Hong Kong's aviation growth appears on the radar screen as both extremely promising and very unsettling.

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Hong Kong has been the West’s gateway to China for centuries, but the recent volcanic rise of Shanghai and the economic wonders of the mainland have captured the world’s imagination. This is leading some to question how long Hong Kong will be able to keep her seductive grip on our commerce as well as our attention.

The whole “coming and going” of Hong Kong is mind-boggling. As you cross Victoria Harbor from Kowloon to Hong Kong, commerce scrambles madly into the vanishing point. Ships jam up outside Kwai Chung, the world’s busiest container port, and shipping containers as well as hotels and apartment buildings are stacked to seemingly impossible heights.

But if mainland China is to render Hong Kong obsolete, the leaders of that country have a lot of work to do. For instance from the air the Chinese market for business aviation would seem to offer a bonanza of opportunity as a country with 1.5 billion people and a GDP growth in double digitsmakes do with so little general aviation. Like so much of China however what seems so enchant- ing also proves to be very complex.

Unfavorable regulatory regimes and a lack of general aviation infrastructure form pernicious barriers that will take years to overcome. Even so, all of the aviation industry manufacturers we contacted appear to be very upbeat about the region’s prospects, and evidently no one doubts the capacity for growth in China and Hong Kong. The Potential Remains Strong

“Though a number of significant barriers remain in China—airspace restrictions, inadequate infrastructure, and fiscal disincentives to the importation of general aviation products—the trend appears to be in the right direction,” explains Ed Smith, Senior Vice President of International Affairs for the General Aviation Manufacturers Association (GAMA).

“Growth throughout Asia is anticipated, and it appears Hong Kong and China may lead in the actual numbers,” adds Roger Sperry, Gulfstream’s Vice President, International, South America and the Far East. “We have seen several aircraft acquisitions in the Hong Kong market over the last three years, and outside of Japan, Hong Kong is the largest base for Gulfstream products with multiple G550, G450, and G200.”

Other manufacturers are posting similar reports—Cessna’s 2005 highest sales increase was in China, leading both Australia and Japan.

“We definitely see China as a growth market,” emphasizes Jeff Dunn, Boeing Business Jet (BBJ) sales director for Asia. “As a leading indication of that potential we can look to the rapid growth of commercial aviation in China. The expected annual air traffic growth rate of 7.4 percent is one of the highest of any region in the world, and we expect private aviation to follow suit.”

About 14 percent of BBJs ordered so far have come from operators based in the Asia region, and the company is experiencing increasing market interest in these countries. The cloud to all this silver lining is the lack of infrastructure.

“There is a lack of FBOs, landing slots, and related business aircraft support,” points out Sperry. “This will have an impact on the speed at which this industry will grow. Significant progress is planned in the near future but will take time to fully develop.”

All told China, the fourth largest country in the world, has less than 50 airports, and in general one large airport serves the major cities.

“Asia is behind where the United States was five decades ago,” notes Chris Buchholz, Executive Director and COO of Metrojet, an aviation-services firm that operates in Hong Kong. “We’re really just beginning to emerge in this market. If you add up all the jets in East Asia, there would be far fewer than there are in a midsize US city. In most of Asia you don’t really have a general aviation industry — you don’t have Cessnas or turboprops flying around so most overflight schedules and fees are based on domestic airlines,” Buchholz explains, pointing out that as a result handling costs (overflight fees) are very expensive and landing fees are huge.

“As for cross-border operations - which is really the deal in Asia — we will have to see handling costs come way down. In the United States you don’t have to land at LAX, you can go to Hawthorne or to Long Beach—the list goes on and on. Here if you go to Shanghai, you have to land at Pudong and in Beijing you have to go to Beijing Capital. That’s just how it is.”

Overcoming the Obstacles

So the region faces a bit of a chicken-and-egg situation: Do you build more fields or do you wait for more aircraft? And what about pilots to fly the additional aircraft?

GAMA’s Smith points out that the region suffers from a lack of certified pilots but the market has started to respond to this problem. In 2006 Cessna began delivery of 42 Cessna 172s to the PanAm International Aviation Academy’s Commercial Pilot Training Program. Diamond Aircraft has not only delivered aircraft to a Chinese flight training academy but has also entered into a joint venture to build an assembly plant located at the airport in Binzhou Dagao, in the Shandong province approximately 350 kilometers southeast of Beijing.

While area leaders are actively working to train additional pilots, they have taken few steps to overcome other obstacles. Smith notes that in “addition to current airspace restrictions and the absence of adequate infrastructure, the current fiscal regime makes it expensive to import general aviation products.”

Buchholz adds that if “you operate a flight domestically in China and you are from the United States, you are at a serious disadvantage as to how long it will take to get flight clearances. You will still get them, but it will take longer and you may be restricted as to how many stops you are able to make. The number of days needed to get clearances from some countries can be quite a bear. It’s not like the United States where you can jump on a plane and go.” Taxation also remains a barrier for mainland aviation.

“When you import a business jet into China you pay a huge tax, about 20 percent, but in Hong Kong there is no such tax—Hong Kong is a free economy,” emphasizes Buchholz. Industry players have been lobbying for changes, making the point of the multiplier effect of business aviation.

“Throughout our relationship with Chinese officials, we have emphasized the mutual benefit that a strong general aviation industry brings, and we have found that Chinese officials have become increasingly receptive to this view,” Smith reports.

“We have also emphasized that general aviation can play an important role in China’s economic development, but that it must begin with the removal of barriers to the development of a strong domestic general aviation market. “It will not blossom until governments throughout Asia realize that their taxable

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