ASIAN MARKETING STUDY
Introduction
The use of hybrid ultra heavy air vehicles in the near term is
very different for Asia than for Canada. Canada's primary
purpose is to reach their far northern territories in order to drill
for oil and to build pipelines to their southern oil distilleries, to
mine minerals, and to log timber. The further emphasis is on
Northern Community supply chain. They would also use them
for re-supplying the northern workers and First Nations
Canadians.
The Asian situation requires the movement of present day
cargo both domestic and international especially to, from and
within China. With the tremendous growth in China since its
economic reform starting 1978 and the forecasted growth,
their residential resource economy is being grossly over
burdened. The problems facing China include: abundant but
inaccessible natural resources. A population and industrial and
manufacturing base mainly in the eastern portion of the
country, coupled with limited access to the western frontier,
and their already choked transportation systems.
This report will examine the existing conditions within China,
including their economy, population, and resources; the forecast
for these resources; and future accessibility of oil and minerals.
World Trade Trends
After only modest growth initially following the 2001 global
recession, world wide international trade in goods and services
has rebounded strongly of late, increasing by about 10 percent
in 2004, or approximately double the rate of growth in world
Gross Domestic Products, GDP, which is the total value of all
goods and services produced with in a country per year, minus
net income from investments in other countries. China, while
having only 5 percent of the World trade share, grew from
almost 28 % to almost 29 % in annual export growth between
2003 and 2004; and the annual import growth was from 22 %
to 28%. The other East Asian countries had similar growth,
going from 11% to 16 % in exports and 7% to 15 % in annual
import growth. In large part, this reflects the tendency for trade
to fluctuate by more than just output. However, it also reflects
the consequences of ongoing trade liberalization, and changing
demand for final goods and factor inputs as economies develop.
The recovery in world trade has been propelled mainly by China
and other East Asian economies, which are becoming
increasingly engaged in international commerce of world trade.
China contributed approximately 25 percent of the increase in
trade in 2004 and became the world's third-largest
merchandise exporter. In contrast, the major industrialized
countries, despite accounting for nearly half of world trade,
contributed only around a third of the increase in 2004.
The uneven contributions to growth in world trade in part
reflect divergences in economic growth across regions.
Hesitant demand growth in the Euro area explains the modest
growth of export and import volumes in the region, since intra-
regional trade accounts for around two-thirds of the areas total
trade. In the United States, trade has been expanding
somewhat faster, as strong domestic demand has induced
ongoing growth in imports; exports have also staged a
recovery, though not one that has been sufficient to arrest
further widening of the trade deficit. Japan has seen yet
stronger trade growth, with its trade surplus continuing to
swell, underpinned by strong demand for its exports from the
rest of Asia; most notably, its exports for intermediate and
capital goods to China have been growing rapidly.
The East Asian region (excluding Japan) has undoubtedly
recorded the most impressive trade performance. The surge in
demand for International Trade Centre (ITC) goods in 2003-
2004 boosted the region's exports of manufactures, while the
region's imports have accelerated as China increasingly calls on
the rest of the world for raw materials to satisfy its ongoing
process of industrialization. There has also been a substantial
change in the pattern of East Asian trade, with intra-regional
trade growing in importance. In 2004, 37 % of East Asian
merchandise exports went to economies elsewhere in the
region, up from around 33 % five years earlier. This shift has
been fuelled not only by increased final demand within the
region, particularly from China, but also by a reorganization of
production processes into regional networks. Goods are
increasingly being assembled in China from parts sourced
elsewhere in the region, and then exported to developed
countries. This largely explains why China has recorded growing
trade surpluses with the US and Europe, but trade deficits with
the rest of Asia.
The pattern of global trade has had major implications for the
prices of traded goods and services. The emergence of China
as a major producer has put downward pressure on the world
price of manufactured goods. On the other hand, China's
seemingly insatiable appetite as an importer of raw materials
has contributed to the surge in world commodity prices,
including oil. Consequently, commodity importers, such as East
Asia, Japan and United States, have experienced deterioration
in their terms of trade. In contrast, the rise in world commodity
process has been beneficial for commodity exporters, such as
Australia and Canada, and a number of countries in Latin
America and the Middle East.
The strength of world trade patterns can also be seen in
global shipping freight rates, as shipping still accounts for
around two-thirds of the value of all international goods
transportation. In line with the pick-up in freight rates has
been especially concentrated on trade routes to Asia, and the
ports along these routes have become increasingly congested.
Conditions are generally expected to remain tight, in part due
to short-run inelasticity in the supply of ships and continued
strong world activity.
As with GDP growth, world trade activity is expected to ease,
but remain healthy. The International Monetary Fund (IMF)
projects world trade to grow by 7.4% in 2005. However, the
recent trend of greater involvement by emerging economies in
international commerce is set to continue, with China and
other East Asian economies likely at account for a growing
share of world trade.
It is with this background in the world trade trends, that
China, specifically, will be examined more closely.
China's Economic Development
China has a land area of about 9.6 million square kilometers
(about 6 million square miles), similar in size to the United
States. It is largest developing country in the world. As of
2002, there are 1,284 million people residing in mainland
China. Economic reform and opening up to world markets
began in 1978. Since then, the Chinese economy has
expanded rapidly. The GDP has increased from virtually 0 in
1950 to about 3,500 billion Renminbi (RMB), which is their
local currency, in 2000 and is forecast to reach between 6,000
billion and 12,000 billion RMB by 2020. Despite the challenges
of the 1997-1998 Asian currency crisis and the 2001 worldwide
economic recession China's mainland economy has maintained
an average growth rate of 7.7% since 1997. As one major
stimulus to the nation's economy, China's international trade
has grown even more rapidly since 1978, with an average
growth rate of 15.2 %. In 2002, the total value of import and
export reached 621 billion USD, of which, export was 326
billion USD and import was 295 billion USD. Machinery
products accounted for 50 % of the total value, and high-tech
products including Information Technology (IT)/biochemical
products and precision instruments contributed 24%. However,
the growth is geographically imbalanced within China.
China can be separated into western, middle and eastern
regions. As of 2002, over 70% of the total mainland population
resides in the middle and eastern regions, which account for
only 28.5% of the land area. Although all parts of the country
have seen rapid growth, the real economic boom is on a
narrow band along the coast in the East region. The
geographical imbalance of international trade and economic
development is striking with East region domination of all
economic metrics.
Accompanying the rapid economic development in the East
region was rapid urbanization. As of 2002, the mainland urban
population had tripled from 1978 level to 502 million. The share
of urban population had increased from 19.4 % in 1978 to
39.1% in 2002. The urbanization is partially attributed to the
migration of labor force from the inland countryside to the large
cities.
Airports
As of 2002, there were about 150 commercial airports
operational in mainland China. Of these 150 airports, only about
22 can facilitate Boeing 747 and Airbus 380 aircraft. Again,
basically all of these airports are in the middle and eastern
regions, with only one, Urumqi, being in the western region.
According to China's plans, the total number will increase to 237
by 2010. However, the new airports will be small serving
regional markets and the general layout to the airport
distribution is not likely to change significantly. The major
efforts in airport development in China will be to improve
operational conditions and increase capacity at the major hub
airports. Air cargo throughput at mainland airports has tripled
over the past ten years, with an average annual growth rate of
14.1 %. The total cargo throughput in 2002 was approximately
4 million metric tons, of which, 73 % was for domestic routes
and 27% for international routes. The four main throughput
airports systems are Beijing, Shanghai, Guangzhou, and Hong
Kong, with the first three accounting for about two-thirds of the
mainland throughput and Hong Kong being equivalent to the
sum of these three major mainland airport groups. It is worth
noting that Hong Kong still serves as the most important
international trade port for mainland. This is attributed to its
extensive international network and its role as the dominant
transit port between mainland and Taiwan since direct trade is
still restricted by political barriers.
Since 1978, the domestic air cargo has experienced an
annual growth rate of 18 percent. The average air cargo trip
distance has been gradually increasing. As of 2002, the average
cargo trip distance for domestic routes reached 1,457 km. The
average trip distance of international air cargo has been
increasing as more long-haul freighters were added into the
fleet.
Current Cargo Operating
Practices
In mainland China, domestic air cargo is primarily carried in
the belly space of passenger aircraft. As of 2002, there were no
dedicated domestic air cargo carriers. International air cargo
transportation is quite different. National flagship carriers have
been expanding their long-haul air freighter fleets to capture
the demand over the past few years. The problems facing
mainland airports and carriers are the limited network
connections to the world, cargo handling efficiency, and the
ground accessibility to major international hubs for shippers.
Factors Affecting Air Cargo
Development
For mainland China, surface transportation infrastructure
and government policies are significant in determining the
likely future development of air cargo.
Rail
The principal alternative mode of freight transportation in
China is rail. There is an extensive and expanding state-owned
rail transport system. In 2002, there were 44,438 miles of
railways in operation with 1,060 billion ton-miles carried. In
comparison, the US Class I railroads have 99,250 miles of track
and carried 1,466 billon freight ton-miles in 2000. By 2007, the
railroad network will connect all the provinces and major cities
in mainland China. To compete with highway and air
transportation, the rail administration has launched a series of
system upgrades to raise the operating speed in addition to the
network expansion. The rail system now handles 62 mph
speeds, which makes it attractive for freight. Currently two
more speed-raises are planned on 28 rail routes. The maximum
speed will then be 125 mph. In short rail cargo would be a
strong competitor, because of its efficiency and low costs, to air
cargo on short/medium-range routes where direct rail service is
available.
Highway
Virtually all the highways are in the eastern region. A
program has been launched to construct 21,750 miles of
backbone networks. The purpose is to connect all the major
cities (i.e. population of one million and above), and 93 % of
all large cities (population of half million and above) with high-
grade arteries. Upon completion in 2010, the average travel
speed should be doubled from that of todays national highway
network, providing express surface channels for intercity
passenger and cargo transportation.
The investment in road system has two effects regarding air
cargo. First, it will significantly improve the investment
environment, enabling sustained economic growth. For the
inland regions, it is a key element in assuring the realization of
the government's long-term economic development plan.
Second, the fast surface connection will improve airport access.
Since the intercity air cargo in china is not meant for short
range, limited competition is seen for the increased highway
transportation infrastructure.
China's World Trade Organization
(WTO) Entry
China's entry into the WTO accession in December 2001
initiated a new era of China's reform and opening up to the
world. The systematic opening of markets and China's
commitment to its WTO obligations is boosting investor's
confidence. As a result, international trade is expected to
continue to grow. The government has set the international
trade target at 2,000 billion USD by 2020, which implies an
average annual growth rate of 7.2%.
Revised Regulations if Foreign Investment in
Aviation Industry
Revised regulations on foreign investment in China's
aviation industry took effect on August 1, 2002. These
revisions widened foreign investor's access to the air
transport market. The regulation relaxed the share-holding
limitation in domestic airlines and airports form 35 % to 49%.
No limitations are set for air cargo ground services and
warehousing. Foreign investments together with modern
operation techniques and management are expected to
improve the operation efficiency and stimulate the domestic
market.
West Region Development Strategy
As mentioned earlier, the economic development in the vast
West region is slower than the East of China. The West Region
Development strategy, established in November 1999, has the
goal of accelerating the economic development. The
government's investment focuses on infrastructure construction
as well as ecological protection and restoration. The West has
abundant natural resources and low labor costs. These factors,
coupled with infrastructure improvements, are expected to
provide new investment opportunities. The large distance
between the Western and Eastern cities coupled with the weak
surface transportation infrastructure in the West implies an
important role for air transportation and air cargo in this region.
Shipping
World shipping industry has been undergoing a structural
change over the last decade and the changed map has never
been clearer nowadays. The feature of the change is that, Asia,
notably East Asia, has overwhelmingly become the powerhouse
of world shipping business as the largest importer of raw
materials and largest exporter of manufactured goods. Though
Asia GDP figure is smaller than the US and European Union this
region has consumed more raw materials and produced more
manufactured products than either of them.
Asia imported about 15 million barrels of crude oil per day in
2003, accounting for 43% of world oil trade. As for the three
major dry bulk cargoes of iron ore, coal and grain, Asia
imported over 1.3 billion tons, 57% of the world trade of these
goods. In terms of container trade, Asia's port throughputs
were 152 million Twenty feet Equivalent Units (TEUs) in 2003,
52% of the world total; Asia has taken the leading position in
all of the major shipping categories.
To meet these multi-product demands, seaborne freight
tonnage to China have increased dramatically and over a
relatively short period of time. Tight ship availability and strong
freight demand origination from China have increased freight
rates by 200% from January 2003 to April 2004. In an effort to
maximize their return, seaborne shipping companies have
redeployed in the shipping fleet to Asia generating a shortage
of carriers in the Europe-to-US fleet. As a result, freight rates
have increased in Europe as well and a decline in ship
availability in Europe has materialized. Indeed, despite
expanding economic growth and increased trade demands, the
number of bulk carrier ships worldwide was stagnant for 1985
to 2001. China's dramatic increase on international shipping
demand was largely unforeseen by the shipping industry.
This surge in the shipping industry, while necessary for
China's economic growth, has put tremendous pressure on the
ports and the mainland transportation system, as once again
everything is piling up on the Eastern coast.
Market
Forecast
The Chinese government plans to quadruple GDP by 2020
from the 2000 level, implying an average annual growth rate
of 7.2%. This rate has been substantiated by other
recognized organizations and institutes, such as Morgan
Stanley, World Bank Group, and London based Consensus
Economics Inc.
Since economic growth has been the prime driver for air
cargo demand, the aggregate forecast of future air cargo in
china can be projected based on the relationship between air
cargo demand and economic development. Given the GDP
projections, forecasts of air cargo carried by domestic Chinese
airlines can be derived. The average growth rates of air cargo
carried with respect to low, baseline and high predictions are
8.6%, 11.2%, and 14.0% respectively. The baseline prediction
is higher than Boeing's prediction of 10.5%.
As mentioned before, the average trip distances of both
international and domestic cargo flown by mainland Chinese
airlines have been increasing over the years. In the future, for
the market, more cargo is expected to flow between the
Western and Eastern cities implying that the average trip
distance will continue to increase. For conservative purposes,
current average trip distance is assumed for forecasting period,
implying that baseline Freight Tonnage per Kilometer (FTK) is
expected to grow at 11.2% as well. Therefore, the total
throughput at mainland airports is expected to grow at the
same 11.2% per annum baseline projection.
For the baseline projection, the forecasts project that the air
cargo traffic performed by domestic Chinese airlines will expand
more the seven fold from its 2002 level by 2020. The air cargo
traffic performed by domestic airlines is expected to grow to
34.8 billion freight-ton kilometers by 2020. The total cargo
throughput in mainland airports is expected to reach 27 million
tons. These expansions in air cargo will create opportunities and
impose challenges for system infrastructure.
Natural Resources and Raw
Materials
As China continues to its impressive economic growth, access
to natural resources and raw materials is becoming increasingly
vital, and will feature more prominently on the policy agenda of
the decision makers in Beijing. If China seeks to maintain its
economic growth rate of 1985-2003, it will face a major raw
materials shortage and will be forced to focus on Eurasia as a
source of major energy resources, water and food. This is likely
to lead to growing economic and political involvement in Russia
and Central Asia.
The Chinese government has designated oil, minerals, grain
and water as strategic commodities with maximum influence
on economic development. While China is the world's fifth
largest oil producer, demand is outgrowing economic
production. By 2020, china will not be able to supply itself
with oil, iron, steel, aluminum, sulfur, and other minerals.
Official Chinese statistics show China's oil production growing
at the rate of 1.7% a year, while demand is growing at 5.8%.
China is a net importer of oil since 1993.
A third of imports will come from Russia, some for the Caspian
and Central Asia, and the rest from the Middle East area.
Economic cooperation is already a high priority in the Sino-
Russian partnership, and is increasingly important in Beijing's
relations with Central Asia. Neighboring Siberia boasts the large
oil fields in Kovykta; natural gas fields in Yakutia; and coal
basins and millions of acres of pristine forests. Some of the past
overlooked oil deposits have now become more viable with the
price of oil rising to above $ 30 a barrel. China itself is
prospecting for oil and natural gas in the Tarim basin in
Xinjiang, Western Region and constructing a 2,600 mile long
East-West oil and gas pipeline which may cost as much as $18
billion.
This appetite for natural resources will open doors for major
capital projects aimed at supplying China, such as oil, gas, and
water pipelines. China and other Pacific industrial powers such
as Japan and Korea, form the largest oil-consuming region in
the world. China experts predict that Russia will be able to
export annually 25 to 30 billion cubic meters of natural gas to
China annually; 15 to 18 billion kilowatts of electricity for
hydroelectric poser stations in Siberia and 25 to 39 million tons
of oil from the Kovykta oil field in Eastern Siberia. For the
foreseeable future, the West will remain China's leading
investment and manufactured goods trading partner while
Eurasia will become an important source of raw materials.
However, it is on the East Siberian-Far Eastern petroleum
province where geographical and geological constraints
converge with vengeance. According to the revised version of
the officially promulgated Energy Strategy, East Siberia and the
Far East must account for most of the increase on output after
the end of this decade. This means that the East Siberian
province needs to provide nearly half of all new oil, both for
replacement and for any net increase by the early years of the
2010 decade. The convergence of these severe and
independent constraints will, on the one hand, delay Russia's oil
industry unto a much higher cost plane, which in view of the
over such long time horizon may further slow development.
This is especially true, since the largest potions of capital
outlays in the East Siberian province will coincide with sharp
deterioration of field conditions and consequent investment
demands in the West Siberia itself.
The geographic obstacles of developing the East Siberian
petroleum province need little elaboration. Even the most
promising sections for hydrocarbon exploration lie 500-700
miles further east that the oil producing centers of the Middle
Ob River, Western Siberia; they are 700-1000 miles from the
steel and machine building industries of the Urals, as the crow
flies. Real distances for supplies via the TransSiberian Railway
and river transshipment during the short summer season are far
greater, and only primitive winter roads and helicopters can
approach the sites themselves. Such geographic constraints are
unmatched in it history of Russia's oil industry.
Future Outlook for Hybrid
Air Ships
The China situation is different than for Canada, at least in
the near term. The immediate need is to compliment the
existing transportation systems. The infrastructure existing and
being developed in the next few years will be adequate for the
short haul routes, which is not the strong point of hybrid air
ships. In the mainland, the transportation to the Western
regions is a rising issue. There is only one major Western
airport, Urumqi. With VTOL and amphibious capabilities, the air
ship will be able to make point-to-point deliveries and pickups
in the Tarim oil fields, located in China's Western region, and to
other locations where no existing infrastructure exists. This will
also allow raw materials to be returned to the Eastern sea ports
or to processing plants within East Asia. Other air ship missions
will also be available within East Asia to circumvent already
over burdened air and sea ports. The movement of cargo on the
international level will also afford many opportunities for air
ships, especially moving heavy, over sized equipment. With
China's economy increasing at 7% to 11% in virtually all areas,
it will be a necessity to find some solution to the bogged down
transportation modes, and at a reduced operating cost, to be
able to keep the economy moving towards the government's
goals.
In the long run, it will be essential for China that the Eastern
Siberia oil reserves be developed. This situation mirrors the
Canadian situation, where it will require something like the
hybrid air ship to transport equipment, supplies and people to
the desired locations.
Copyright © 2023
Millennium Airship Inc/SkyFreighter
Canada Ltd
This surge in the shipping industry, while necessary for
China's economic growth, has put tremendous pressure on the
ports and the mainland transportation system, as once again
everything is piling up on the Eastern coast.