Air­ports take off as eco­nomic hubs

Many Chi­nese cities sink­ing in con­struc­tion debt due to ex­ces­sive in­fra­struc­ture in­vest­ment

China Daily (Canada) - - FRONT PAGE -

Tma­jor air­ports have moved be­yond 20th cen­tury cen­ters of mass tran­sit to also be­come 21st cen­tury strate­gic busi­ness in­fra­struc­ture. In the process, they are at­tract­ing nearly all com­mer­cial ac­tiv­i­ties tra­di­tion­ally found in metropoli­tan down­towns.

This has trans­formed many from what were once “city air­ports” into ur­ban eco­nomic en­ti­ties in their own right — air­port cities. Be­com­ing pow­er­ful busi­ness mag­nets, some air­port ar­eas now ri­val metropoli­tan cen­ters in in­dus­try mix and re­gional eco­nomic dom­i­nance.

In­ter­na­tional air­ports are par­tic­u­larly vi­tal to glob­ally ori­ented, time-sen­si­tive firms — those high-value busi­nesses that de­pend on fast and ef­fi­cient long-dis­tance trans­port of ev­ery­thing and ev­ery­one from smartphones, biomeds, and sushi-grade tuna to cor­po­rate ex­ec­u­tives, in­vest­ment bankers and pro­fes­sional sales staff. Air­ports are also es­sen­tial to cities and prov­inces seek­ing to mod­ern­ize their economies, boost ex­ports and draw for­eign tourists.

China’s lead­ers un­der­stand this. The coun­try’s cen­tral, pro­vin­cial and mu­nic­i­pal gov­ern­ments are ag­gres­sively con­struct­ing, ex­pand­ing and up­grad­ing air­ports to com­pete glob­ally and at­tract busi­ness while im­prov­ing aero­nau­ti­cal ef­fi­cien­cies and pas­sen­ger ex­pe­ri­ences. Ac­cord­ing to the Civil Avi­a­tion Ad­min­is­tra­tion of China and aero­nau­ti­cal con­sult­ing firm Avia-Tek, at least 85 civil air­ports ei­ther will be for­mally planned, newly con­structed, or sub­stan­tially ex­panded from 2015 to 2020.

Ap­prox­i­mately 280 bil­lion yuan ($44.8 bil­lion) is be­ing in­vested in China’s civil air­ports an­nu­ally. At this rate, it can be ex­pected that about 1.5 tril­lion yuan will be spent on the coun­try’s air­port devel­op­ment dur­ing the next five years. Such in­vest­ments will range from 250 mil­lion yuan for Huizhou Air­port in Guang­dong prov­ince to 80 bil­lion yuan for the Bei­jing Cap­i­tal Sec­ond Air­port at Dax­ing.

Air­ports are be­ing built on an ar­ti­fi­cial is­land in Dalian, Liaon­ing prov­ince, and flat­tened moun­tain­tops in Hechi, the Guangxi Zhuang au­ton­o­mous re­gion, and Shen­nongjia, Hubei prov­ince, and in the far reaches of the In­ner Mon­go­lia and Ti­bet au­ton­o­mous re­gions. In many cases, new air­port projects re­ceive con­sid­er­able fund­ing from the cen­tral gov­ern­ment. In oth­ers, mu­nic­i­pal­i­ties are tak­ing on the fi­nan­cial bur­den of air­port con­struc­tion, typ­i­cally ac­cru­ing huge debt in the process.

There is grow­ing con­cern that an in­creas­ing num­ber of China’s mu­nic­i­pal­i­ties are get­ting in over their heads with air­port debt. Crit­ics also ar­gue that an air­port con­struc­tion “bub­ble” is be­ing cre­ated through over­in­vest­ment and that some pro­posed air­ports are sim­ply not needed.

Crit­ics are right to an ex­tent and the cen­tral gov­ern­ment is aware of th­ese con­cerns. CAAC statis­tics show that nearly three­quar­ters of China’s civil air­ports lose money and that up­wards of 90 per­cent of smaller re­gional air­ports op­er­ate at a loss.

Th­ese statis­tics tell only part of the story, how­ever. If not placed in a broader cost­ben­e­fit con­text, they can cre­ate apprehensions, which can po­ten­tially de­rail oth­er­wise ra­tio­nal air­port in­vest­ment ini­tia­tives.

While it is cer­tainly best for air­port ac­count­ing bal­ance sheets to show an­nual rev­enues at least meet­ing op­er­at­ing ex­pen­di­tures, this is not the true mea­sure of net ben­e­fit of air­port in­vest­ment and on­go­ing ex­pen­di­tures. Air­ports, in ad­di­tion to be­ing en­ter­prises, are valu­able public in­fra­struc­tures that bring con­sid­er­able benefits to peo­ple and busi­nesses in the re­gions they serve, as well as to the coun­try as a whole.

At the macro level, there is the eco­nomic stim­u­lus ef­fect of air­port (and other in­fra­struc­ture) in­vest­ment that China has used ef­fec­tively to counter slow­downs in the pri­vate sec­tor, cre­at­ing new jobs, busi­ness rev­enues and, ul­ti­mately, ad­di­tional taxes.

For ex­am­ple, Zhengzhou’s new Ter­mi­nal 2 and its con­nected mul­ti­modal ground traf­fic cen­ter, both cur­rently un­der con­struc­tion, are em­ploy­ing nearly 20,000 work­ers in shifts on a 24/7 ba­sis. When Shang­hai Hongqiao built its sec­ond run­way and new Ter­mi­nal 2 along with its ad­join­ing 15 bil­lion yuan rail sta­tion, sim­i­lar num­bers were em­ployed.

The im­pact of air­ports on busi­ness devel­op­ment is typ­i­cally much greater. Soon af­ter in­vest­ments to ex­pand Zhengzhou In­ter­na­tional Air­port were an­nounced and its 5-sqkm bonded zone cre­ated, Fox­conn lo­cated a man­u­fac­tur­ing cam­pus there that em­ploys 240,000 work­ers as­sem­bling Ap­ple’s iPhones and other dig­i­tal de­vices. Smart­phone out­put from this cam­pus dou­bled the value of He­nan prov­ince ex­ports be­tween 2011 and 2012 and has turned Zhengzhou In­ter­na­tional Air­port into China’s fastest grow­ing in cargo vol­umes for each of the past three years.

Build­ing on this suc­cess, the 415-sq-km Zhengzhou Air­port Econ­omy Zone was es­tab­lished by the State Coun­cil in March 2013 to serve as a mod­ern aerotropo­lis, the name for an air­port-cen­tered eco­nomic sub­re­gion. Ac­cord­ing to the zone’s ad­min­is­tra­tive com­mit­tee direc­tor Zhang Yan­ming, an ad­di­tional 14 smart­phone man­u­fac­tur­ers and sup­pli­ers have es­tab­lished bases in the zone, mak­ing it the world’s largest site for smart­phone pro­duc­tion. Across all busi­ness sec­tors, 48 ma­jor projects in the Zhengzhou air­port zone were signed in the past two years with a to­tal in­vest­ment value ex­ceed­ing 150 bil­lion yuan.

It is prob­a­bly un­re­al­is­tic to think that more than a hand­ful of sec­ond- and thirdtier mu­nic­i­pal­i­ties will ex­pe­ri­ence the scale of air­port-linked busi­ness devel­op­ment that is tak­ing place in Zhengzhou. Even if they are much smaller, though, th­ese broader eco­nomic benefits (as well as so­cial benefits that bet­ter air con­nec­tiv­ity brings) should be con­sid­ered in the air­port in­vest­ment de­ci­sion, along with the fore­cast of an­nual air­port op­er­at­ing costs and rev­enues.

Still trou­ble­some is the heavy debt bur­dens many mu­nic­i­pal­i­ties are amass­ing to con­struct air­ports where sig­nif­i­cant cen­tral gov­ern­ment sub­si­dies are not avail­able. It is there­fore en­cour­ag­ing to see that the State Coun­cil is de­vel­op­ing poli­cies per­mit­ting pri­vate-sec­tor in­vest­ment in mu­nic­i­pal air­ports through public-pri­vate part­ner­ships.

It is sim­i­larly en­cour­ag­ing that China’s gov­ern­ments at all lev­els are fos­ter­ing aerotropo­lis devel­op­ment around air­ports through fa­vor­able land-sup­ply poli­cies, bonded and free trade zones, tax in­cen­tives, and sur­face trans­porta­tion in­fra­struc­ture pro­vi­sion. Re­sult­ing busi­ness in­vest­ment will not only boost mu­nic­i­pal and pro­vin­cial economies, but also gen­er­ate ad­di­tional pas­sen­gers and cargo for air­ports, thereby im­prov­ing their longer-term fi­nan­cial viability. The au­thor di­rects the Cen­ter for Air Com­merce at the Uni­ver­sity of North Carolina’s Ke­nan-Fla­gler Busi­ness School and serves as chief ad­viser to the Ad­min­is­tra­tive Com­mit­tee of the Zhengzhou Air­port Econ­omy Zone. The views do not nec­es­sar­ily re­flect those of China Daily.

ZHANG CHENGLIANG / CHINA DAILY

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