By Tongyu Zhang

The Civil Aviation Administration of China (CAAC) recently issued guideline encouraging private investment into China’s civilian airports. Along with reducing the number of state-owned and state-holding airports, private investors now have full access to the construction and operation of civilian airports and  their affiliated facilities. Intermediate services, such as consulting, designing, and airport maintenance, are also open to qualified private and foreign entities. In addition, the approval mechanism for private investment in terminals, logistics, and other operations has been removed. The guideline also emphasizes innovation of financing methods for construction and operation, especially in regards to the public-private partnership (PPP) structure.

In 2015, the civil aviation industry transported 436 million passengers and 6.3 million tons of cargo and mail, and maintained steady performance growth despite the pressure of the slowing global economy, according to the CAAC. With an estimated market value exceeding $1 trillion, China is expected to become the world’s largest aviation market over the next two decades. A positive regulatory environment, in conjunction with policies such as the 13th Five Year Plan and the One Belt, One Road initiative, provide vast opportunities for private investment in China’s airports. However, strict supervision from government authorities remains and there is a limited track record for foreign companies participating in such projects.

Paths to participate in China’s civilian airports market

China had 210 civilian airports by the end of 2015, and will have more than 260 by 2020, according to the 13th Five Year Plan. Accordingly, the CAAC announced an $11.9 billion investment into civil aviation infrastructure in May 2016, including 11 key construction projects and 52 aviation upgrades.

Constructing an airport in China is complex, but several foreign companies already have experience participating such projects, including aiding in the design of Beijing Capital Airport and Guangzhou Baiyun Airport. As the intermediate service market opens up, qualified foreign investors can choose to participate in other stages of the construction process, either individually or as a joint venture. Furthermore, the new guidelines state that private capital can be invested in the comprehensive development of the land, real estate, advertising, and other facilities in the airport economic zone.

Approval for private investment in an airport’s commercial operations, such as terminals, logistics, warehousing, and ground service, is no longer necessary. Instead, a simplified procedure removes barriers for foreign companies to invest in the operations of civilian airports. The Aviation Industry Corporation of China (AVIC) predicts an increase of 4,583 civilian airliners over the next 20 years, indicating the growing need for related airplane support and customer services based in airports.

Airport funding methods

Local governments and civil aviation development funds provide the majority of funding for airports in China. But with the high debt ratio of local governments, this funding structure will no longer be sustainable, making private capital instrumental essential for future construction and the operation of new civilian airports. Based on the new guideline, private capital can directly participate through several different means including franchising, transfer of operation or stock rights, and entrusted operation. Alternatively, private capital can be invested in airport-related trust schemes or equity funds.

The PPP model has a successful track record in constructing transportation infrastructure in China. In terms of airports, the establishment of Hong Kong Zhuhai Airport Management in 2006 allowed Hong Kong International Airport to hold stake in and manage the operation of Zhuhai Airport. Foreign companies can use this practice as a model to participate in China’s civilian airport market. In addition, the National Development and Reform Commission (NDRC) issued a circular in August to promote PPP in traditional infrastructure fields: civilian airports sector is specifically listed in the catalogue.

However, the proportion of foreign investment in Chinese PPP projects has been low in recent years due to the high risk and cost. Project implementation, investment withdrawal mechanisms, and the credit system can all pose risks for foreign investors. For instance, the construction of a project may be interrupted by unexpected social or financial reasons, and the risk of a local government default. Further, foreign investors bear a relatively high cost for communication and evaluation, such as negotiating with the local government through an agent, as well as conducting extensive due diligence. Partnering with domestic enterprises, especially state or local government owned enterprises, is a viable way to get involved.


China’s civilian airport market is multi-dimensional; therefore, it is critical for foreign companies and investors to identify their position in the market. Qualified professional service providers should focus on their specific professional field, be it environmental consulting or special equipment provision. General aviation airports are a good entry point, especially for experienced foreign general aviation companies. Also, unlimited inter-investment between airports and other related market entities offers a key access point to the whole industry. However, due to the capital-intensive and comprehensive nature of civilian airport projects, foreign investors will inevitably need to develop a suitable PPP model in order to participate in the market.


About the Author
This article was originally posted on Asia Briefing Ltd., a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email [email protected] or visit

Posted by Tongyu Zhang