*Reform & InnovationSeeking New Opportunities for Air Cargo in ChinaCATA Market Research Dept. QingYu ZhuMarch 26, 2008

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1. Pride & DiscouragementThe Share of International CargoCivil Aviation Transport Size19782007No. 37No. 270%60%

30%20%80s 2006

*Civil Aviation Is The Earliest Industry Entering The Internationalized Market 1960s-1970s,linked up international market. -- Indirect through traffic, avoid to contactEnd of 1970s, international airline act asthe general agent for each other. -- Political Equity, Economical Alliance Middle of 1990sthe general agent for each other ended. Equal traffic rights, liberalized operation2001-present, opening of International Integrated Market competing at different levels

*2. Status, Problems, and Bemusement (1) Compost of Conflict in Domestic and International Market

International Market Commercial serviceDomestic Marketpublic service

*(2) Emphasizing Market Competition In Excess Seeking for Enterprises Profit Target MaximizationEnterprises Forget the Promise and Obligation of Public Service Gradually

*(3) Short-Sighted Benefit of Public ResourceLocal airports only aim at attracting investment, improving management and service, and if carrying out the policy for investors to use airports public resource exclusively, it would affect the publicity and fairness of public resource usage.

*(4) Rough Industry Data InformationEmphasize production and scale, ignore industry chain connection;Emphasize internal capital and main product, ignore commercial market information;Rough data information.

*(5) Shortage of Commercial Navigation Agreement

Mutual Exemption of Tax termmaking the different airways in home and abroad be actually at an unequal status in the same market.Mutual Exemption of Tax

*(6) Competition Gap CompetitionAviation and surfaceintegrated industry chainLone air cargo companyForeign AirwaysDomestic Airways

*AirwaysStorageDispatch Distribu-tionAgentExpressValue Added Logistics Traffic Integrated Industry ChainMode of CompetitionForeign AirwaysLoss

*3. Development and Review1979 1985 1987 1991 1994 1997 2001 2003 2005 2007 separation of military and civilSeparate governmental functions from enterprise managementIntroduce local investmentTransform into join-stock enterpriseModern enterprise systemFinancing and IPOLoosen foreign capital accessGive airport to local departmentOpen 5th traffic rightsSeparation of primary and secondary subjectAssets reconstructionState ebb and private flowExpand air service agreementLift general agent agreementSimply examination and approvalIATA access to domestic marketAttend IATA, set up HK officeCode shareAviation alliance

*4. Reform, Innovation and Countermeasure

1Know About Aviation Market

Domestic aviation market

=Simple domestic market Domestic airline+Domestic trade international airline markettraditionally, its impact on domestic market is ignored.

*Traditional viewInternationalMarket abroadInternationalMarket in homereferenceResult in referenceMarket confusionDomestic marketIndependent innovation reference referenceInternationalMarket abroadInternationalMarket in homeDomestic marketCompetition strength innovation

*2Realize Two Market Strategies In Home and Abroad international marketMaximize commercial benefitMaximize public benefit domestic marketBottom lineTarget

* 3Enterprise (industry) Target In line With The Target of public benefit maximizationEnterprise benefitPublic benefitEnterprise benefitPublic benefitBlue oceanRed oceanEnhancing competitivenessWeakening competitiveness

*4Design Ordered Domestic Market EnvironmentMarket access +Enterprise promise+Market operation +Regulation constrain=Free competition +Market regimeLegislation guarantee

*5Enhance The Public Service Function of Airport Cargo Maintain The Equality And Fairness of Domestic Public Market CaseHK International Airport Terminal and Other Commercial Facility Take the promised optimal public service benefit as the principle 1investor satisfaction 2customer satisfaction 3public satisfaction 4supervisor satisfaction

*6Establish A Domestic Cargo Market Information Platform 1. Airport cargo operating data information 2. The 3rd Cargo party trading information platform (domestic neutral cargo order Information is productivity and competitiveness. Guaranteed by market regime effectively

*7Care About The Negotiation Mostly care about the international market negotiation from marketing and economics.

At the age of economic globalization, the market victory or defeat depends on the negotiation between governments. The World Is Flat Author: Thomas L. Friedman

*5. The Integration Opportunity of the International Aviation MarketMore convenient traffic; More efficient serviceMore advanced technologybroader marketMore monopolized capitalStronger power status.

* At the age of economic globalization and international aviation market integration, the target is easy to set up, but the recognition, path and method is not easy to grasp. China air cargo is at the critical developing time, and we should rely on domestic market to construct blue ocean market, in order to reform and innovate, free ourselves out of trouble and meet these challenges from the international air cargo market.Conclusion

*THANK YOU

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