Recently, the Civil Aviation Administration of China (“CAAC”), the regulatory authority in charge of the aviation sector, issued the Opinion on the Encouragement of Social Capital Investment in the Construction and Operation of Civil Airport (the “Opinion”) which opens up the civilian airport market to private investors.
The Opinion proposes the following measures:
To fully open up the construction of general-purpose airports without restrictions on investors: private investors are allowed to participate in the construction and operation of civilian airports and their supporting facilities projects through franchising, transfer of operation rights, transfer of equity, entrusting operations, and integration and restructuring;
To semi-open up the intermediate services sector: qualified investors, including private enterprises and foreign-invested enterprises are allowed to participate in intermediate services such as business consulting, design, construction, operation and maintenance of civilian airports independently or as part of a consortium;
To remove the approval process for private investment into terminals, logistics, and other operations;
To reduce the number of state-owned or state-controlled transport airports.
The Opinion also encourages investors to adopt innovative financing methods for the construction and operation of airports, in particular by adopting the public-private partnership (PPP) structure.
Private investors – foreign investors
The Opinion classifies ‘private’ investors as including foreign investors, and as regards foreign investors’ business activities, the Opinion goes beyond the existing laws and regulations.
Under the current laws and regulations, the construction and operation of civilian airports by foreign investors comes under the remit of restricted business sectors. The 2015 version of the Foreign Investment Guidance Catalogue (“Catalogue”) states that only joint ventures with the Chinese party holding the majority of shares can invest in the construction and operation of civilian airports. The newly announced draft of the 2016 Catalogue however, lifts this restriction for foreign investors in the transporting airport area. If implemented, wholly foreign-owned enterprises in this sector will be permitted for the first time. For the construction and operation of general-purpose airports, i.e. regarding passenger flights, however, the requirement to establish joint ventures with a majority share-holding Chinese party remains.
There is clearly a contradiction between the Opinion and the Catalogue, which are both issued by different authorities, i.e. the Opinion by the CAAC and the Catalogue by the Ministry of Commerce and the National Development and Reform Commission. We expect the final Catalogue might be adjusted, or the authorities will soon issue guidance to resolve the discrepancy.
Nevertheless, the Opinion and the new draft Catalogue both echo the guideline on accelerating the development of general aviation, published by the General Office of State Council earlier this year. The guideline sets out China’s ambition to build 500 general aviation airports by 2020. With such development in mind and the guiding Opinion, we expect more detailed implementation plans regarding the opening up in the civilian airport market to be published soon.