Commentary: Great Expectations For Beijing's Daxing Airport – But At What Cost?

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It was recently announced that Beijing's second international airport, Beijing Daxing International Airport, has been completed. Operations at the airport are expected to begin by the end of September as carriers including Air China, China Eastern Airlines and China Southern begin to fly from the new facility. 

It is expected operate at full capacity by 2025, with four runways and the potential to receive 72 million passengers per year. By 2040 the hub is anticipated to expand to eight runways including one for military use, and an anticipated 100 million passengers per year.

Daxing will also be at the center of a new economic zone to encourage growth in a region that has been based mostly on agriculture and on industries such as steel.

Total costs for this newest Chinese airport will exceed $12 billion once it is finally open and operating.

A rising middle-class and congestion at Beijing Capitol Airport are among the reasons for the construction of Daxing International Airport. As the middle-class continues to expand, other airports are planned across the country. In 2018, according to the Civil Aviation Administration of China (CAAC), Chinese airports handled 1.264 billion passengers, up 10.2 percent over 2017, with 37 of the country's airports each handling over 10 million passengers in a year. In comparison, total passenger volumes in 2017 increased 13.0 percent year-over-year. While passenger volume growth in 2018 was healthy, the increase was clearly not as strong as that of 2017, which may be indicative of a cooling in the Chinese economy.

In comparison, CAAC reported that air cargo and mail volumes increased 4.6 percent in 2018 with domestic volumes increasing 2.5 percent and international volumes increasing at 9.3 percent year-over-year. Once again, the overall growth, albeit positive, was not as strong as in 2017 when cargo and mail volumes increased 5.7 year-over-year with international volumes growing 15.0 percent and domestic volumes increasing 1.9 percent.

In late 2018, CAAC announced plans to construct 216 new airports by 2035. As of October 2018, China had a total of 234 civil airports. A large portion of the upcoming facilities are expected to be located in the Yangtze River Delta region, a densely populated area;  the Beijing-Tianjin-Hebei region; the Guangdong-Hong Kong-Macau Greater Bay Area, considered the primary goods and manufacturing center of China and gateway to the South China Sea; and  the Chongqing and Chengdu city clusters.

The Chinese government has a recurring track record for investing in infrastructure projects to address anticipated growth needs as well as for economic stimulus. But is it cannibalizing existing infrastructure?

Airports in Hong Kong, Guangzhou and Shenzhen, for example, are within 150 kilometers of each other and all are all looking to expand. Guangzhou plans to add a fourth and fifth runway by 2025 and Shenzhen has plans in place for a third. Hong Kong aims to open a third runway by 2023.

In addition, it is estimated that the majority of China's airports operate at a loss. In 2014, news agency Xinhua found that almost 80 percent of small airports in China currently face financial losses and rely on heavy government subsidies to stay in business. Indeed, according to Chinese aviation analysts, large airlines often ignore regional markets due to low profits. Instead, they focus on the large airports in Beijing, Shanghai and Guangzhou, which often causes congestion.

During the 2008 global financial crisis, the Chinese government injected over $800 billion in stimulus to create jobs through large-scale infrastructure projects for new airports, ports, road and rail expansions, real estate and foreign investments.  However, the result was debt to the tune of an estimated 255 percent of its gross domestic product and a corporate debt standing at 160.3 percent, ahead of Japan and the United States.

State-owned enterprises typically manage infrastructure entities but according to the China Power Project at the Center for Strategic and International Studies, state-owned enterprises accounted for more than half of China's corporate debt in 2016, while only accounting for half of its GDP. So, to avoid any type of financial crisis that could have a domino effect beginning with local governments and state-owned enterprises, government investments have continued.

But for how much longer can this type of government investment continue, particularly in today's environment of slowing global trade, manufacturing shifts away from China and the trade war between China and the United States? Those questions are on many peoples' minds but until then, China's middle class will enjoy China's new airports as they take to the skies for domestic or international destinations.

Image Sourced by Pixabay