VZCZCXRO2216
OO RUEHCN RUEHGH RUEHVC
DE RUEHGZ #0670/01 1630728
ZNR UUUUU ZZH
O 120728Z JUN 07
FM AMCONSUL GUANGZHOU
TO RUEHC/SECSTATE WASHDC IMMEDIATE 6148
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/USDOC WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEAIIA/CIA WASHDC
RUEKJCS/DIA WASHDC
RHHMUNA/HQ USPACOM HONOLULU HI

UNCLAS SECTION 01 OF 04 GUANGZHOU 000670 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EAP/CM AND EB/TRA 
USDOC FOR 4420/ITA/MAC/MCQUEEN 
TRANSPORTATION FOR A/S STEINBERG/GLATZ/RAO 
USPACOM FOR FPA 
 
E.O. 12958: N/A 
TAGS: EAIR ECON CH HK
SUBJECT: South China Airports: Capacity Shortage, 
Expansion, and Competition 
 
REF: A) 07 Guangzhou 206 
 
     B) 07 Guangzhou 109 
     C) 06 Guangzhou 32347 
     D) 06 Guangzhou 32163 
     E) 06 Guangzhou 18105 
     F) 06 Guangzhou 16330 
     G) 06 Guangzhou 13550 
     H) 06 Guangzhou 11471 
     I) 06 Guangzhou 8841 
 
(U) This document is sensitive but unclassified.  Please 
protect accordingly. 
 
¶1. (SBU) SUMMARY: To meet the rapidly mounting demands of 
passengers and cargo transportation, major civil airports 
in the Pearl River Delta (PRD) region are gearing up to 
upgrade their infrastructure and service.  Fierce 
competition is expected as both airports and airlines 
compete for a bigger slice of an ever-growing pie.  The 
General Administration of Civil Aviation of China (CAAC) is 
working to optimize air space utilization and is calling 
for cooperation among the airports.  END SUMMARY. 
 
Mounting Demand and Conflicts in the PRD 
---------------------------------------- 
 
¶2. (U) On March 18, 2007, an industry consultant told AFP 
in Singapore that Asia will overtake North America as the 
world's biggest aviation market by 2025.  Airports in Asia 
are operating at close to full capacity and investment is 
urgently needed to upgrade infrastructure.  The consultant 
predicted that traffic growth will exacerbate capacity 
shortages at many Asia-Pacific airports and it is vital 
that new infrastructure be developed.  On March 27, 2007, 
Chen Wenyi, a senior official from CAAC Central and 
Southern Regions also pointed to the growth in air traffic 
in the PRD region (15-20 percent per year year from 2005 to 
2010) and said that the five major civilian airports in the 
region - Hong Kong International Airport (HKIA), Guangzhou 
Baiyun International Airport, Shenzhen International 
Airport, Macau Airport, and Zhuhai Airport - are working to 
upgrade their operations.  The five airports currently have 
seven runways and could add four or five more. 
 
¶3. (SBU) Currently, there are three separate air traffic 
control centers in South China: Guangzhou, Hong Kong, and 
Zhuhai.  Four of the five airports - Hong Kong, Shenzhen, 
Zhuhai, and Macau - are within a 65km radius; Guangzhou is 
within 140km of the other four airports.  Proximity of the 
five airports creates operational challenges as aircraft 
fly near or across sector boundaries and have to be rapidly 
transferred from one air traffic control facility to 
another.  Most airspace within the PRD (and throughout all 
of mainland China) is reserved for military use, thus 
airspace available for civil aviation is insufficient to 
accommodate expected air traffic growth in the coming years. 
In order to avoid conflicts between flights that arrive in 
Hong Kong and those departing from Macau and Zhuhai, Hong 
Kong International Airport (HKIA) arrivals are required to 
stay above 5,000 meters once entering Zhuhai's control area. 
This creates problems for those planes flying into HKIA 
from the north (over the mainland), as they are too high to 
drop down and land at HKIA; as a result, they fly extra 
miles to the south to descend safely to the HKIA runway. 
The uncoordinated runway directions of the five airports 
create overlapping and crossing arrival and departure paths 
that further increase, perhaps dangerously so, air traffic 
congestion in the region. 
 
CAAC Calls for Cooperation Among Airports 
----------------------------------------- 
 
¶4. (SBU) To reduce air traffic congestion in the PRD 
region, CAAC Vice Minister Yang Guoqing said that the 
mainland will increase cooperation with the airport 
authorities in Hong Kong and Macao.  On March 15, another 
senior CAAC official disclosed that a procedure, known to 
the global aviation community as Reduced Vertical 
Separation Minimum or RVSM, will be implemented by November 
¶2007.  This procedure reduces vertical separation standards 
 
GUANGZHOU 00000670  002 OF 004 
 
 
from 2000 feet to 1000 feet, increasing en route 
capacity.  Hong Kong is also studying how to optimize air 
space utilization and reform air space 
management.  Proposals, including removing the 5,000 meter 
"air wall" between Hong Kong and mainland China, are being 
studied. 
 
¶5. (SBU) CAAC officials commented that HKIA tops the market 
with an excellent overseas airline network and outstanding 
service, while Guangzhou Airport has the best 
infrastructure and lowest operating costs.  Shenzhen 
Airport will focus on the cargo sector.  Zhuhai can take 
advantage of its cooperation with Hong Kong and serve as a 
bridge between Hong Kong and the mainland.  Located in a 
popular tourist spot with many budget airlines, Macao 
Airport can develop its international passenger sector. 
Still, it is clear that there is one, possible two, 
airport(s) too many for the area covered. 
 
¶6. (U) Guangzhou's Nanfang Daily reported that on June 2, 
representatives from five major airports in the PRD signed 
an agreement in Hong Kong.  They agreed to stand up a 
coordination team and to restart the PRD A5 Forum after a 
4-year suspension. 
 
Airports Scale Up: 
HKIA Integrating with PRD Aviation Sector 
----------------------------------------- 
 
¶7. (SBU) HKIA is the world's fifth busiest international 
passenger airport and has the most active worldwide air 
cargo operation.  In light of Hong Kong's continued 
economic integration with mainland China, HKIA is expanding 
into the PRD region and serves as a gateway hub airport to 
China.  In October 2006, the Airport Authority of Hong Kong 
(AAHK) moved more directly into the mainland aviation 
sector by taking over the management of Zhuhai Airport. 
AAHK is expected to ramp up its investment in the fast- 
growing mainland aviation sector with a joint venture at 
Hangzhou Xiaoshan International Airport. 
 
¶8. (SBU) HKIA has invested HKD 4.5 billion (USD 577 million) 
in construction projects at the central arrival concourse 
at Terminal 1, in passenger capacity enhancements, and in 
airfield improvements.  The permanent SkyPier is under 
construction and scheduled to open in 2008 to provide 
cross-border ferry service to passengers.  Passengers in 
both directions can bypass customs and immigration 
formalities, nearly cutting in half the current four-hour 
transit time.  To further streamline the transit process at 
the border, AAHK joined with Cathay Pacific Airways and 
Hong Kong Dragon Airlines to launch up-stream check-in 
services at the Shekou ferry terminal for sea-air 
passengers; passengers can obtain their boarding pass and 
receive a guaranteed acceptance of carriage before arriving 
at HKIA. 
 
¶9. (SBU) HKIA is constructing ten additional cargo stands 
and related taxiways to facilitate air freight movement; 
the total number of cargo stands will reach 35 by the end 
of this year.  AAHK is also working with the Civil Aviation 
Department to maximize runway capacity and conduct a 
feasibility study on the construction of a third runway. 
 
¶10. (SBU) Even with this development and expansion, Hong 
Kong authorities have not agreed to further liberalization 
of the U.S.-Hong Kong Air Services Agreement since 2002. 
 
Guangzhou Creating World-Class Aviation Hub 
------------------------------------------- 
 
¶11. (SBU) Guangzhou plans to develop Baiyun Airport - 
headquarters of China Southern Airlines - into one of the 
key hubs in the Asia-Pacific region.  Business expansion 
has exceeded the design capacity of the airport's Phase I 
operating plan.  In 2006, passenger throughput was 26.2 
million, and cargo throughput was 653,100 tons, ranking 
third nationwide after Beijing and Shanghai.  The airport's 
Phase II operating plan, expected to be completed in 2010, 
entails an investment of RMB 17.5 billion (USD 2.16 billion) 
 
GUANGZHOU 00000670  003 OF 004 
 
 
and includes the construction of a third runway, aprons, 
two international cargo terminals, a freight transportation 
hub for FedEx (ref A), and a tax-free zone for processing 
and logistics. 
 
¶12. (SBU) Baiyun Airport is looking to foreign investors 
for capital input and advanced management ideas.  Several 
overseas airport operators - including companies based in 
France, Singapore, Hong Kong, and Germany - have reportedly 
approached Baiyun to discuss possible partnerships.  On 
March 23, Baiyun Airport confirmed that it was in 
partnership talks with the Frankfurt-based Fraport AG, and 
both sides had agreed to cooperate. 
 
¶13. (U) On March 22, Guangdong Airport Group, Guangzhou 
Airport Customs, Guangzhou Baiyun Entry-Exit Frontier 
Inspection Office, and the Guangzhou Entry-Exit Inspection 
and Quarantine Bureau signed a strategic cooperation 
agreement to initiate more than 30 "innovative" services, 
such as 24-hour passenger clearance service, a Credible 
Enterprises System, simplified customs procedures, a multi- 
point declaration policy, and a visa-free transit policy. 
 
¶14. (SBU) Guangzhou city is making Baiyun Airport the 
commuter transportation hub for highway, railway, metro, 
light rail transit (LRT), and China Railways Highspeed (CRH) 
train.  Guangzhou's Metro Line 3 will be connected to the 
airport by 2009; 12 regional highways linked to the airport 
by 2010 will put any PRD city within a two-hour drive; and 
a new railway station at the airport will be linked to 
passenger transport and freight services by 2020. 
 
Shenzhen International Airport Focusing on Cargo 
--------------------------------------------- --- 
 
¶15. (SBU) International cargo traffic at Shenzhen Airport 
rose by 83 percent in January 2007.  Cargo throughput will 
likely grow an additional 25 percent in 2007, potentially 
surpassing Baiyun Airport in cargo handling volume.  The 
Shenzhen municipal government has promised to support the 
logistics industry by providing a RMB 10 million (USD 1.3 
million) subsidy per year for new international cargo 
routes. 
 
¶16. (SBU) FedEx and Asiana Airlines will open new routes 
from Shenzhen this year, and two Chinese private cargo 
airlines will set up bases at Shenzhen Airport.  To cope 
with increasing demand, the airport is accelerating its 
expansion, including a sea fill project, the construction 
of a 3,600m long runway, and a new terminal.  Airport 
management expects the expansion to be completed in 2008 
and should satisfy anticipated transportation needs through 
¶2020. 
 
Zhuhai to Develop with Hong Kong's Help 
--------------------------------------- 
 
¶17. (SBU) AAHK took over the management of debt-ridden 
Zhuhai Airport last year, completing a series of 
renovations of airport facilities, and beginning work on 
Hai Tian Pier, scheduled to open by 2008; ferry service 
will be provided to airports in Hong Kong, Macao, and 
Zhuhai.  Airport management announced that the first 
international cargo route from Zhuhai to Manila will open 
this year.  Two new airlines have also been invited to 
operate domestic routes from Zhuhai.  For now, Zhuhai 
Airport will be used mainly for cargo business.  However, 
the Zhuhai municipal government recently announced its 
intention to build a strong aviation industry, integrating 
flight training, aviation conferences and exhibitions, and 
aircraft maintenance facilities. 
 
Macau International Airport 
--------------------------- 
 
¶18. (SBU) Macau International Airport Company (CAM) 
announced March 29 that passenger volume in 2006 was 
4,976,093, cargo throughput was 220,572 tons, and 51,409 
aircraft movements were recorded.  Total operational 
revenue for 2006 reached MOP 573 million (USD 71.6 million), 
 
GUANGZHOU 00000670  004 OF 004 
 
 
a growth of 21.1 percent compared to 2005.  Gross profits 
amounted to MOP 223 million (USD 27.9 million), a 72.3 
percent growth over the past year.  CAM has invited 
Netherlands Airport Consultants to create a five-year 
expansion plan for Macau International Airport (MIA).  The 
plan will focus on infrastructure expansion, including a 
new apron, new hanger, and increasing the length of the 
runway from 3,360m to 3,860m.  MOP 4 billion (USD 500 
million) will be invested to complete the expansion by 2011. 
 
COMMENT: Tremendous Growth and Competition 
------------------------------------------ 
 
¶19. (SBU) Enormous growth opportunities and increasing 
competition in civil aviation exist in the PRD region. 
Airports' capacity shortage and air traffic congestion will 
continue to hinder the development of regional civil 
aviation in the near term, while expansion plans will 
attract major investment in the sector.  Demand will expand 
as the economy continues to grow at more than 12 percent 
per year in the PRD region. 
 
¶20. (U) This cable was coordinated and cleared with 
Consulate General Hong Kong, Embassy Beijing, and the 
Federal Aviation Administration. 
 
GOLDBERG