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China easing airline ownership rules

shanghai international
China will keep a 'relative controlling interest' in airports but overseas companies won't have a 49 percent ceiling  

By Alex Frew McMillan

HONG KONG, China (CNN) -- China will ease its airline-regulation rules on August 1, seeking greater overseas investment in airlines and airports.

Overseas investors will be able to buy more than the 35 percent of an airline they are limited to now, according to a report from the Civil Aviation Administration of China (CAAC).

The easing builds on a pilot program involving overseas companies. For now, the most a single overseas entity can buy is a 25 percent stake in an airline.

But China will keep a "controlling interest" in airlines, the CAAC report states. The investment rules will also be eased on airports.

Authorized means of investment

The report does not say that a controlling interest means 51 percent. But that is how one local media report interpreted the new rules.

shanghai airlines
China's small airlines are consolidating into three groups, China Southern, China Eastern and Air China  

The CAAC amendment pushes new types of investment for overseas companies. Direct stakes have so far been limited to joint ventures.

Overseas companies will now be able to buy stock in airlines and use other "authorized means of investment," Chinese state-owned media report.

With airports, overseas investors are limited to a 49 percent stake. That will be eased but the report set no new specific ceiling.

It states only that China will retain a "relative controlling interest" in its airports.

China Daily newspaper reported that "the limitations for cargo storage, aviation food supply and ground services are being opened up to co-operation on both sides."

The newspaper said the investment rules are changing to allow Chinese companies to buy "relatively major" stakes in cooperative ventures with overseas companies.

Defense-related flights and airline projects will not be open, "for safety and strategy purposes," the newspaper reported.

A booming business

China's air industry is deregulating rapidly. Its main carriers are consolidating and looking to raise cash to expand via the stock market.

The rising levels of business and leisure travel have propelled China Eastern Airlines, China Southern Airlines and Air China to high growth rates.

China Eastern and China Southern have already sold 35 percent of their stock overseas. Air China, the country's international carrier, is looking for a listing overseas.

Their rapid growth contrasts sharply with Taiwan's embattled airlines. Taipei-based China Air has struggled since one of its jets went down en route to Hong Kong (full story).

Competitor Eva Airlines this week was awarded fewer profitable flights from Taiwan to Hong Kong than expected, with a third and private airline winning routes (full story).

Airlines opening up after WTO

Singapore Airlines and Hong Kong-based Cathay Pacific have expressed interest in buying into Air China.

The Hong Kong-Taiwan route is one of the most-profitable in the world, with no direct flights between Taiwan and mainland China.

CAAC stated that the rule changes are necessary as China opens up, now that it is part of the World Trade Organization.

The authority had state-council backing. It drafted the new rules with the State Development Planning Commission and the Ministry of Foreign Trade and Economic Cooperation.




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