The US Congress vote on permanent trade status brings China a giant step closer to World Trade Organisation (WTO) membership. The Civil Aviation Administration of China (CAAC) is starting to ponder how this may affect aviation.
Direct flights to Taiwan could be the first visible result of WTO membership, especially if Taiwan is admitted, as expected, promptly after China. Aviation officials in Taipei have said that direct links to China are likely after joining the WTO.
Taiwan's airlines are setting up mainland offices in anticipation of this. The biggest unknown is how Beijing's doubts about Taiwan's new government will affect cross-strait links, which China has historically favoured.
The WTO's more subtle effects may come in the form of pressure on state airline ownership. China's government is majority owner and, in most cases, the sole owner of its various airlines. The strongest opposition within China to joining the WTO came from the heads of state-owned businesses. They feared that open markets would put more pressure on them. Airlines are partly insulated from outside competition through bilaterals based on reciprocity.
But the whole system of state-owned enterprises, which are still the largest part of China's economy, will start to change after China joins the WTO.
So far, the CAAC has had more success in stopping the proliferation of state-owned airlines than in reversing it. Efforts to consolidate the country's 30-plus airlines have made little progress. The latest CAAC thinking is that raising the foreign ownership limit might attract enough capital so that China Eastern and China Southern Airlines, the only two listed on foreign exchanges, can buy some smaller airlines. The CAAC is pondering a rise in the foreign cap from 35% to 49%.
Beyond ownership is the question of control. The Chinese Government owns and closely regulates airlines. WTO membership will not loosen these controls, but a general trend towards globalising its economy and more reliance on market mechanisms may reduce the CAAC's role as a central planner.
Market reforms brought by WTO membership may accelerate the reform process among China's airlines.
Source: Airline Business
