May 16, 2024 What's News The text write and uses here if the customer wants to know minute estimate. We answer soon we confirm.   title : Diagnosing China Trade     Diagnosing China Trade By Ian Putzger Cargo remains a bright spot in a region scarred by SARS, but freight operators have acute concerns about the world's most highly touted economy an a tiny microorganism slow down a torrent of investment to a trickle and derail the momentum of the world's fastest growing economy? It looks as if SARS not only dealt a crippling blow to former paragons of airline profitability such as Cathay Pacific Airways but also managed to throw a wrench into the world's engine of growth. In 2002, the Chinese economy expanded 8 percent, fueled by a combination of surging exports, a rise in domestic consumption and a veritable flood of foreign investment. If anything, the juggernaut gained further speed in the first three months of 2003. Driven first and foremost by exports, the economy climbed in excess of 9 percent during the period, while foreign direct investment in the country increased by a blistering 57 percent to $13.09 billion. Meanwhile, air cargo traffic expanded by more than 35 percent. All in all, this was a portrait of a country fully realizing the trade prophets' predictions that China's decade on the world economic stage was dawning. China Landing Top 10 cargo airports in Greater China in 2002 and percent change from 2001. World Rank Airport metric tonnes % Change 2 Hong Kong (HKG) 2,516,441 19.9 25 Beijing (PEK) 668,733 14.4 27 Shanghai Pudong (PUG) 634,966 *80.1 29 Guangzho (CAN) 592,554 11.5 36 Shanghai Hongquai (SHA) 732,532 -2.7 59 Shenzhen (SZX) 288,534 36.5 74 Chengdu (CTU) 204,329 14.8 111 Macau (MFM) 111,332 46.2 115 Xiamen (XMN) 109,741 37.5 147 Xian (XIY) 65,292 17.1 * Airport opened in 2001 Source: Airports Council International SARS, or severe acute respiratory syndrome, has dealt a body blow to this seemingly unstoppable momentum. The Chinese government indicated in early May that tourism, exports and foreign direct investment all are expected to decline this year. The chorus of economists who figure the economy may actually contract in the second quarter has grown louder. Citigroup scaled back its growth projection for the full year by nearly a full percentage point to 6.7 percent, while other estimates are closer to 6 percent. China's government says it expects to lose some $3.6 billion in national tax receipts due to the impact of SARS. With even Beijing taking a dour view of the economic impact of SARS, is it any wonder that air cargo operators are looking to the fall shipping season more in trepidation than in anticipation? Inevitably, the fear that the epidemic could damage global supply chains has spread almost as rapidly as the virus itself. The picture on that front has been rather hazy. At the end of April, Motorola closed its main office in Beijing for two weeks after a staff member was found to have contracted the disease, feeding worries that SARS would cripple production in a country increasingly known as the world's factory. In May, there were rumors that some factory production lines were shut down due to SARS. Other players have maintained that the epidemic has not had an impact on their business volumes in China. Replacing the customary factory visits with video conferencing and shuttling samples around the world, some American importers have declared that SARS is changing the way that they are doing business - but not how much business they have in China. Business travel in the region has been crippled, however, partly by companies' travel policies, partly by official regulations. Taiwan banned visitors from Hong Kong and China and imposed a summary 10-day quarantine on all Taiwanese returning from those places. This is what may hurt business in the months ahead. "The routine activities have not slowed down, but there's not a lot of new bids in the pipeline," remarked Steve Dearnley, Asia-Pacific president at BAX Global. he official statistics suggest that, so far, SARS has not had a dramatic impact on the industrial trading economy even though the tourist trade in any country touched by SARS has been in steep decline. The southern province of Guangdong, the heavy industrial region where SARS apparently was spawned last November, reported its GDP grew 12.8 percent in the first four months of 2003 compared to last year. Industrial output in a province that produces one third of the world's disk drives was up 19.2 percent in the January-April period. China's Freighters Aircraft manufacturer Boeing is projecting that air cargo traffic in China will grow 10.3 percent annually for almost the next 20 years. The growth rate, the fastest in any major market Boeing has surveyed, is hardly academic to the company since Boeing believes huge numbers of freighters will be needed to carry the goods. Boeing believes the seven-fold increase in domestic air cargo traffic through 2021 means China will need more than 220 freighters over the next 20 years. Not surprisingly, Boeing believes it has just the planes to fill the gap. The American plane-maker says most of the needed freighter capacity will be in the 15-to-50 tonne payload range, ideal for many of the 737s and 757s that are already flying in the passenger service in China. China has been a huge battleground for Boeing and European rival Airbus for the last decade. Boeing has a strong hold on the trans-Pacific market with its long-range 747s but Airbus made inroads in April when the China Aviation Supplies Import and Export Group ordered 30 Airbus aircraft earmarked for several Chinese carriers. With its existing planes in service in the country, however, Boeing may have an advantage in the after-market freighter field. Airline industry insiders say maintenance records in China are kept in Chinese, making resale of used aircraft outside the region difficult because of concerns over translation of the technical materials. Industry experts believe there were 15 to 20 freighters flying in China last year but measuring the market is difficult because some are Soviet-built aircraft that are not registered. Meilin Wang, managing director of DHL Danzas Air & Ocean for China, believes the SARS impact on international air cargo could start showing up as early as this month as the shipping schedules of some industries start to kick in. "Our customers expect orders will drop by about 30 percent," Wang said. "For the time being, no one can exactly figure the dollar value in SARS impact towards to China export or eventually the whole of Asia," said Wang. "However, I can estimate the lead time (required) from various industries - information technology, textiles, as well as others. IT operates with much shorter lead time from order to delivery. We predict the impact on the IT industry may come from the middle of June and other industries may see a shift one or two months later. "From what we have learned, IT and telecom have seen a tremendous drop as of mid-May and it may be getting worse in the coming month. Textile orders seem partly to have already shifted to the Middle East and Latin America. The main impact (in textiles shipping out of Asia) will show in August," he said. However, cargo transport has provided financial refuge for air carriers in the region that are trying to ride out the crisis. With its passenger and cargo business heavily tied to mainland China, Hong Kong-based Dragonair, saw passenger traffic plunge 76 percent in April and has cut its schedule back 50 percent. But the airline said tonnage on its three freighters grew 2.3 percent from March to April. "Cargo remains a bright spot for us," said Dragonair Chief Executive Officer Stanley Hui. "Global demand for the goods produced in the world's manufacturing base of the China mainland continues to drive the engine of trade in these difficult times." In the foreseeable future, foreign investment is also expected to remain in a tailspin, with estimates as low as 50 percent less for the coming six to 12 months. However, observers figure that this will bounce back once SARS has run out of steam. Wang pointed to a report released by Deutsche Bank which showed that many investment plans for China are currently on hold, but investors show few signs of considering alternative locations. Moreover, the likely alternatives in Asia - Vietnam, Thailand, Malaysia, Indonesia or Sri Lanka - have had their own problems, from SARS in Vietnam to political instability in Indonesia, Wang added. The broader concern over SARS stretches well beyond the shipping orders that may be placed this month or next, however. Some trade observers fear that if the crisis is prolonged, the disease could be the last straw for companies that have had to struggle over a host of hurdles, including infamous bureaucratic battles, to set up business in the Middle Kingdom. But cargo operators say they don't expect any such pullback in their investment. "I haven't seen any signs that firms are re-evaluating China as the location for their investment plans," observes Dearnley. "It's not the easiest market to operate in, but if you've been there for a while you know ways to operate." s their passenger numbers plummeted, Asian carriers reduced their passenger flights drastically. Those flights are the main vehicles for intra-Asian cargo, but so far the slashing of capacity has not led to space shortages, let alone backlogs at the airports in China and Hong Kong. Only the routes from China to Hong Kong and between Hong Kong and Taiwan have seen an impact, according to Wang. Passenger flights across the Pacific have also been reduced. Of the Chinese carriers, Air China suspended two out of five weekly flights to Los Angeles, and China Southern pulled out of the Los Angeles market altogether. Still, SARS has not had an impact on the trans-Pacific cargo market, as the lion's share of that traffic moves on freighters, said Jim Friedel, president of cargo at Northwest Airlines. Forwarders in Hong Kong and China confirmed that they've had no problem finding space to North America. Nevertheless, some agents are concerned about how things will look later in the year. "It's the slack season now; there's not much cargo. But we've had a lot of flight cancellations. I see the potential for real problems when traffic goes up," said Gene Boyer, president of U-Freight America. Some main-deck cargo capacity has disappeared, namely China Southern's Los Angeles freighter service, which had gotten under way last fall but was suspended after Atlas Air moved the aircraft to U.S. military charter service in the Middle East, according to China Southern. But that capacity has been compensated for by new entrants, such as Singapore Airlines' launch of twice-weekly China-U.S. 747-400 freighter flights upon receiving fifth freedom rights. ir China and China Eastern have both officially spun off dedicated all-cargo companies. Air China Cargo, which kicks off with four 747-200 freighters, plans to add two 747-400Fs and three TU-204Fs to its fleet over the next two years. Management has set a revenue target of $493 million for this year; by 2010 it wants to be one of the world's top 10 cargo carriers. Observers reckon that little is going to change before next year, when the first of the new Boeing jumbo freighters is scheduled for delivery. It is going to take the company quite some time to separate itself fully from Air China and establish its own administrative infrastructure, one forwarder commented privately. China Eastern embarked earlier on this route with the establishment of China Cargo Airlines, but it has taken until now to get its organization straightened out, according to some observers. As Taiwanese carrier China Airlines has obtained the green light to take a stake in the carrier, the cargo airline is expected to finally make some headway in the near future, however. The business received the first tranche of capital from the Taiwanese shareholder in April, and management has indicated that it is looking at an additional freighter in the next six months, either through a lease from a third party or from China Airlines. "They now have too much capacity, because so much chip production has moved from Taiwan to China," said Wang. The transition stage is amply illustrated by the fact that China Eastern (MU) has established a separate airline code (CK) for the cargo carrier. However, CK air waybills are not yet available, so agents have to use MU stock. This is causing some confusion. "If there is a claim, who do we deal with?" asked one forwarder. arlier this year, the Chinese airlines were given the right to set their own pricing, after the central government relinquished its direct control, content to set only a basic standard and a floating range for domestic passenger and cargo rates. So far, however, the Chinese airlines have not embraced the new freedom with a vengeance. Western companies are not advancing with mercurial aggression either to take advantage of new freedom. The relaxation of ownership rules, which had restricted foreign players to a 49 percent stake in a joint venture with a Chinese partner, has not been met with a rush by international forwarders to boost their share to 75 percent. Even the integrators, who had campaigned vociferously for greater leeway there, have not made any noises about upping their ownership in their respective joint ventures. Wang said that foreign players are still required to have a foreign partner, and Chinese agents are less keen to strike deals where they end up with minority rights and no control over the destiny of the joint operation. The biggest change will come in 2006, when the market will be completely open, allowing foreign firms to strike out completely on their own, Wang continued. However, this will not change the situation in one stroke. "Operation in China is very decentralized. If you get a license in Shanghai, that does not mean you can operate in Beijing," he said. The result is a time-consuming application process. It took his company more than five years to establish 16 branches in China, said Wang. But as the market develops from mere potential to reality, many forwarders are using their somewhat greater freedom to expand and the greatest interest appears to be in Shanghai, said Dearnley. Danzas is in the process of acquiring a 110,000-square-foot facility there and intends to open more branch offices this year. Meanwhile, DHL is planning to launch a local product for the domestic courier market, according to Wang. United Parcel Service is expanding its reach through a deal forged in January with domestic provider Yangtze Express Aviation, which provides service from Shanghai to Beijing, Guangzhou, Xiamen and Qingdao. Dearnley said that China could do with more international cargo capacity in the long run. Prior to the outbreak of SARS, top aviation officials in Beijing indicated that they wanted to set up more international aviation treaties, even if Chinese carriers don't necessarily have the capacity to make use of new route authorities. There have been no statements or actions on that front since January, however