Reforming China's airline industry: from state-owned monopoly to market dynamism.

Since the People's Republic of China (PRC) broke out of diplomatic isolation in the early 1970s, embarked on economic reforms at the end of that decade, and subsequently removed internal travel restrictions, the demand for air travel in that country has grown rapidly. Air traffic, in revenue passenger kilometers (rpk), expanded 101 times between 1970 and 1990. China became the world's fifth largest internal air travel market in 1993 and should rise to second place, behind the United States, by 1998.(1) It is also situated at the center of the fast-growing East Asian air travel market. Meeting domestic growth and competing for a fair share of international traffic necessitate reforms to transform China's airline industry from a state-owned monopoly, under ministerial control and indistinguishable from the state bureaucracy, into business enterprises capable of responding to the changes and competitive dynamics inherent in a market economy.

Despite the size of China's air transport market and the scope of its aviation reforms, there have been few studies on its airline industry. Two reports in the late 1980s gave a sketchy picture of reforms.(2) Studies on transport policy and development in China, of which there are few, provide only superficial coverage of the aviation sector.(3) To fill the gap, this study investigates the reforms that have transformed the airline industry. It analyzes how the role of the state in civil aviation has been redefined, the industry restructured, market competition regulated, ownership structures diversified, and the need for fleet expansion and modernization addressed. Placing aviation reforms in perspective, it examines them within the context of economic and state-owned enterprise (SOE) reforms. This approach brings into focus China's political past, administrative tradition, and economic transition from central planning to market mechanism. It shows how these elements have challenged and facilitated aviation reforms. It highlights characteristics of reforms that are unique to China.

CIVIL AVIATION UNDER CENTRAL PLANNING

When the PRC was founded in October 1949, its air transport system was in a state of total disarray. The war between the communists and nationalists had mined most airfields and navigational aids, and left only a few operable transport planes. The two airlines operated by the nationalists and a Sino-American company had ceased operations. All expatriate, and many Chinese, pilots and technical personnel fled the mainland.