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Zoedyn
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Crunching numbers of Chinese governmental subsidies on international routes: A sneak peek

Tue Jun 05, 2018 6:19 am

http://news.ifeng.com/a/20180108/54917973_0.shtml

The Chinese report in the link above, published in Jan 2018, is titled "Is it worthwhile for Tier-2, Tier-3 cities to expend tens of millions CNY on opening international routes?"

Irrespective of how that controversial question gets addressed, the report does manage to disclose some significant info regarding the amounts of subsidies earmarked by Chinese governments at various levels to incentivize airlines to open international/intercontinental routes

Here's a snapshot of some numbers
A subsidy exceeding 10 million CNY/approx 1.5 million USD is commonplace

Shenzhen City, Guangdong Province
Per a 2016 subsidies document by the government of Shenzhen City, an airline would be eligible to secure the following amount of governmental subsidies, provided it operates out of Shenzhen Airport an intercontinental/international nonstop to new destinations in Europe/North America/Oceania/Africa/Arab Peninsula with at least twice-weekly flights up to a year's consecutive operations
For the 1st year, 80 million CNY/12 million USD for a service to destinations in Oceania/Arab Peninsula; 100 million CNY/15 million USD for destinations in Europe, North America, Africa
For the 2nd year, the subsidy would be 75% of the 1st year's amount
For the 3rd year, the subsidy would be 50% of the 1st year's amount


Changsha City, Hunan Province
According to the press release of the Bureau of Finance of Changsha City, for the first half of 2017, a sum of 118 million CNY/18 million USD was earmarked for the opening of important air routes by the government of Changsha City as well as the government of Hunan Province

Guangzhou-Changsha-Frankfurt/CAN-CSX-FRA got subsidized at 68 million CNY/10 million USD, CSX-SYD at 43 million CNY/6.5 million USD

Qingdao City, Shandong Province
According to the 2017 budget statement featuring special fiscal funds released by Qingdao City, a combined total of 497 million CNY/77 million USD was earmarked to subsidize 4 intercontinental services to Frankfurt, Vancouver, Melbourne, San Francisco.
Particularly, the Capital Airlines under HNA got a subsidy of up to 138 million CNY/21 million USD for the TAO-MEL service opened in 2016

Guangzhou City, Guangdong Province
According to the 2017 budget statement of the Transportation Council of Guangzhou City, a sum of 40 million CNY/6 million USD was earmarked to subsidize a new international pax/freight route respectively
China Southern, the home base carrier at CAN, secured up to 268 million CNY/40 million USD as subsidies for its newly-opened international nonstop services out of CAN

Shanghai Municipality
Governmental subsidies are not confined to Chinese tier-2 cities
According to a 2016 governmental document governing the use of special fiscal funds to strengthen Shanghai as an aviation hub, released by the Bureau of Finance of Shanghai, subsidies apply to new medium/long-haul international routes, and medium/long-haul international routes that get resumed or additional frequencies, with each such new international service receiving a subsidy of 30 million CNY/4.5 million USD

Any thoughts on the various subsidy numbers? How do they compare to the amounts of subsidies that you know are found to exist elsewhere as a practice to promote local economic development?
 
DGVT
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Re: Crunching numbers of Chinese governmental subsidies on international routes: A sneak peek

Tue Jun 05, 2018 6:59 am

Hi Zoedyn

Thanks very much for translating. I was always interested how high the subsidies in China are. Often I wonder how certain long haul routes to the US and Europe can be viable.
I see that the subsidies vary quiet a lot depending on the city. Does your link support the assumption that the more established/developed (Tier 1) cities (PVG, CAN, etc.) pay less then the less established ones?
 
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Zoedyn
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Re: Crunching numbers of Chinese governmental subsidies on international routes: A sneak peek

Fri Jul 20, 2018 11:44 am

China's southwest Yunnan Province has lately rolled out its scheme to subsidize 55 international routes out of Kunming Airport/KMG to push for closer air connectivity with neighboring South Asia and Southeast Asia during 2018-2020, including 17 new pax nonstops, 8 new cargo routes, and another incumbent 30 links with additional frequencies, as per this Chinese report 地方航线补贴暗战正酣 云南将为55条航线发补贴Yunnan Province adds fuel to subsidy war by handing out subsidies to 55 international routes

For each two-way flight, a new route would receive a subsidy ranging btwn 50,000-300,000 CNY (approx 7,500-45,000 USD) , while a current link with increased frequencies would get 20,000-40,000 CNY (3,000-6,000 USD)

It seems that Yunnan Province has finally awoken to the importance of subsidizing in a race for hub status among Chinese airports. No one knows how and when this horrific Chinese subsidizing war would wind down if ever


DGVT wrote:
Hi Zoedyn

Thanks very much for translating. I was always interested how high the subsidies in China are. Often I wonder how certain long haul routes to the US and Europe can be viable.
I see that the subsidies vary quiet a lot depending on the city. Does your link support the assumption that the more established/developed (Tier 1) cities (PVG, CAN, etc.) pay less then the less established ones?


Yes, that's largely true. For instance, PEK is seldom reported to grant airlines subsidies for opening whatsoever services (political routes are of course a different thing)

Also the amount of subsidies pretty much depends on the pocketbook of a city/province
 
Flighty
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Re: Crunching numbers of Chinese governmental subsidies on international routes: A sneak peek

Fri Jul 20, 2018 12:08 pm

When you have a 4 cent RASM and an 8 cent CASM... something is going on. Just as a theoretical example. We can estimate the figures from the pricing and the equipment that we see. We don't need to be in the smoky room where these things are decided. We can see from outside what is going on. That is already proof that subsidy is taking place. How about aircraft capital cost? Doesn't seem to be included above.
 
SCQ83
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Re: Crunching numbers of Chinese governmental subsidies on international routes: A sneak peek

Fri Jul 20, 2018 12:13 pm

For me the most surprising thing is to learn that tier 1 airports like CAN or PVG pay subsidies to local carriers. I had assumed those would be limited to Tier 2 or Tier 3 cities. Shocking.
 
rutankrd
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Re: Crunching numbers of Chinese governmental subsidies on international routes: A sneak peekr

Fri Jul 20, 2018 12:29 pm

SQC Why do you find it shocking ?

The entire Chinese aviation growth is nery more that a Government backed ponzi scheme and even that has some internal strife between central government agencies and regional government agencies.

The Chinese tax payer is getting pretty poor deal across the board however Xi Jinping has proclaimed aviation be used to project the PRC in the global market place irrespective of profitability.

The CAAC and it’s clients and agents are a far bigger threat in the medium term that those from the desert imho.

Many of the second and third tier routes are little more than charters stuffed with the party supporting and prevaliged Han Chinese middle classes on organised and chaperoned tours and the holds stuffed with cheap and chearful exports. They are not in the main catering for inward investment or trade.
Last edited by rutankrd on Fri Jul 20, 2018 12:36 pm, edited 1 time in total.
 
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Revelation
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Re: Crunching numbers of Chinese governmental subsidies on international routes: A sneak peek

Fri Jul 20, 2018 12:37 pm

Given this is China, we don't know if city government X funding subsidy for route Y actually means that funding ends up underwriting the route. It could very well end up buying apartments in London, etc.
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Wake now, discover that you are the song that the morning brings
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Bogof7478
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Re: Crunching numbers of Chinese governmental subsidies on international routes: A sneak peek

Fri Jul 20, 2018 12:55 pm

The wider economic benefits will far exceed the cost of the subsidy.
 
rutankrd
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Joined: Mon Sep 08, 2003 6:08 am

Re: Crunching numbers of Chinese governmental subsidies on international routes: A sneak peek

Fri Jul 20, 2018 12:59 pm

Revelation. Whilst curruption exists with in Chinese culture it’s not as persistent as other parts of the world - death is certain if identified prosecuted and sentenced.
Think a large neighbour to its west is far more worrisome on that score !

Especially in my city and the surrounding country side of late !

Bogof7478- this is simply the Keynesian economic model at work through it can lead to some dire consequences including a huge tax burden hyperinflation and massive debt. This last item is already apparent in the Chinese economy,the gearing is piss poor for the size of the economy today.
Last edited by rutankrd on Fri Jul 20, 2018 1:21 pm, edited 1 time in total.
 
frmrCapCadet
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Re: Crunching numbers of Chinese governmental subsidies on international routes: A sneak peek

Fri Jul 20, 2018 1:07 pm

I didn't book mark it, but somewhere on site it said that a seat (on a 737/320 maybe) earned $400,000 a year. It struck me at the time that this sort of metric could be a useful tool in assessing airline economics. How might we go about coming up with some sort of equivalent figure for planes of varying sizes and distance flown? It could be close to that for all seats, controlling for sq yds/meters per seat.
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nmdrdh787
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Re: Crunching numbers of Chinese governmental subsidies on international routes: A sneak peek

Fri Jul 20, 2018 1:29 pm

I would love to see an analysis that calculates how much of a route's overall profitability is attributed to these subsidies....
 
Varsity1
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Re: Crunching numbers of Chinese governmental subsidies on international routes: A sneak peek

Fri Jul 20, 2018 4:01 pm

Revelation wrote:
Given this is China, we don't know if city government X funding subsidy for route Y actually means that funding ends up underwriting the route. It could very well end up buying apartments in London, etc.


:lol: Too true

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