POSITION & HOLD

China's economic growth opens skies for bizjets

Prosperity promotes increased air traffic and permits Chinese execs to purchase private aircraft.


GE is the world's largest aircraft lessor and the first international lessor of the ARJ21, a 70 to 90-seat regional jet that combines Chinese design with advanced GE engines. Some 340 ARJ21s have been ordered to date.

Wages in China have been growing by 17% per year, and by 20% or more in some of the most heavily industrialized regions. For managers and skilled workers, wage growth averages around 135% annually.

At that rate, it may not be long before US manufacturers decide that it is easier, and not much more expensive, to bring their production home.

A few have done so. Caterpillar, Wham-O, NCR and Sauder, a furniture-maker, are all moving some of their operations back to the US plants, adding 4000 jobs that once would have been likely to go to China. They could be the pioneers of a new trend that would help to undermine Chinese prosperity.

Energy is beginning to pose challenges as well. Demand for electricity in China is rising by more than 13% per year. Supply is not. As a result, China faces peak electricity shortages that grow every year.

A poll of 232 Chinese manufacturers in mid-2011 found that nearly 75% had hiked their prices the previous year owing to the rising cost of power and materials. Many expected to do so again in 2011. One textile maker commented that he could barely make a profit with electricity prices of 1.5 yuan per kilowatt-hour.

To ensure their own supply, many companies are having to buy diesel generators, which cost 2 yuan per kWh to operate. This trend threatens both export sales and employment.
In the longer run, there is an even harder problem. Beijing's 1-child policy has kept the country's population under control.

Road traffic in Beijing is growing rapidly as car sales jumped by 33% in 2010 and 52% in 2011. The pace is expected to slow in 2012.

At 0.5% per year, its growth is among the lowest in the world. According to the 2010 census, China was home to only 222 million children age 14 or under. By 2045, according to the United Nations, there will be only 140 million.

For the moment, this is not a problem. China has a working-age population of nearly 1 billion. But that number will begin to decline in 2014, while the number of seniors will rise quickly.

By 2020, over 23% of Chinese citizens are expected to be age 65 or older. And that is trouble, because China has no adequate pension program to support its elders.

Some 70% of seniors instead depend on their children to support them, and there will not be all that many young people to do the job. That kind of drain on the economy could undermine Chinese prosperity for decades to come.

There won't be all that many younger people entering the work force either, which could mean that China faces labor shortages as well.

Over the horizon

China is outsourcing much of its pilot training. Shanghai Airlines sends students to Scandinavian Aviation Academy, while Beijing University of Aeronautics and Astronautics contracts with Moncton Flight College.

Forecasts of growth in bizjet sales and demand for pilots in China all depend on continuing prosperity.

Even in lean times, Chinese companies will still buy corporate aircraft and hire pilots. But there won't be nearly as many of them as there would if economic growth continued at or near double digits. And, as we've seen, that no longer seems as certain as it once did.

It's not that any one of the dangers facing China today is so bad—although all those debts and the possibility of an unsustainable real estate bubble are certainly bad enough. It is that there are so many of them. It is becoming harder each day to see how China can avoid a painful stumble when there are so many opportunities for it.

Chinese students learn about engine systems.

Many economists have trimmed their expectations for China since early 2011. Then the analysts at Credit Suisse forecast GDP growth in 2011 of better than 9%, and perhaps even a bit more than 10%.

Now they are guessing 8%, with a chance of further slowing in 2012.

The consensus so far is that China's economic growth will begin to accelerate again in 2013. But all it would take to derail that forecast is a debt crisis. Or a collapse in real estate.

Or a downward spiral in exports if the US and Europe sink back into recession.
Worse, aviation is not the only industry looking to China for tomorrow's growth. If Beijing faces problems it cannot handle, shrinking exports to China will slow economic progress throughout the world.

That could mean that sales of executive jets fall short of expectations, not only in China but in North America and Europe.

It will be 2 or 3 years before we can tell how China's economic future will play itself out. But for anyone whose livelihood depends on aviation, it is one of the most significant factors now shaping the future. This is one story that professional pilots will want to watch.

Marvin Cetron is a forecaster/ futurist and president of Forecasting Intl. His 1994 study for the Pentagon, Terror 2000, contained numerous predictions of the subsequent course of terrorism.


3


1 | 2| 3