation organisations and companies • Introduce a uniform import tax for all aircraft. Considering the special nature of the aviation • Remove JV requirements which deter foreign industry, with high safety requirements, large capital manufacturers from investing or expanding in China. investments and critical time pressure, the Working • Revise the process for airworthiness certification for Group recommends GAC to authorise organisations manufacturing of foreign aviation products to avoid who have high qualification in the aviation industry and unnecessary duplication. a good customs record to perform ‘deliver first, declare later’ for materials in case of urgent requests, e.g. for 3. Improve the Operational Environment for grounded aircraft. This procedure could help improve the Aviation Industry the punctuality of passenger air transport in China. The recommended qualifications for ‘deliver first, declare later’ are suggested below: Concern Domestic and foreign players in China’s aviation • Good reputation at customs, e.g. A class or AA class industry – including airlines, OEMs, and suppliers of company. repair services – face operational constraints such as • Approved by major aviation authorities, e.g. CAAC, the restrictive customs regulations and a lack of qualified US Federal Aviation Administration or the European pilots and technicians. Aviation Safety Agency, as well as recommended by industry associations. Assessment • Implementing enterprise resource planning (ERP) China’s aviation industry has been growing at a double systems. digit speed over the past decades and its airlines now • Regular and non-regular audits performed jointly by operate nearly two thousand aircraft that transported both customs and aviation authorities. approximately 300 million passengers in 2012. This puts • Other requirements which are recommended by GAC. considerable pressure on the ecosystem of component suppliers and repair companies to support and ensure 2) Allow the situation that the after repair parts may the safety of China’s aircraft fleet. have the same part number (P/N) but different serial number (S/N) compared with the original ones The Working Group’s recommendations concerning the In some cases, unserviceable parts cannot be repaired, operational environment have been divided into three or a functional upgrade is needed before they can be parts: customs regulations, pilot training, and the import reinstalled. In this scenario, the S/N is updated for the tax regime. after repair part. These additional costs for update are Aerospace Working Group 111 claimed in the repair invoice and duties are paid by by BWH for repair return from China. importer accordingly. The Working Group suggests that China Customs expand the definition of import 4) Allow for loan/lease of parts and tools from BWH and export repair to allow the situation that the after Loan or lease of parts and tools is increasingly common repair parts may have the same P/N but different S/N in the aviation industry (as opposed to selling parts to compared with the original ones. airlines). Some bonded warehouses in China already provide this service to Chinese airlines. However, there 3) Allow for exchange of parts, including exchange are still no operational guidelines from government from bonded warehouses authorities for this type of business, including the Standard exchange refers to the practice of providing qualification scrutiny process,declaration and duty a serviceable part to a customer while returning the payment procedures etc. corresponding non-serviceable part to the supplier for repair. Compared with the traditional repair business, 5) Allow aviation parts to be stored indefinitely exchanging through a bonded warehouse reduces the compared to the current two years lead time in repair and transportation, thereby improving The Provisions of the Customs of the People’s Republic the operation efficiency of airlines. However, this of China on Bonded Warehouses and Cargos Stored practice is not feasible under current regulations. The Therein (GAC Order No. 105) states that parts in public Working Group proposes the below exchange process, BWHs cannot be stored for more than two years without with corresponding customs procedures: movement (Chapter IV, Article 24). Until now a special authorisation by Customs has allowed exception to this a) Returning an unserviceable part to the bonded requirement on an annual basis, but this is subject to warehouse (BWH hereinafter) from domestic approval by local customs offices and differences in customer implementation creates uncertainty. • Suggested customs procedure: allow returning the Section Three: Trade in Goods Section Three: Trade goods from within Mainland China to BWH and then This can create a major supply chain blockage for declare this as export by customer and declare as Chinese airlines as some parts need to be stored inbound by BWH. outside China and then imported on demand, for significant extra costs and potential delays. Allowing b) Sending a serviceable identical part to the parts to be stored for more than two years (without customer from BWH movement) in public BWHs can improve on time • Suggested customs procedure: allow exchanging delivery and performance of Chinese airlines, as shown of same parts with same or interchangeable P/N by international best practice. but different S/N; declare as outbound by BWH and declare as import by customer, customs duty paid by The Working Group therefore recommends GAC to customer based on the invoice value. provide written positions on this to ensure consistency in implementation by local customs. The Working Group c) Dispatching unserviceable parts to either further recommends that bonded parts are allowed to overseas or domestic repair centres for repair move freely within bonded facilities. • Suggested customs procedure: allow declaring outbound/export repair by BWH for repair overseas; Pilot training or declaring outbound by BWH and declaring repair China currently lacks qualified pilots. This restricts air import by domestic repair centre for repair in China. transport development and may jeopardise safety with pilots flying at their maximum capacity. One reason d) Importing identical parts for storage in BWH behind the lack of pilots is that medical examination • Suggested customs procedure: allow the returning part requirements for pilots in China are exceedingly to be the identical part with same or interchangeable strict and not in line with international practice. This P/N but different S/N; declare inbound by BWH for restricts the number of pilots, leads to higher costs and part returning from overseas; or declare repair export capacity issues. In particular, many highly-qualified by domestic repair export centre and declare inbound captains flying in Europe cannot pass this examination, restricting China from having access to world-class 112 Aerospace Working Group European Business in China Position Paper 欧盟企业在中国建议书 2013/2014 pilots. Medical examination requirements for pilots and personnel. should be harmonised with international best practices. Furthermore, Chinese flight training organisation (FTO) Assessment capacity is lacking, and the quality of their practical training In order to promote GA growth China must make is impacted by the control of the airspace by the military. big changes to its flight infrastructure and airspace Very few foreign FTOs are approved by the Chinese management, as well as measures to increase the government, which further aggravates the problem. number of qualified personnel. Import tax refunds on spare parts Measures to promote GA should include a streamlining Chinese airlines can apply for a refund of their of flight-plan filing, clarifying jurisdiction and rules to international purchasing import tax and value-added control planes in flight, creating standards and best tax (VAT) when buying equipment, spare parts or practices to increase transparency, as well as allowing components for repair from international OEMs. managers and maintenance, repair, and overhaul The import tax and VAT refund policy for spare parts companies (MROs) to set up shop to service the only applies to international transactions that are growing fleet. Many of these changes must be done denominated in a foreign currency. In effect, this means simultaneously for them to have any meaningful effect. that Chinese airlines are encouraged to purchase parts from abroad rather than locally. General aviation companies in China have difficulties Section Three: Trade in Goods recruiting qualified pilots and technicians, and This policy was meant to encourage Chinese airlines finding qualified personnel is sometimes even more to internationalise, but now only serves to distort complicated than buying the aircraft itself. This lack competition and discourage international OEMs of personnel could bring about serious consequences from investing in China. This ultimately inhibits the to the development of the GA industry in China. This development of China’s aerospace supply chain, and may also affect operational safety, as the safety of may damage the long-term development of China’s GA aircraft cannot be guaranteed without qualified aviation industry. With a unified tax policy, foreign OEMs personnel. would be more inclined to invest in China by setting up local operations and support services for Chinese In 2012, CAAC and the Ministry of Finance jointly airlines. released measures to help develop the GA sector and simplify import procedures. This is an encouraging sign Recommendation and the Working Group hopes that these measures will • Continue the improvement of customs regulations for be implemented across the country. But the structure the aviation industry. of CAAC is not optimised for GA development, since • Improve pilot capacity by making better use of foreign the responsibility of GA is shared between multiple FTOs and easing medical requirements for foreign departments. pilots working in China. • Apply the same tax incentives to domestic and Recommendation international transactions between foreign OEMs and • Pursue the opening of the sky below four thousand airlines. meters by developing clear guidelines and processes for operators as well as MROs in the GA industry. 4. Promote General Aviation • Create a dedicated and horizontal GA Department at the CAAC. Concern • Support training of pilots and technicians for both fixed China’s general aviation (GA) industry has enormous and rotary-wing GA aircraft. growth potential, and the Chinese government targets a 19 per cent growth of the GA industry in the period 2011-2020.3 Yet GA is facing considerable obstacles to further growth, both in terms of regulation, infrastructure, 3 State Council, July 8, 2012, Opinions on Promoting Civil Aviation Development, available at http://www.gov.cn/zwgk/2012-07/12/content_2181497.htm Aerospace Working Group 113 Abbreviations ATC Air traffic control ATM Air traffic management BWH Bonded warehouse CAAC Civil Aviation Administration of China EASA European Aviation Safety Agency ETS Emissions Trading Scheme ERP Enterprise Resource Planning EUCCAP EU-China Civil Aviation Project FAA Federal Aviation Administration FTO Flight training organisation GA General aviation GAC General Administration of Customs JV Joint venture MOEW Maximum operating empty weight MOFCOM Ministry of Commerce MRO Maintenance, repair, and overhaul NDRC National Development and Reform Commission OEM Original equipment manufacturer P/N Part number R&D Research and Development SME Small- and medium-sized enterprise S/N Serial number VAT Value-added tax Section Three: Trade in Goods Section Three: Trade 114 Aerospace Working Group