World Bank Group President Robert Zoellick stated China’s growth is “one very important force in the global recovery” adding that “recovery is happening, but not quick enough … we need a more balanced and sustainable growth” (Xinhua, 07-Oct-2010).
China's growth important to global recovery: World Bank
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Philippines-China air service growth to lift Philippines' Chinese tourism as Duterte changes horses
First bananas, then people. China's lifting of a trade ban against bananas from the Philippines bodes well for aviation. Relations between China and the Philippines turned negative in 2012. The issue was primarily over China's claims to uninhabited islands – a debate that also caused China-Japan relations to turn sour. China banned Filipino banana imports and issued a travel warning against the Philippines. Travel warnings from China carry more weight than in other markets since state-owned/linked travel agencies essentially stop selling the impacted market. Diplomatic rows have resulted in drastic reductions in outbound passenger flows from China.
Japan has more than recovered but the Philippines' underexposure to China is well evident: the Philippines has received the least number of Chinese tourists in Asia. Laos and Cambodia, far smaller than the Philippines, each received more Chinese tourists than the Philippines.
New Filipino President Rodrigo Duterte is pivoting Manila's allegiance away from the US – to China. His presidency is young and the calculation has its sceptics, but China appears to be warming. Following the lifting of its ban on banana trade, China is expected to use President Duterte's visit to Beijing to lift its travel warning against the Philippines. This will likely stimulate large air service growth between China and the Philippines. Yet for existing markets, there is some concern that the Philippines presents new competition.
Chinese long haul secondary city air routes: BA's Chengdu exit does not reflect the broader market
The fastest long haul airline growth is not occurring with Gulf airlines but rather, with services to and from secondary Chinese cities. It is not a secret that local incentives and subsidies, generally common in any market, are especially large in price and duration for secondary Chinese cities. An airline might expect over a third of revenues to be subsidised. This drastically alters the business case in a low-margin industry, hence the proliferation of secondary city services. This extreme dependence on subsidies raises the question of how long governments are willing to issue generous subsidies, and how many routes can be sustainable without them.
British Airways' decision to exit its only secondary Chinese route to Chengdu, in Jan-2017, might suggest the music is ending and the secondary long haul bubble is popping. There is added colour given the recent UK-China air service agreement expansion, and Brexit/British pound depreciation overhangs.
BA's exit does confirm market fundamentals: secondary city yields are low, and some routes are ahead of their time. Yet a number of factors unique to British Airways suggest caution in concluding that BA's Chengdu exit could foreshadow other withdrawals.