The Role of CAAC (the Civil Aviation Administration of China)
The Civil Aviation Administration of China (formerly General Administration of Civil Aviation of China) is the aviation authority under the Ministry of Transport of People’s Republic of China. It supervises civil aviation and examines the aviation safety issues (“Wikipedia”, 2010).
Before the 1980s, the Civil Aviation Administration of China (CAAC) was represented as the department of the air force. The CAAC fulfilled the function as an industry regulator and an owner , which represents the government to serve the purpose of talent management and an operator involving the everyday operation of airlines and airports. In the later 1980s, liberalization of the aviation industry was booming, during this period, the unique CAAC agent was divided into six independent airlines which are totally independent on operation and finance; meanwhile the emergency of non-CAAC airlines was promoted. Therefore, the CAAC monopoly in terms of the provision of flight services was not existed any more.
2.The history, objectives, roles and functions of the CAAC
2.1The first stage (1949-1978)
According to Anne, Andreas& Peter(2008), during the most time of the first stage, the Civil Aviation Administration of China( CAAC) controlled the air transport industry as Air Force. CAAC is under a structure of a four –level management system: “CAAC, six regional civil aviation bureaus, twenty-three provincial civil aviation bureaus, and seventy – eight civil aviation stations.” ( Zhang and Chen, 2003)1. According Anming, Geogre, Lawrence, Waiman, & Yer (2004), it fulfilled the function as a civil aviation regulator as well as administrating services of air transport including flight operations, airport administration and air traffic navigation and control. CAAC regulated every part of the industry, involving market entry, route entry , frequency, ticket price , and also passenger eligibility for air travel. ( Zhang and Chen, 2003, as cited in Anne, Andreas& Peter, 2008)2
During this period, CAAC only supplied limited overseas destinations, because of China’s economy and political issue at this stage. And China’s air transport industry didn’t develop quickly. In the year 1978, it has been seem that CAAC only carried 2.31 million consumers.
According to Anming, et al.(2008)3 since air transport industry had established in 1950, it had taken 24 years for the CAAC reach the highest traffic level again in the aviation history of China(p.25).
2.2The Second stage: 1978-1987(One of the Reforms)
In the 1980s, the function of CAAC as regulator and operator had been separated by the aviation reforms.
CAAC as the major regulatory agency in China involved in aviation safety, it managed the national air traffic control system and inspected the financial fitness and safety qualification of the entry of new airlines, besides, as a part of the CAAC, the office of Aviation safety oversees operational safety( Anming& Andrew, 2008, p.166 )4 .
At the second stage, the CAAC had implemented the regulatory reforms.
In the year 1980, CAAC was shifted from Air Force to the Sate council. At the same time, Deng Xiaoping claimed that the Civil Aviation industry tended to be market –oriented. In 1979, CAAC had split into six regional civil aviation bureaus which was becoming basic unites for the target of recording profits and losses.
From 1981, the state approved the ‘self responsible for losses and extra-profit retention’ policy. Ultimately, the policy was revised as ‘one- nine’ division of airline revenue between the state and the CAAC. In 1982, as an effect policy reforms, the CAAC had extended twenty–three local civil aviation bureaus ( Zhang and Chen , 2003, as cited in Anne, et al., 2008)5. Furthermore, the CAAC implemented the ‘profit retention system’ to the six regional civil aviation bureaus and authorized them more more independence in administrative decision making.
At this stage, the CAAC was still in charge of the air traffic control issues , as the operator of flights, airports and the National Air Traffic Service(Anming, et al., 2004)6.
2.3The third stage 1987-2002 (two of the reforms:1987-1992/1993-2002)
2.3.1The market structure
According to Anming, et al., 2004, in January 1987, since the government announced the ‘report on civil aviation reform measures and implementation’, the third stage of the structural reform of CAAC started. The major purpose was to separate the role of the CAAC as the regulator from the operator and to end the CAAC monopoly. In particular, four policy initiatives were declared as following (Wang , 1989, as cited in Anming, et al., 2004):
1. To simplify the four-level administration system to a two-level system that would consist of the CAAC and the regional civil aviation bureaus
2. To establish six independent state-owned trunk airlines along regional lines;
3. To separate airport operations from airline operations; and
4. To encourage market entry ( the entry of non- carriers was encouraged)
( Anming, et al., 2004, P.26)7.
As a consequence of the reform policy of the late 1980s, the new, non-CAAC carriers were promoted, which began to supply domestic routes in 1986. Therefore, during the year 1987 and 1991, six main airlines were developed from the old CAAC’s six regional bureaus( state departments), these are Air China , China Eastern, China southern, China Southwest, China North west and China Northern airlines. As an effect of the market liberalization, with the purpose of promoting local economic development, more provincial airlines have entered into the market, most of which were developed by regional and civic states and provincial owned businesses.
2.3.2 The airport infrastructure
-The rapid growth in air transportation placed pressure on the airport infrastructure
To cope with the structural reform in the airline industry, for the purpose of encouraging regional states to invest more in airports and other infrastructure, the implementing the method of authorizing more independence of airport management from CAAC to local authorities had been processed in some provinces. For example, in 1988, the CAAC initially transferred the Xia Men Airport into the local government, and in 1993, the Shanghai Hong Qiao International Airport was transferred into local government as well. To deepen the decentralization process, a decentralization policy was introduced by the CAAC, it stated that since the new airports were managed by the local states, the other airports would be authorized more independence progressively (Zhang and Chen, 2003)8.
As a consequence, during 1986- 1992, the regional states had reached the airports built, upgraded, or expanded, and 70% of the construction costs
(Zhang and Chen, 2003) . From 1996-2000, although the sate still owned the major airports share, three airport; Xia men, Shanghai Hongqiao and Bejing capital airport emerged on the stock exchange (Anne, et al.,2008)9.
In the early 2000s, the localization program was growing fast and was concluded by 2003, while the CAAC transferred ownership and management of all its rest of airports to regional states,
According to Anming, et al.(2004)10, by the mean of the establishment of these independent and industrial airlines, the CAAC had the ability to discard its responsibilities of operations as well as the role of operator of air transportation. Instead, the CAAC ‘s function was to limited to regulation and facilitating, including
“issuing airline licenses, approving route entry and exit, pricing, designing strategic plans for the industry, issuing policies and regulations to maintain safety and improve competition and efficiency, and negotiating bilateral air service agreements with foreign countries”(p.26).
The new limited role of CAAC let it concentrate on creating more efficient method to serve the purpose of regulate and standardize the aviation market.
Another aspect of the policy reforms at this stage was to encourage industry and route entry into the market, the policy aimed to promote the entry of new airline companies. From 1980 to 1992, the overall amount of routs had been tripled( Zhang& Chen, 2003). According to Anming, et al., (2004), many new airlines were not build up or ran by the CAAC anymore. In 1986, the non-CAAC airlines began to serve local routes. In terms of route entry, the authorization procedures were simplified by CAAC and air lines are encouraged to open new routes.
2.3.3Developments since 1993
-Shift from encouraging entry to consolidation
According to Anming, et al., (2004)11, the aviation industry’s market structure had been changed since the dissolution of the CAAC monopoly and the emergency of the new airlines. The air transport can be divided into four groups:
1. The six CAAC spin-offs;
2. Those owned jointly by the CAAC and local governments, such as Zheijang Airlines and Xiamen Airlines;
3. Those owned by local governments, among which Shanghai Airlines, Sichuan Airlines, Guizhou Airlines, Zhongyuan Airlines, Fujian Airlines, and New China Airlines were the largest; and
4. Those set up by the banks, investment trusts, large state-owned enterprises and foreign investors, such as Hainan Airlines and Shenzhen Airlines(p.27)
2.3.4Ways to improve competitiveness
As one of the consequences of the rapid expansion of the traffic growth, the regional airlines lost revenue because of a limited size and not effective management (Zhang and Chen, 2003)12.To solve this issue, the price regulation had been re-introduced and a plan of consolidating the industry have been offered by the CAAC. As an effect, the CAAC’s function has been shifted from promotion of access to consolidation of the industry. The reformed policy were then been focused again on opposing high levels of over ability, and keep industry returns; in the meantime, loner-term reform tended to be ensured.
Consolidation- The mega-carriers
As an effect of the ease of the access of non-CAAC carries, the emergence of the mega-groups involves the three largest airlines-Air China, China Eastern, and China Southern. Therefore , they were encouraged to differ their concern and to make administrative decision independently.
According to Anming, et al.,(2004), for instance, the three airlines were given the chances :
1. To buy or lease aircraft and other transport equipment ( after consultation with the CAAC)
2. To set prices according to market demand conditions, subject to maintaining the ‘ base price’ determined by the CAAC(P.159).
The state effectively authorized the carries a “competitive advantage” over the others, by giving the carries more rights of independent decision making and entry to equity market.
As part of the consolidation policy, the central state encouraged groups mergers and takeovers. In 1997, general Aviation Airlines were obtained by China Eastern. At the same time, six local airlines ( Si chuan, Hainan, Shen Zhen , Zhong yuan, Shandon and Wuhan) formed the New Star AllianceGroup.
By the intention of preparing China’s carriers for an growing competitive market, the Chinese airline industry was restructured into three groups by the CAAC, these are Air China, China Eastern Airlines, and China Southern Airlines (Anming, et al.,2004).
Foreign investment on airlines and airports
According to Anming, et al.(2004)13, Chinese airlines competitiveness can also developed by further promoting China’s overseas ownership on airlines. In may 1994, the foreign investors are allowed to enter joint venture , or purchase stock in China’s airlines, stated by the CAAC. It offered the overseas investors “no more than 35% of capital share and 25% of voting stock” (p.159). The reform serves the purpose of promoting foreign investment and consolidation of Chinese airlines, and therefore, increase the operational efficiency.
Improving in infrastructure investment
In 1993, the Fund of Infrastructure Construction was created by the CAAC for Civil Aviation. the fund was donated by the local airlines through paying “10% of their domestic revenue and 4-6% of their international revenue”. Since then, the funding structure of infrastructure investment had been changed; therefore, it enhanced the lamp sum of carries’ personal capital and funding from the fund.
Through the series of reforms in the past few dedicates, a tendency that China is shifting from a traditional aviation system to a more liberal competitive market –drive strategy. As a result of the CAAC, the strategic implementation of aviation policy has boost the tourism and economic development. The current decentralization of the airport ownership to local state has pushes the process to be deepen, and it has expended more links at their airports to facilitate developing and improve the values of local airports(Anne,et al 2008). With the foreseeing the economic development in the future, it can be assumed that China will actively carry on the policy reform and further opening up to the world.
- Anming Z. & Andrew, Y., ( 2008). Airport Policy and Performance in Mainland China and Hong Kong. Aviation Infrastructure Performance , A study in Comparative political Economy.Clifford ,W.& Gines,D.R.( editors), BEOOKINGS INSTITUTION PRESS, Washington D.C.
- Anne G., Peter F.,& Andreas (2008). Aviation and Tourism, Implications for Leisure Travel, ASHGATE, England.
- Anming,Z. Geogre, W.L., Lawrence,C.L., Waiman, C.& Yer,V.H.( 2004). Air Cargo in Mainland China and Hongkong. ASHGATE, England.
Want to know more?
- CAAC, Civil Airport Traffic Statistics,1996 ~2002
- National Bureau of Statistics of China, National Economic and Social Development Statistics 2002, February 200
- about CAAC: Introduction of CAAC
- Star Alliance: Star Alliance home page