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Contents

Getting the timing right

2

The current situation Checking in for growth

4

Market share

6

Ownership

8

Investment considerations Revenue patterns

10

Deal considerations

12

Tax structuring and financing

14

What's on the horizon? Standardisation and liberalisation

16

Cargo and logistics hubs

18

China’s airports rising through the ranks

19

Outlook: Geographic and demographic trends

20

China’s top 50 airports

22

About KPMG

23

Contact us

24

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


2 Checking in: Airports in China 2006

Getting the timing right

As China’s middle class has grown, the country has witnessed a steady increase in air travel, both for business and leisure. Disposable income and an increased desire to travel are resulting in ever greater volumes of air traffic in the skies above China.

potential for cargo volumes. The following government statistics reveal the scale and potential of China’s airport sector: • Total passenger throughput for all airports in China in 2005 reached 284 million, up from 242 million in 2004 2. • Freight tonnes rose to over 6.33 million tonnes in 2005, compared China is a vast country, with a growing and increasingly mobile middle class.

with 5.23 million in tonnes in 2004. • The Civil Aviation Administration of

These are the vital ingredients for growth

China (CAAC) expects passenger and

of China’s airport capacity.

cargo traffic to grow at an average 14 percent per year until 2010 and

The recent signs of possible overcapacity

then to grow at 11 percent per annum

at certain airports are likely to be short-

until 2020 3.

lived. On the contrary, the recent expansions and redevelopments of some

China currently has 142 civilian airports.

of China’s largest airports may only be a

The market is skewed towards the

foretaste of what is to come. Volumes, on

largest 10 airports, which together

a per capita basis, are still relatively low.

possess a 60 percent share of passenger

A citizen in the United States makes an

volumes. Seven of these are located

average of 2.2 trips by plane every year,

along the eastern seaboard. The pattern

1

but the figure is just 0.06 for China .

is similar for cargo, with the five leading airports accounting for 64 percent of total

China’s world-renowned trade and growth

volumes 4.

story also illustrates the growth and

________________________________ 1 2 3

2 KPMG’s Code of Conduct: Performance with integrity

4

Global Market Forecast 2004-2023, Airbus Press Centre Xinhua Financial Network News, 1 March 2006 “China plans airport expansion,” Wall Street Journal, 1 March 2006 CAAC 2004 Air Traffic Statistics

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


Checking in: Airports in China 2006

3

Figure 1: Graphical map of the largest 30 airports (passenger throughput per annum)

Harbin

Urumqi Shenyang Beijing Dalian Tianjin Qingdao

Taiyuan Jinan Xi’an Zhengzhou

Shanghai Pudong

Nanjing Chongqing Chengdu

Hangzhou

Wuhan Changsha

>20 million passengers

Guiyang

Guilin

Kunming

Shanghai Hongqiao Ningbo Wenzhou

Fuzhou Xiamen

Guangzhou Shenzhen

6-20 million passengers 3-6 million passengers <3 million passengers

Sanya

Hainan

Source: CAAC official statistics 2004

By 2020, more than 40 percent of the

• The market for freight is fluid and

The multi-layered nature of the

country’s anticipated 1.4 billion population

evolving. Cargo is the fastest growing

approval process requires realistic

will live in urban areas 5. As new cities

area within China’s aviation industry.

planning.

spring up, small provincial airports will

The potential exists for new airports to

need to expand or brand new airports will

emerge as hubs for the freight

be built in their place. Public estimates

industry, and these can be supported

Since 2002 foreign investors have

indicate RMB140 billion (US$17.4 billion)

or developed with foreign investment.

been able to invest in the construction

of investment is needed in airport infrastructure over the next five years 6.

• Ownership restrictions are in place.

and operation of amenities including • There is potential for consolidation.

airport terminals and runways,

There are a large number of local

with a maximum equity interest of

This report cites several themes relevant

airport companies, some of whom are

49 percent 7.

to potential investors:

seeking to consolidate. This report provides an introductory • Investors are considering alternatives

overview of the airport sector, and some

airport revenues. Most Chinese

to equity. Joint ventures, strategic

discussion of key issues facing investors.

airports’ economic models are currently

alliances and other partnerships give

It concludes by identifying some further

based on revenues from core aviation

investors an opportunitity to team up

trends and developments on the horizon.

activities. There is significant potential

with local airport groups and ancillary

Many foreign investors see enormous

to develop associated areas of business,

companies, to apply international

upside potential for China’s airport sector.

most notably retail and real estate.

expertise and helping to optimise flow

As such, they are keeping a close eye on

management.

opportunities, while waiting patiently for

• There is potential to diversify

the right deal. As regulations change and

• Rising volumes will create parallel opportunities in ancillary services.

• The government has largely

new projects get underway, investors can

Specific ancillary areas, such as

transferred airport ownership to the

benefit from a trusted advisor to identify

catering, ramp handling, cargo handling,

provincial level. Investors need to

a suitable route into this exciting market.

engineering and maintenance services

identify and engage with owners and

are already attracting investment

stakeholders at both the national and

interest.

local level, to ensure deal success.

________________________________ 5 6 7

Global Market Forecast 2004-2023, Airbus Press Centre “China unveils aviation leap forward,” Airline Business, April 2006 “China to allow higher foreign stakes in air sector,” Reuters, 2 July 2002

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


4

Checking in: Airports in China 2006

The current situation

Checking in for growth

The growth rate of air travel in China has

China has risen by more than 40 percent

averaged over 15 percent per annum over

in the past five years 10, triggering growth

the past four decades and has the

in a range of service industries. Transport

potential to sustain a similar rate for at

and communications have become the

8

least another decade . Both inbound and

fastest growing items in the Chinese

outbound travel is on the rise. The

household budget, now representing

volume of outbound flights has grown on

ten percent of total consumption

average 22 percent per year over the past

expenditure 11. As a projection of current

five years, and will continue to outpace

trends, international tourist departures

growth in inbound travel 9.

will surpass tourist arrivals in 2008.

One reason for this remarkable growth is

While international departures originating

that urban per-capita disposable income in

within China are growing faster than

Figure 2: Acceleration of urbanisation in China

Urban population as % of total population

60%

Forecast

50% 40% 30% 20% 10% 0% 1950

1960

1970

1980

1990

2000

2010

2020

2030

Figure 3: Departures overtake arrivals 80

Forecast

70

Passengers (millions)

China offers the potential for explosive growth in internal and outbound travel. These growing volumes will transform travel and tourism in Asia Pacific and beyond.

60 50 40 30 20 10 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 International tourism arrivals International tourism departures

Source: “China, travel and tourism background and forecast – International arrivals and departures,” EIU Business Asia, 24 October 2005

________________________________ 8 9 10 11

EUROPA: Communication Civil Aviation Policy Towards People’s Republic of China, November 2005 Aviation News, Centre for Asia Pacific Aviation China Statistical Yearbook, 2005 Global Market Forecast 2004-2023, Airbus Press Centre

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


Checking in: Airports in China 2006

5

inbound travel, China’s own tourism

it easier to travel for private purposes

At current rates of growth such

potential is also impressive. In 2004 China

than ever before. China’s manufacturing

overcapacity is likely to be a short lived or

overtook Italy to become the world’s

sector is spurring similar growth of air

localised phenomenon, but investors

fourth-largest international tourist

cargo volumes and capacity. Freight

should be aware that timing the entry into

destination, according to the World

tonnes surged 19 percent in 2005, to over

the market is crucial to success. The

12

13

Tourism Association . International travel

6.3 million tonnes . CAAC believes cargo

CAAC wants to build a further 44 new

is a key revenue driver for major airports.

throughput could exceed 10 million

airports over the next five years 15, so the

The government’s policies place the

tonnes by 2010, an even faster pace than

location and development of these new

travel and tourism sector as one of the

passenger traffic 14.

projects will have an important impact on

key pillars of the growing service industry

the commercial prospects for existing

with specific measures to encourage

Many of China’s largest airports, including

foreign investment.

Beijing, Shanghai Pudong and Hongqiao,

facilities.

Guangzhou and Tianjin, have recently Until recently, the majority of Chinese

augmented or rebuilt their terminal

people travelled for business. However

buildings. There is a similar story among

this has changed dramatically in recent

smaller, less used airports, many of

years. China’s urban population is finding

which have spare capacity. In some cases utilisation rates are below 50 percent.

________________________________ 12 13 14 15

World Tourism Organisation: International Tourist Arrivals by Country of Destination; www.world-tourism.org Xinhua Financial Network News, 1 March 2006 “China in mad rush to build more airports as passenger numbers keep soaring,” Aviation Buyer China, November 2005 “China to boost spending on airports as air traffic grows,” Dow Jones Newswires, 28 February, 2006

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


6 Checking in: Airports in China 2006

Market share

Of China’s top 10 airports by passenger volume, seven are located in coastal regions. The largest 10 airports account for 60 percent of passenger and cargo volumes.

Beijing Capital International Airport, ranked

ahead of the 2008 Olympic Games.

first in terms of passenger throughput and

This would make Beijing one of the

aircraft movement in 2005, with 41 million

world’s biggest airports; in 2005

passengers. However, Shanghai Pudong

Atlanta handled 85 million passengers

surpassed all its domestic rivals in cargo

and just four others – Chicago O’Hare,

volume. In 2005 it handled 1.86 million

London Heathrow, Tokyo Haneda and

tonnes, more than double that of Beijing.

Los Angeles – handled over 60 million

By comparison, Hong Kong handles over 3

passengers 16.

million tonnes per year (see table, page 7).

• Shanghai Pudong International Airport

Between 2002 and 2004 some 90 airports

has announced a new expansion

were corporatised, prompting rapid

project which, once complete, will

capitalisation and capacity increases.

triple its capacity to 60 million

For example:

passengers 17.

• Beijing Capital International Airport’s

• Hangzhou Xiaoshan International

expansion project is now underway

Airport is working on the second

and aims to double the airport’s annual

phase of its expansion project to add a

capacity to 60 million passengers

new terminal and runway. • Xi’an Xianyang International Airport is

Figure 4: Airports’ market share by passenger traffic

expected to start the second phase of its expansion project soon.

All other airports

11%

Beijing 14%

• Chengdu Shuangliu International Airport is planning to build a second Shanghai Pudong 9%

runway and second terminal building with funds raised from private investors.

Top 11-30 28%

Guangzhou 8%

• Guangzhou Baiyun, which opened in August 2004, is already ranked as Shanghai Hongqiao 6%

Hangzhou 3% Xi’an 3% Hainan 3%

Shenzhen 6%

China’s third largest airport for both passengers and freight.

Chengdu 5% Kunming 4%

Source: CAAC official statistics 2004

________________________________ 16 17

Airports Council International provisional 2005 statistics; www.airports.org “Shanghai plans to expand two terminals after traveller volume rises,” South China Morning Post, 2 January 2006

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


Checking in: Airports in China 2006

7

Traffic volumes for China’s largest airports Airport

Passengers (millions) 2004 2005

Beijing Capital

34.88

41.00

668,690

782,066

Shanghai Pudong

21.02

23.66

1,642,176

1,857,119

Guangzhou Baiyun

20.33

23.56

506,988

600,603

Shanghai Hongqiao

14.89

17.80

294,020

359,594

Shenzhen Baoan

14.25

16.28

423,270

466,476

Chengdu Shuangliu

11.69

13.90

213,039

251,017

Kunming Wujiaba

9.80

11.82

171,013

196,530

Hangzhou Xiaoshan

6.34

8.09

128,208

165,917

Xi’an Xianyang

6.36

7.94

73,368

83,256

Hainan Meilan

7.48

7.03

66,582

60,590

37.14

40.74

3,088,300

Hong Kong

2004

Cargo (tonnes) 2005

3,400,000*

* Official estimate Source: CAAC, Hong Kong International Airport Annual Report

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


8

Checking in: Airports in China 2006

Ownership

Limits on foreign ownership and tariff structures are key considerations for would-be investors.

China’s airports employ nearly 50,000 people and have assets worth 18

• Setting domestic and international aviation tariffs

approximately US$4.8 billion . The

The CAAC’s control over tariffs means

majority remain fully state-owned,

it retains significant influence over

through the CAAC and local government

their largest source of revenues. This

entities. In 2002 the CAAC transferred

situation is expected to change and

ownership to provincial governments.

will affect the future financial

Management control over these jobs and

performance of Chinese airports.

assets largely passed to its provincial offices.

• Administering airport construction fees

Only a handful of airports are listed or

The CAAC collects these fees in a

have foreign investment, but several

centrally administered fund and then

others have announced they would

disburses money back to airports.

welcome a strategic partner. A number of Chinese airports are looking to foreign

• Setting and monitoring standards

investors not only to provide capital, but

The CAAC formulates all standards

also international management expertise.

governing safety, security and other operational issues within airports.

The role of the CAAC continues to evolve. Having once owned and managed the

• Airspace administration and air

entire aviation sector, the CAAC now

traffic control

discharges more administrative and

The CAAC grants airlines the rights to

regulatory functions. Today its remit

use certain routes and administers air

spans the following areas:

traffic within China’s borders. These functions are likely to remain under the

• Central planning for airports

close supervision of the CAAC. The

The CAAC has the power to approve

CAAC is also involved in representing

construction or redevelopment of

China in international negotiations

airport facilities, including terminals

relating to civil aviation and airspace.

and runways. It liaises with other government bodies in the planning of supporting infrastructure.

________________________________ 18

Squire Sanders Legal Council China Update, December 2003

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


Checking in: Airports in China 2006

9 9

Timeline of recent developments in the aviation sector

2001

2002

2003

2004

2005

“Regulation on Foreign Investment” issued to increase potential for investment in China's airports and airlines. Consolidation of 10 airlines into three super-carriers; Air China, China Southern Airlines and China Eastern Airlines.

Foreign investors allowed to invest in the construction and operation of airports, including airport terminals and runways, with equity interest up to 49 percent. Airport ownership transferred within the CAAC from the central to the provincial level.

Singapore Airlines becomes first foreign carrier to win “fifth freedom rights” to operate beyond China to a third country.

Domestic airlines allowed to invest in airports to a maximum of 25 percent. The airport construction fee, traditionally payable at the airport, is incorporated into the ticket price.

The government announces end to subsidies for domestic airports. The government introduces new domestic investment regulations in a bid to stimulate private investment in aviation industry, while retaining ownership of the air traffic control system.

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


10

Checking in: Airports in China 2006

Investment considerations

Revenue patterns

The control of tariffs and the narrow scope of revenues are issues for China’s airports. Nevertheless, the evidence suggests that most airports operating at or close to full capacity are profitable.

Airport groups are organised by province

China has signed bilateral agreements

and often consist of a number of

with a number of countries to liberalise

companies with cross-holdings.

international passenger and freight

Subsidiaries may have several third-party

services:

investors which are in turn involved in areas where foreign investment is

• The CAAC granted “Fifth Freedom

restricted. As the CAAC restructures

Rights” to Hainan Island in 2004,

airport tariffs, it has pledged to abolish

allowing foreign airlines to stopover

the current two tier structure, which sets

and pick up passengers and cargo.

different fees for domestic and foreign

This could allow the island to take

carriers.

advantage of the more advanced budget airline sector linking Hong

The mainstay of most airports’ revenue

Kong and Southeast Asia.

comes from aviation tariffs and airport construction fees. These are set

• The government may extend these

nationally by the CAAC. One way to

rights to other key provincial airports.

develop the breadth of airports’ income

It recently announced it will provide

streams is by opening up the aviation

unlimited access for foreign carriers

sector as a whole to greater competition.

operating to six regions in Western

Foreign access is starting to increase.

China.

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


Checking in: Airports in China 2006

11

control measures. New investment in

to RMB475 million 19. It has also benefited

agreement with the U.S., enabling the

terminals and increased capacity will

from a government decision in February

countries’ airlines reciprocal access by

entail a minimum staffing requirement for

to relax a ban on late night flying.

2010. This may have a knock-on impact

the airport’s functions, irrespective of

Shanghai Hongqiao Airport is one of the

on established transit hubs in the

volumes. Depreciation on a terminal and

most heavily utilised airports in China,

region, such as Hong Kong and Tokyo.

equipment tends to be heavy.

aided by its favourable location relative to

• In 2004 the government signed an

the larger Shanghai Pudong International Investors are also looking for

There are other factors affecting revenue

Airport. Overall, the picture is improving.

opportunities to diversify and strengthen

patterns. Many airports were previously

Load capacity in the sector has risen

non-aviation revenues in areas such as

dependent on subsidies, awarded at the

steadily from its low point during the

retail, transport and cargo handling

discretion of the government. As these

SARS scare in Spring 2003.

facilities.

are being phased out the need for alternative investment sources and

For most airports, the revenues from

financing, as well as international

retail and handling services remain

management expertise, may increase.

relatively low by international standards. The local restrictions on management to

Many of the airports which have achieved

adjust tariffs to reflect changing supply

high capacity utilisation have also yielded

and demand conditions means they are

healthy profits. In 2005 Shenzhen Baoan

sometimes restricted to focusing on cost

Airport saw profits jump by 22.4 percent

________________________________ 19

“Shenzhen Airport Ranked 1st by Profits,” Sinocast Daily News, 19 January 2006

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


12

Checking in: Airports in China 2006

Deal considerations

While the government has indicated that it will deregulate tariffs, other regulatory considerations remain.

China’s airports are state-owned

• Land ownership

enterprises (SOEs). Whenever an SOE or

For a foreign invested enterprise, the

any part of one is sold to a foreign

land status will have to be changed to

investor, a statutory valuation is required.

“granted” before the company can

This can have a significant impact on the

invest. This can entail a significant

ultimate price paid by the buyer for an

premium from the buyer.

investment. Since 2002 foreign companies have been able to invest in the

• Retail

construction and operation of amenities

Foreign ownership of duty free outlets

including airport terminals and runways

is not permitted. These outlets are

with equity interest up to 49 percent.

supervised and regulated by the China Duty Free Corporation, an SOE.

Several individual airports and groups of

Investment in other forms of retail

airports have been corporatised and listed

outlet is more widely permitted.

on local exchanges; this has been the main route for foreign investment in the

Most of China’s airports operate on a

sector. To date the only unlisted airport

relatively traditional business model,

with substantial foreign interest is

combining revenues from ground

Hangzhou Xiaoshan, where the Hong

handling, aviation fees and retail. To date,

Kong Airport Authority has agreed to take

the limited role played by foreign

a 35 percent stake, subject to final

investors has also been somewhat

government approval.

traditional, taking the form of minority equity stakes in the listed airport groups.

Foreign investment restrictions apply to

While it is now relatively straightforward

many areas associated with the aviation

to do this, investors are also exploring

sector. As a result restructurings,

more innovative roles. In 2005 the

including the extraction of certain

International Air Transportation

subsidiaries, may be required before an

Association (IATA) studied a number of

investment can be cleared by the

airport privatisations in Europe, Asia and

government. Restricted areas may

Latin America. It concluded that airports

include the following:

can often improve their performance and efficiency by outsourcing management,

• Air traffic management

without a wholesale transfer of assets to

The government has not given

private ownership. In China, these

indication that it will allow foreign

solutions could include forming asset-light

participation in air traffic management.

joint ventures to facilitate management or strategic cooperation.

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


Checking in: Airports in China 2006

13

Existing ownership in China’s airports Airport

Listed in

Ownership details

Beijing Capital International

Hong Kong

BCIA is under the direct management of the CAAC and controls and has

Airport (BCIA)

stakes in over 20 other Chinese airports. Paris Airport Authority currently indirectly holds a 6.6% stake.

Shanghai International Airport

Shanghai

Owned by the Shanghai Airport Authority, 39% in public shareholding

Shanghai

One of four airports owned by the Guangdong Airports Management Corp,

(operates Hongqiao and Pudong airports)

Guangzhou Baiyun

45% in public shareholding Shenzhen Baoan

Shenzhen

Owned by Shenzhen Airport Group, 45.3% in public shareholding

Hainan Meilan

Hong Kong

Copenhagen Airports acquired 20% stake in November 2002

Hangzhou Xiaoshan

Hong Kong Airport Authority agreed to acquire 35% stake in March 2005

Xiamen Gaoqi

Shanghai

Owned by Xiamen International Airport Group, 25% in public shareholding

Source: Bloomberg, HSBC Brokering (Data Services) Ltd.

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


14 Checking in: Airports in China 2006

Tax structuring and financing

Investing in China requires careful examination of existing financial performance and consideration of a range of structuring options.

What opportunities exist to secure a

• Minimising leakages

return on investment? Investing directly

For operating retail outlets, how can

in a Chinese airport is a lengthy

the supply chain of the investee

commitment. Obtaining clear financial

company be reorganised to minimise

information is important at the

turnover tax leakages?

pre-acquisition stage. • Exit routes It is important for foreign investors to

How can the investment holding

include tax structuring as part of this

structure can be organised to provide

overall evaluation before deciding to

a flexible exit route, minimising capital

invest in an airport. Tax structuring aims

gains tax upon disposal? This could

to identify, address and, where

require the creation of a special

necessary, minimise tax leakage to

purpose vehicle to hold the investment.

investors. These leakages can occur throughout the investment cycle, from

The State Administration of Taxation (SAT)

acquisition to disposal.

is seeking to apply its tax policies more consistently. That may include applying

The following issues need to be addressed

more uniform collection procedures to

during the tax structuring phase:

state owned enterprises such as airports. A change in ownership status, combined

• Choice of structure

with the increasingly rigorous approach

How can the investment in the

from the SAT, could result in a changing

Chinese investee company can be

tax position. The intertwined structures

structured to take advantage of tax

among many airport companies could

holidays or incentives? The choice of

lead to non-arm’s length transactions

investment holding structure may be

across the group, entailing further transfer

affected by the investor’s home

pricing risks.

country tax consequences. Structuring can also help to minimise cash trap issues, since it will dictate the minimum level of working capital the investor needs to maintain.

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


Checking in: Airports in China 2006

15

Further considerations for a foreign investor include the following: • Credit quality What are the implications of the target’s narrow revenue base? What opportunities exist to diversify revenues? • The extent of control over revenues and operations Certain existing operators or subcontractors may have a stake or own a segment within the overall airport group. The existence of such intertwined ownership structures will help dictate the most suitable form of foreign investment. • Approvals Incorporating a company locally, taking a smaller equity stake, or entering into alternative management or strategic agreements may offer a simpler route for investors wishing to take an interest in the airports sector, but there can still be a considerable approval process.

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


16

Checking in: Airports in China 2006

What’s on the horizon? Standardisation and liberalisation

The government has changed many of the rules governing the regulatory and commercial structure of airports. The next step in the process may be to deregulate or standardise tariffs.

The CAAC is currently reviewing airport

opportunity to expand non-core revenues

landing fees, with the aim of creating a

could further enhance investor interest in

more uniform fee structure.

the sector.

The deregulation of ground handling

At present only 30 percent of China’s air

services – airlines no longer have to use

space is open to civil aviation 20. This can

airport services to carry out their ground

cause bottlenecks and impact on airlines’

handling – could happen next year. The

fuel and operating costs.

deregulation of related services and the

Some proposed new airport projects in China Airport

Province

Investment amount

Hankou

Hubei

n/a

Construction underway

Kunming

Yunnan

RMB16 billion

Construction underway

23 million capacity by 2015, rising to 40 million by 2020

Changbaishan

Jilin

RMB309 million

Approved

Terminal size 8,000m2

Chaoshan

Guangdong

RMB2.3 billion

Approved

Passenger capacity 5 million

Dalian

Liaoning

RMB15 billion

Approved

Terminal size 200,000m2, passenger capacity 20 million

Jixi

Heilongjiang

RMB150 million

Proposed

Terminal size 1,500m2, passenger capacity 110,000

Hefei

Anhui

RMB2.5 billion

Proposed

Passenger capacity 9.5 million

Tonghua/Baicheng

Jilin

n/a

Proposed

Proposal to build network of four new airports in Jilin Province

Status

Other details

This information has been collected by KPMG from a number of sources including AV News (www.avbuyer.com.cn), Reuters and SinoCast Business News. It therefore may not be exhaustive.

________________________________ 20

“China clears new lane for planes,” Wall Street Journal Asia, 10 April 2006

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


Checking in: Airports in China 2006

17

Š 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


18

Checking in: Airports in China 2006

Cargo and logistics hubs

China is already the world’s second-

China still has relatively few nationwide

biggest domestic market for air cargo,

freight or logistics organisations, such as

with volumes increasing by 22 percent in

Sinotrans. The main international

2004. Its relative share of global exports

operators are positioning themselves to

will continue to increase over the coming

service this growing Chinese market.

decade. IATA projects China’s cargo

DHL, Federal Express and UPS all have

volumes will grow by an average of

announced aggressive expansion plans

14 percent per year between 2005 and

for China, including tie-ins to key hub

2009, the highest level for any country in

airports.

the world 21.

Figure 5: Top 10 markets by rate of cargo growth, 2005-2009 15%

14.4%

14% 13%

Growth rate

12.5%

12.2%

12%

11.6%

11%

10.7% 10.0%

10%

9.9%

9.7%

9.7% 8.9%

9%

Oman

Czech Republic

India

Mexico

Malaysia

South Korea

Macau SAR

Sri Lanka

Qatar

8%

China

Competitive new logistics hubs will emerge in industrial regions.

Source: IATA: "Passenger and Freight Forecast 2005-2009" October 2005

________________________________ 21

IATA: "Passenger and Freight Forecast 2005-2009" October 2005

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


Cargo tonnes (millions)

3

2

1

0 Denver (DEN) Las Vegas (LAS)

Miami (MIA)

Louisville (SDF)

Taipei (TPE)

Beijing (PEK) San Francisco (SFO)

Indianapolis (IND)

Newark (EWR)

Miami (MIA) Seattle/Tacoma (SEA) Toronto (YYZ) Philadelphia (PHL)

Beijing (PEK)

Kuala Lumpur (KUL)

Brussels (BRU)

Singapore (SIN)

Luxembourg (LUX)

Oakland (OAK)

Orlando (MCO) Tokyo, Narita (NRT)

Tokyo, Haneda (HND)

Dallas/Ft. Worth (DFW)

Newark (EWR)

Detroit (DTW)

Bangkok (BKK)

London, Gatwick (LGW)

Houston (IAH)

Dubai (DXB)

Osaka (KIX)

Hong Kong (HKG)

London, Heathrow (LHR)

Atlanta, Hartsfield (ATL)

New York (JFK) Minneapolis/St.Paul (MSP)

Amsterdam, Schiphol (AMS)

Shanghai, Pudong (PVG)

Haneda, Bangkok and Hong Kong.

Paris, Charles de Gaulle (CDG)

Madrid (MAD) Bangkok (BKK)

Chicago, O’Hare (ORD)

Phoenix, Sky Harbour (PHX)

Amsterdam, Schiphol (AMS)

Singapore (SIN)

New York (JFK)

Frankfurt-Main (FRA) Paris, Charles de Gaulle (CDG)

Frankfurt-Main (FRA)

Los Angeles (LAX) Dallas/Ft. Worth (DFW)

Los Angeles (LAX)

Tokyo, Haneda (HND)

Anchorage (ANC)

Seoul (ICN)

Chicago, O’Hare (ORD) London, Heathrow (LHR)

Tokyo, Narita (NRT)

Atlanta, Hartsfield (ATL)

4

Memphis (MEM)

0

Hong Kong (HKG)

Passenger volume (millions)

Checking in: Airports in China 2006 19

China’s airports rising through the ranks

Beijing Capital International Airport is the Shanghai Pudong is emerging as the

largest passenger airport in China and has major cargo handling airport in China,

been among the world’s 30 largest acting as the gateway for production in

airports for the past five years. It is the the Yangtze River Delta. In 2004 it moved

fourth largest airport for passenger from 26th place into the top 15 globally

volume in Asia Pacific, behind Tokyo and continues to grow rapidly. Excluding

cargo than any airport in Europe.

Frankfurt, Shanghai Pudong moves more

Figure 6: The world’s busiest airports, 2004 100

80

60

40

20

Source: Airports Council International annual statistics; www.airports.org

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


20

Checking in: Airports in China 2006

Outlook: Geographic and demographic trends

Prospective foreign investors are increasingly looking to second tier airports.

Air travel in China is no longer the

accounts for a very small relative amount

preserve for the elite or business

of total freight volumes 22.

travellers. As income levels rise, more price-sensitive leisure travellers are

By 2015 the United Nations estimates

emerging in the market. These travellers

China will have more than 60 cities with

will drive exponential growth in travel

populations exceeding one million. The

both within China and from China to

implication is clear for the growth of

other parts of Asia Pacific. There are still

airports in second tier cities, as well as for

ten times more people travelling by train

the growth of secondary airports in the

in China than by air, while aviation

main cities, serving internal or budget conscious travellers.

Figure 7: Freight volumes in China by different means of transportation

Roads

12,491

Railways and subways

2,490

Waterway

2,490 6

Aviation 0

2,000

4,000

6,000

8,000

10,000

12,000

Million tons* * One imperial ton is equal to 0.907 metric tonnes Source: China State Communication Department, 2004 statistics

________________________________ 22

â&#x20AC;&#x153;Flight home,â&#x20AC;? Airline Business, January 2006

Š 2005 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


Checking in: Airports in China 2006

Airports also have an opportunity to

21

Figure 8: China’s urban population in 2015

establish themselves as hubs for ever rising volumes of cargo, by following consolidation trends within China’s freight and logistics business and aligning themselves to the strongest emerging

Projected population in 2015:

64 cities with more than 1 million people

Total population 1.4 billion

players.

Cities of 8 million or more Cities of 5 million to 8 million Cities of 3 million to 5 million Cities of 1 million to 3 million

Source: United Nations

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


22

Checking in: Airports in China 2006

China’s top 50 airports

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

Airport Beijing Capital Shanghai Pudong Guangzhou Baiyun Shanghai Hongqiao Shenzhen Baoan Chengdu Shuangliu Kunming Wujiaba Hainan Meilan Xi’an Xianyang Hangzhou Xiaoshan Xiamen Gaoqi Chongqing Jiangbei Qingdao Liuting Dalian Zhoushuizi Nanjing Lukou Wuhan Tianhe Shenyang Taoxian Urumqi Changsha Huanghua Fuzhou Changle Guilin Harbin Guiyang Zhengzhou Sanya Wenzhou Jinan Ningbo Tianjin Taiyuan Nanning Nanchang Changchun Zhangjiajie Hefei Xishuang Banna Jinjiang Lanzhou Yantai Jiuzhaigou Lijiang Shantou Huhehaote Lhasa Zhuhai Yinchuan Yanji Wuyishan Xining Zhanjiang

Passengers (millions) 34.88 21.02 20.33 14.89 14.25 11.69 9.80 7.48 6.36 6.34 5.58 5.23 4.81 4.61 4.57 4.33 4.10 3.89 3.80 3.13 2.90 2.73 2.72 2.57 2.53 2.44 2.37 1.85 1.71 1.68 1.65 1.63 1.52 1.32 1.24 1.17 1.16 1.04 1.00 0.90 0.89 0.83 0.82 0.78 0.75 0.70 0.56 0.56 0.45 0.40

Cargo (tonnes) 668,690 1,642,176 506,988 294,020 423,270 213,039 171,013 66,582 73,368 128,208 141,654 87,568 75,498 89,699 117,801 61,378 85,343 48,464 43,133 49,124 21,075 35,084 30,018 27,600 17,055 25,435 32,237 25,524 70,995 28,085 18,567 16,143 15,839 2,905 18,297 4,925 11,562 10,445 11,890 58 691 8,083 12,990 7,130 9,731 5,693 872 831 3,256 1,821

Source: CAAC official statistics 2004

© 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


Checking in: Airports in China 2006

23

About KPMG

KPMG International is the coordinating

together with our unwavering focus on

Property & Infrastructure

entity for a global network of

quality, has been the foundation for

KPMG is organised by industry lines of

professional services firms, providing

accumulated industry experience that is

business across our offices to provide

audit, tax, and advisory services with an

difficult to rival.

in-depth industry knowledge and

industry focus. With over 100,000

professionals highly experienced in their

people worldwide, member firms

With our expanding member of offices

sector. We are committed to providing

provide audit, tax and advisory services

and more than 4,200 professionals, our

quality service to our clients. Our Property

from 731 cities in 144 countries.

single management structure across

& Infrastructure line of business has a

China and Hong Kong SAR allows

global network comprising the major

KPMG in China and Hong Kong SAR

efficient and rapid allocation of resources

practices around the world. This network

In 1992, KPMG was the first

wherever you are located. We have the

gives us the ability to provide consistent

international accounting firm to be

largest audit market share, by market

services to our clients, share best

granted a joint venture licence in China,

capitalisation, of both the top 100 Hong

practice and provide thought leadership,

and our Hong Kong operations have

Kong listed companies, and the top 100

while always maintaining a strong

been established for 60 years. This

China A-share listed companies.

knowledge of local issues and markets.

early commitment to the China market,

Š 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


24

Checking in: Airports in China 2006

Contact us

For further details, please contact the key Property & Infrastructure professionals at KPMG. We would be pleased to meet and assist you. Andrew Weir Partner in charge Property & Infrastructure China and Hong Kong SAR Tel: +852 2826 7243 e-Mail: andrew.weir@kpmg.com.hk

Jennifer Wong Tax Partner Property & Infrastructure China and Hong Kong SAR Tel: +852 2978 8288 e-Mail: jennifer.wong@kpmg.com.hk

Benny Liu Partner Property & Infrastructure Guangzhou, Shenzhen and Macau SAR Tel: +86 (20) 2237 8118 e-Mail: benny.liu@kpmg.com.hk

Tom Stanley Director Strategic & Commercial Intelligence China and Hong Kong SAR Tel: +86 (21) 5359 4666 e-Mail: thomas.stanley@kpmg.com.cn

Honson To Partner Property & Infrastructure Shanghai and Hangzhou Tel: +86 (21) 6288 1886 e-Mail: honson.to@kpmg.com.cn

Jack Chow Partner IPOs and Capital Markets China and Hong Kong SAR Tel: +852 2826 8066 e-Mail: jack.chow@kpmg.com.hk

Felix Lee Partner Property & Infrastructure Beijing Tel: +86 (10) 8518 9240 e-Mail: felix.lee@kpmg.com.cn

Michael Lai Principal Risk Advisory Services China and Hong Kong SAR Tel: +852 2978 8943 e-Mail: michael.lai@kpmg.com.hk

Š 2006 KPMG, the Hong Kong member firm of KPMG International, a Swiss cooperative. All rights reserved.


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Checking in Airports in China 2006