GLOBAL TRANSPARK: NEW COMPETITIVENESS FOR HONG KONG AND SOUTH CHINA BASED ON AIR LOGISTICS

Transcription

1 GLOBAL TRANSPARK: NEW COMPETITIVENESS FOR HONG KONG AND SOUTH CHINA BASED ON AIR LOGISTICS by Victor Sit Sit, V., 2004: Global TransPark: New Competitiveness for Hong Kong and South China Based on Air Logistics. Geogr, Ann., 86 B (3): ABSTRACT. Economic globalization in the past two decades has led to a fast pace of growth of many economies in Asia Pacific, and impacted on the region s growth in air cargo. This paper discusses the future of airport infrastructure and its effect on regional competitiveness in the form of a new type of airport Global TransPark (GTP). It identifies China s need to forge such a critical infrastructure in the New Economy, and that South China is its best location. The Hong Kong Extended Metropolitan Region (EMR) in South China stands out among competitive regions in Asia in terms of geopolitical and institutional setting under One Country, Two Systems as the best general location for Asia s first and potentially largest GTP. Forging a GTP will promote the EMR s overall competitiveness and hastens its economic restructuring. The paper then discusses the advantages of Zhuhai Airport as the site of the potential GTP which will also incorporate the other four nearby airports within the EMR. The GTP is also a new challenge for intra-emr cooperation in terms of customs and tariff, air rights, ground handling, and land and water transport coordination between its airports and respective local governments. Key words: Global TransPark, airport, air transport, air freight, New Economy, Pearl River Delta, economic restructuring, Hong Kong Extended Metropolitan Region Introduction: The GTP as new international competitiveness based on mega urban regions The last round of economic globalization since the mid-1980s has led to the development of new international economic relationships among nations and a new pattern of growth based on major cities. The former include: (1) Development of the New International Division of Labour (NIDL), i.e. globally, the manufacturing sector has become increasingly based on international division of labour coordinated by MNCs. The advanced developed countries have concentrated in R&D and the production of crucial parts, (e.g. IC chips), that require high-tech and high-skill input, while low-skill, labour-intensive processing, part production and assembling done with the aid of standardized machines have shifted to or are sourced from Third World countries. (2) There is also increasing separation between manufacturing production and producer services. The latter which is characterized by the processing of information, relying largely on interfirm support and services, and requiring decisionmaking in a face-to-face situation, has led to a new locational articulation their concentration in major cities (Hall, 1995). Such spatial dynamics have also been observed by Sassen (1995) who sees a new role of the city as a place where command functions are concentrated, a place for post-industrial production sites for existing leading and new industries of the time, such as finance and insurance, special services and the innovative industries of publishing, TV, cinema and information processing. The city also serves as the transnational marketplace where governments and firms can buy finance instruments and special services cheaply and conveniently. Sassen (1998) later integrated these developments with the concept of world cities which are major cities of the world that perform such control and decision-making functions through MNCs in the global economy. The above-mentioned two major developments would not be possible without a number of other global forces that operated simultaneously in making a worldwide market in goods and services possible. These forces include: technological diffusion, decreasing cost and increasing speed of transportation, increasing diffusion of information, and declining barrier to trade through GATT and later through its successor, the WTO (Brotchie, et al. 1995). As a consequence of these developments, in and around major port cities of Asia Pacific we have witnessed over the past three decades, the growth of NIDL and producer services (Webster, 1995; Forbes, 1997; Rimmer, 1997). In the major city itself, a rapid structural change in the form of tertiarization has unfolded. At the same time the core city has also induced rapid industrialization of 145

2 VICTOR SIT Fig. 1. Extent of the Hong Kong extended metropolitan region and proposed division of labour for its ports and airports. Source: Sit, neighbouring former rural areas or small towns through dispersing globalization in the form of FDI and NIDL activities there (Sit, 1996, 2001). Such new regional development phenomena, as revealed by case studies in Asia Pacific, have been labelled regional urbanization and EMR (extended metropolitan regions) formation (McGee, 1995, 1998; Sit, 1996, 2001). In this paper one such EMR, the Hong Kong EMR, will be presented (Fig. 1). Attention to the forces that have promoted the growth of these EMRs as major production and marketing platforms for global business have led equally to the idea of gateway cities (Short, 2000) and global city regions (Scott, 2001). Both terms have underlined their success in exploiting globalization forces in recent development. Yet few studies have attended to the significance of transportation infrastructure, particularly international airports and container terminals as crucial factors for EMR formation and their success. Rimmer (1995, 1998) and Webster (1995) are exceptions. They have explored the comparative advantages of the most important mega urban regions in Asia Pacific in international transportation infrastructure as part of the explanation for their present success and future competitiveness in the global market. Among the major infrastructure that supported or will support major cities and mega urban regions in Asia Pacific in their keen competition for global investment and global market, we focus on one in this paper, i.e. a new form of airport, the Global Trans- Park (GTP). Through introducing the increasing significance of the air cargo industry in a globalizing world and the rational and design of the GTP, we hope to generate interest in the significance of the factor of time-specific to real-time transition in the global market, and how such new infrastructure is to promote crucial new economic activities for the next round of globalization in the first decade of the twenty-first century. The paper will use China as a case to demonstrate the need for the GTP in continent-wide international competition and that Zhuhai in China s southern EMR is a potential site for the GTP. The Global TransPark concept Air cargo growth in Asia Pacific Asia Pacific as a whole (defined as the nine countries/districts in Table 1) recorded substantial real growth in GDP of 4.4% in 1996 to Its performance is estimated to be even better in 1996 to 2003, reaching an annual rate of real growth of 5.0%. For the most important and largest economy (measured by GDP at purchasing power parity) China, the rate is expected to be much higher, at 8.5%. As both the percentage of imports and exports are still low, 15.2% and 18.7% for the region and much lower for its largest and fastest growing economy (China), the potential of air cargo growth there will be the most spectacular in future. The carriage of cargo by air is essentially a postwar development. By 1961, airways accounted for 146

3 Table 1. Economic indicators and growth projections of ten Asian Pacific economies GDP (bil. USD, ppp) International Trade Growth ( ) FDI 1997 Real growth (%) 6 yr. Avg forecast % by % by total growth Pop. gross per gross air air (million Economies (mil.) bil. capita bil Export (value) Import (value) USD) (%) China 1,239 3,945 3,183 6, , Hong Kong , , Singapore , , Malaysia , ,961 2 Indonesia , , Philippines , ,487 4 Thailand , , South Korea , , Chinese Taipei , , Japan 126 2,948 23,378 3, ,845 2 Regional Total 1,800 9,745 5,411 13, , Source: Campbell-Hill Aviation Group, Inc., only 0.07% of total ton/miles operated by all types of transport (Sealy, 1996). Economic globalization has triggered an explosion in air freight services. These services are provided by both general cargo carriers handling high-value merchanise and express cargo carriers handling high-price, time-sensitive documents, parcels and packages. Most general cargo is carried in the belly of passenger aircrafts, but there is a growing network of all-cargo flights. Express carriers or integrators typified by Federal Express (FedEx), United Parcel Services (UPS), TNT and DHL concentrate on scheduled, priority services (Rimmer, 1998). Between 1984 and 1992, there has been a global spatial shift in international freight movements. In 1984 eleven of the top twenty-five international freight airports were located in Europe, eight in Asia, four in North America. By 1992, Europe had nine, Asia seven and North America six. Among them Tokyo ( tonnes), Hong Kong ( tonnes), Seoul ( tonnes) became the first, third and fourth largest cargo airports of the world (Rimmer, 1998). Such a shift reflected Asia s marked growth due to a new wave of industrialization under NIDL, and deindustrialization in Europe. Closer ties between Asia Pacific and the USA in economic globalization in the 1990s have further supported the growth of air freight in these two regions. Based on total freight volume (domestic plus international), of the world s top twentyfive cargo airports in 1999, eight were located in Asia Pacific and thirteen in the USA. Those in Asia Pacific, except Haneda in Tokyo, netted a two-digit annual growth rate. Hong Kong registered 2 million tonnes, ranking second to Memphis of the USA (2.4 million tonnes) while Tokyo Narita, Seoul and Singapore recorded 1.5 to 1.84 million tonnes (ACI, 2000). In terms of air cargo carriers, the ten largest airlines headquarters in Asia Pacific had already accounted for a hefty 23.2% share of world air cargo traffic in Three of these airlines ranked among the top ten air cargo carriers in the world. At present, however, air cargo traffic in the region is highly concentrated at a few airports. Excluding services between them, there were a total of 715 weekly frequencies of all-cargo flights in the seven largest airports. Singapore and Hong Kong account for the largest share of these frequencies with 225 and 209 flights respectively. The two PRC airports at Beijing and Shanghai have a combined frequency of only 122, indicating the relatively low level of air cargo development in that country and the restrictiveness of its air cargo market. The USA is the largest destination and origin in air transportation for the region. In 1996, the air share of total export trade of Asia Pacific to the USA was 33.4% (by value) and the region s air imports from the USA accounted for 51.5% of the total value of imports of the region from that country. Export industries that are dependent primarily on air transport account for 11% of the region s total export value via all modes, 35% of total air value, and 43% of the air express value (Campbell-Hill Aviation Group Inc., 1999). Timely development and successful operation of an air logistics hub such as a GTP in Asia Pacific can therefore serve as a major competitive advantage for a region and enhance its role in the global economy. Judging from 147

4 VICTOR SIT Fig. 2. Intra-Asia freight traffic is expected to outpace world growth Note: Average annual growth assuming 6.5% average world Source: Boeing Commercial Airplane Group, World Air Cargo Forcast the experience of the USA, future exports from Asia Pacific are likely to be more dependent on air transport. In the USA, in 1992, for example, 81% of the export of micro-electronics, 92% of aircraft engines, 90% of pharmaceuticals, 96% of photogrammetry products, 99% of watches, 71% of leather garments, 55% of men s woollenwares and 52% of footwear were by air. In Asia Pacific, air cargo has been rising in proportion in intra-region and global trade at the expense of other means of cargo transport, especially for the most rapidly increasing commodities in telecommunication and personal and household consumer durables. In the second half of the 1990s, world air cargo growth was 7% annually (Campbell-Hill, 1998). It is forecasted that it will be about 9% for the first decade of the twenty-first century. Asia will grow faster than world average as its annual rate has been 2% higher than world average (Boeing, 1999). Intra- Asia freight will chart an annual growth of 8.2% between 1997 and 2017 (Fig. 2). Due to increasing scale economies, global air cargo business has been moving towards the predominance of a few MNC integrated oligopolies such as FedEx, DHL and UPS. In future, their business will likely centre around five or six hubs to cover the whole world. For exampl,e FedEx is already providing its global services through three continental hubs, i.e. their US hub and headquarters at Memphis, AsiaOne at Subic Bay in the Philippines, and EuroOne in Charles de Gaulle airport in Paris. AsiaOne in Subic Bay handled a throughput of about tonnes in 2002 compared to only tonnes handled by FedEx in the whole of Mainland China. In such a hub, (e.g. AsiaOne), the airport is dominated by air cargo, particularly air express, with little passenger business. The hub, has also spun off free trade zones and export processing zones for NIDL supported by efficient and timecrucial air transport (e.g. Acer s assembling base for mobile phones and notebooks at Subic Bay). These facilities already possess some of the features of the GTP as will be elaborated below (FedEx, 2003, Subic Bay Authority, 2003). Given time, these hubs will become GTPs and will thus be vital growth centres of the new global economic order, serving not only as gateways and entrepôts for air cargo into and out of host countries or continents but also as international industrial centres for export-oriented processing of high-tech and high-value added products, and global trading and commercial centres based on the Internet, air cargo and related air transport, that is, as time crucial e-commerce fulfilment centres. They will thus become crucial infrastructure for future growth of the EMRs in Asia Pacific. GTP concept and GTP design feature Kasarda (1998) first proposed the concept of Global TransPark (GTP) in As a consequence, the world s first GTP was planned in 1994 based on a small airport at Kinston in North Carolina and its 148

5 construction started in By 2001, the original runway was extended to two parallel runways of and feet. In its acre site, there will be multi-nodal complexes supporting manufacturing, distribution and transportation companies, and tax- and custom-free foreign trade zones. In January 2002, the first square foot. GTP cargo facility was completed and put into use. As a result, in that year, the GTP handled 80 million pounds of industrial air cargo, a 600% increase over 2001 (GTP Authority, 2003). The master plan for the second GTP sited at U-Taphao in Thailand was approved in 1998, and its construction started in In Mckenburg, Germany, another GTP plan was drawn up by the end of 2000 (Kasarda and Sit, 2000). In about the mid-1990s, two airports of the world had started to shift their development strategy to focus on air cargo. One was Liege Airport of Holland. It started its new strategy in 1996 due to its unsuccessful passenger business. It became the first European airport to take on some of the GTP features by focusing on air cargo. The airport has a 38 ha apron dedicated to cargo planes, three cargo terminals and a cargo village for logistics and distribution companies, connected to the railway network. TNT has established its European air hub at Liege Airport and began operations in It has turned a loss in 1995 into a profitable airport due to rapid growth in air cargo which increased from tonnes in 1995 to tonnes in Thence it climbed rapidly to tonnes in 2002 (Liege airport, 2003). The second example is Subic Bay Airport 55 km northwest of Manila Bay. From 1901 to 1992, the USA operated it as a naval base. In 1992 it was turned over to the Philippine government which then established a special economic and freeport zone that includes all land occupied by the former base. By 2002, the new zone had 410 operating companies, sixty-seven in manufacturing and assembling and sixty-two in warehousing and distribution, all dependent on the airport which since 1994 has focused on air cargo. That year FedEx established in Subic Bay its Asia hub to sustain its rapidly growing Asian business. International flight movements increased from in 1995 to in Of the latter are FedEx air cargo planes. The annual air cargo throughput reached tonnes in Exports from the zone increased from US$23.8 million in 1994 to US$1 080 million in The average annual rate for the period is 72.4%. Of its 2001 exports, 97.3% in value was accounted for by electronics. The zone generated more than jobs. As will be discussed further below, Subic Bay Airport is also following partially the GTP design and development strategy (Kasarda and Sit, 2000; FedEx, 2003; Sbma, 2003). The GTP aims to integrate functionally and spatially, through appropriate physical design and government and management policies, the new technologies and organisation trends of manufacturing, trade and business into a new growth center, and via it to render development to a large surrounding hinterland such as a mega urban region, or EMR. It includes four important infrastructures of the New Economy: 1. A multi-model transport hub with air cargo facilities as the core, linked directly to efficient expressways, rail and water transport to form a new transshipment centre. 2. An advanced telecommunication and computer centre linked to the hinterland and the world for instant data gathering, processing and transmission for extending and intensifying its market coverage and material sourcing. 3. Using the above for the development of industrial sites for time- and cost-saving agile manufacturing for a global market. 4. A trade and warehousing centre for regional and global markets. At present, most air cargo is still moved by passenger carriers (e.g. in Hong Kong s Cheklapkok (CLK) Airport, passenger carriers are responsible for about 60% of its total freight throughput while on the mainland of China it is over 90%). An average passenger 747 may carry up to 30 tonnes of air cargo. Medium-size special cargo-carrier can carry up to 30 tonnes. The most efficient cargo carrier, however, is the 747 cargo freighter which can carry more than 100 tonnes. The trend for the separation of air passengers and air cargo has recently been further promoted by new government measures as a response to the 9.11 terrorist attack on the USA in Increasingly, cargo carriers are provided with special parking space and cargo handling facilities to further increase their efficiency. Dedicated and well-designed cargo-handling centres equipped with advanced telecommunication infrastructure, liberalised custom clearance, and intermodal connections are needed for implementing a door-to-door air cargo service to minimize costs and risks for both industrial and commercial customers as well as for promoting e-commerce. 149

6 VICTOR SIT Fig. 3. Intermodal interfaces at the Global Transpark. Source: Kasarda, These are the most important design and operation features of the GTP. Details of the central cargo facility of a GTP and its intermodal features may be seen in Fig. 3. It allows seamless interfacing of air, rail and trucking modes to allow a smooth flow of air cargo between the aircraft and the source and the destined customer, with the aid of latest information technology and tracking devices. In addition, the operation or soft design features of the GTP necessary for its success should include: 1. State-of-the art customs clearance procedures, such as pre-clearance of arriving aircraft, electronic data interchange, transparent tariffs and uniformly applied tariffs. 2. Open skies access, with seventh freedom rights, change of gauge rights, co-terminal rights and ground handling rights. 3. In-transit bonded status for transshipments, including those that will undergo value-added in complementary and bonded, on-site and off-airport-site industrial zones (Kasarda, 1998). Cargo and industrial potentials of the GTP Obviously, cargo services attracted to the GTP will be those with a high monetary value-to-weight ratio (e.g. computer components, jewelry), or those that are of high perishability, (e.g. vegetables, fruits, fresh seafood and flowers), or those that demand fast delivery, (e.g. JIT inventories for automotive and electronics industries) and finally those that are of high time sensitivity, (e.g. documents and product samples). As a consequence, the GTP should be located as near as possible to the centre (or air transport hub) of the region that produces or can conveniently assemble such goods. When operating at full-strength the GTP enables industrial and retailing customers over a large hinterland, which may be national or even continental in size, to keep a two-day inventory stock. Hence it can help to minimize costs and increase agility in market response of businesses over a large land area, and raise the overall competitiveness of that large region or country. These are important conditions for JIT assembly of goods such as personal computers, mobile phones, and e-commerce, both promising sectors in the New Economy under increasing globalization. Thus success of the GTP will be equally dependent on, as well as itself will support or induce, the growth of a host of industries, (e.g. packaging, processing and assembling high-value, light-weight and fashionable products and other value-added activities that use the GTP s multimodal design for export-oriented as well as import-substitution manufacturing. Kasarda and Sit (2000) have shown that ten industries will have the potential to locate within the GTP and its surrounding industrial zones. They are semi-conductor; computer and electronic subassembly; aircraft parts suppliers and aircraft maintenance; processing of perishable products such as seafood, vegetables and flowers; industrial suppliers of machine tools; optics and small precision equipment manufacturers; garments, footwear, and fashion accessory suppliers; pharmaceuticals; automotive component makers and spare parts suppliers, and jewellery and watchmakers. In short, the GTP is not an air cargo facility in the traditional sense. It will be a time crucial logistics and manufacturing hub geared to highly time-sensitive and personalised products and services demanded by e-commerce and new information technology of the twenty-first century. It provides a new means for agile manufacturing and retailing in an increasingly globalized and competitive world. As a vital cost-minimisation and productivity-enhancing avenue, GTPs may form new network hubs for international competitiveness. It may be equated with the container invention of the late 1960s in its significant impact in the first few decades of the 150

7 twenty-first century on the mode of cargo movement and location for major growth industries and trading malls. Put simply, the GTP has the potential to become a pivot for regional development by combining major new development trends for regional development in global manufacturing, trading and business, which include new technologies such as those in telecommunication, automation and transport; demand for agile and express transport; popularisation of Just-in-Time (JIT) in manufacturing; global sourcing for parts and components; multi-location production system and globalised market. China s need for a potential GTP China s economy is rapidly growing and increasingly globalised Since China adopted the open and reform policy in 1978, her economy has been growing very rapidly as reported in Table 1. At the same time, it is also increasingly integrated with the global economy and world market, particularly so in a number of provincial units in its coastal region, as may be illustrated by a number of indicators: In 1995 a number of provincial units already registered a FDI/GDP ratio in excess of 10%, including Hainan (33%), Tianjin (19%), Guangdong (19%), Shanghai (18%), Fujian (16%) and Beijing (12%). Export-oriented economies have appeared in a number of provinces in 1995, among which Guangdong s international trade value was 146% of its local GDP. Local economies with a ratio above 50% include Shanghai (65%), Tianjin (59%), Fujian (57%) and Hainan (52%). In 1996, a number of products exported by major MNCs had already occupied substantial proportions of China s domestic market, (e.g. detergents (35%), cosmetics (36%), soap (40%), pharmaceuticals (13%), beer (20%), motor vehicles (68%), escalators and lifts (70%), colour TV tubes (65%), and automatic exchanges (90%)). In China s annual domestic sales of 3 million personal computers in 1996, 2.5 million pieces are imported (China Statistical Yearbook, 1997, 1998). The trend of further increase in demand in China for products listed above and similar imported products, as well as the continual expansion of Chinese exports which are deepening in their valueadded and technology content, provide one of the important conditions for an expanding international and domestic air cargo business in China. An analysis of China s international trade has revealed a great potential for air cargo growth. Of China s total international exports of $182.7 billion in 1997, 57.8% ($100 billion in value) can be air-lifted. In fact, a substantial amount was transshipped through Hong Kong by air. Similarly, of the annual $132.8 billion value of international imports into China, garments, special equipment, electrical and related parts and components, automatic equipment and data-processing equipment, telecommunication and audio equipment, computer chips, automobile parts and components, aircraft and spacecraft equipment and precision calibrators, which total $61 billion, can be largely air-lifted (Campbell-Hill Aviation Group, Inc., 1998). In 1997, China s total air cargo throughput was million tonnes; 23.1% of which was international cargo (China Statistical Yearbook, 1998). A substantial proportion of China s total air cargo export and import was handled by Hong Kong airport. The latter had a total air cargo throughput of 1.79 million tonnes (US$83.9 billion in value) in 1997 which accounted for 17% of Hong Kong s re-exports in value whose origin or destination is mainly the Mainland. In 2001, about 70% of Hong Kong s air cargo volume was reported to be transshipment for China s Mainland, 15% as international transshipment, with only 15% originating or destinated locally (Hong Kong SAR Government, 2002). Thus rapid economic development and its increasing globalization in Mainland China has benefited Hong Kong. It supported its hefty growth of air cargo in the 1990s that averaged at an annual rate of double digits (Table 2). However, this represents an unreasonable cost to shippers since Hong Kong CLK charges a high terminal fee (HK$1.3/kg), and customs delay and traffic congestion at its border with the Mainland pose a real threat in terms of invisible cost and time surety. Hong Kong s role in China s international air cargo throughput may be reflected further in China s lowlevel use of air freight in international trade (Table 3). In exports, air freight accounted for 8.4% (in value) and in imports, 16.7% in Its airborne export is substantially lower than the Asian Pacific average of 16.5%. In this, Hong Kong stands out in the region, i.e. it registered 46.5%, indicative of its role as China s air export logistics centre. Table 3 also shows that China s exports by air are 151

8 VICTOR SIT Table 2. Hong Kong Airport Statistics Total Annual Total cargo Annual Total Annual passengers growth (1000 growth aircraft growth Year (1 000) rate (%) tonnes)* rate (%) movements rate (%) , , , , , , , , , , , , , , , , , , , , n/a n/a Source: Hong Kong Government Information. Note: Excluding mail. Table 3. Indicators of the air cargo industry in selected Asian Pacific economies, 1996 International trade Growth of trade Export Value per by air (an. %) by Air US$1000 GDP Country/ Export Import Export Import area (%, value) (%, value) Export Import US$/kg by air by air China Hong Kong Thailand S. Korea Region Source: Campbell-Hill Aviation Group, Inc., largely of low-value goods, reflecting low skill and low value-added NIDL of the Hong Kong EMR. Broken down by the two categories of high-value/ high-growth industries and other industries, the air export ratios of China are 21.9% and 6.5%, compared to the much higher figures of 36.5% and 8.6% for Asian Pacific. However, the potential for future growth in China s air cargo industry is great, judging from the fast pace of its economy, and the as yet low level of direct participation in international air cargo as measured by air export per US$1 000 GDP (Table 3), and its increasing effort and success in deepening the skill and value-added level of its out-processing activities in NIDL. Success in the latter pursuit is already evident in the steep rise in the electronics sector of export industries in both the PRD and Yangtze River Delta areas, a result of rapid growth of outsourcing by Taiwanese, Japanese and American MNCs there. Therefore it is estimated that the total international air cargo throughput of Chinas Mainland may rise at a reasonable pace to reach 6 million tonnes in 2010 and that there is an urgent need for China to upgrade and expand its international air cargo service (Kasarda and Sit, 2000). Airports in China and constraints on air cargo growth Judging from the above, China s own air cargo capability is and will increasingly be a crucial factor for enhancing her international competitiveness, for attracting more FDI and foreign affiliates to operate in the country, as well as for efficiently promoting growth of its economy through cutting down costs and increasing sales. At present China s air cargo industry s unsatisfactory performance and overdependence on Hong Kong have been the result of many factors. Topping the list of such factors are the absence of a transparent, reasonable and efficient customs clearance and tariff system; and too many non-tariff barriers and executive fees which hinder the operation of an efficient air cargo business. Besides, China s conservative attitude towards protecting its own airlines and air cargo industry and restraint on opening more international schedule flights are also detrimental to efficient air cargo handling. At present, of the nation s 131 civil airports, only about fifteen have international flights and flights to Hong Kong and Macau. Their frequency in sched- 152

9 uled international flights is very limited. Sizeable annual air cargo throughput that exceeds tonnes was registered in only four provincial units: Beijing, Shanghai, Guangdong and Sichuan (Table 4). Of the country s four largest airports (excluding Hong Kong and Macau), two are in Guangdong (Table 5). Of course, there is no dedicated air cargo airport, and little spatial division of function in passenger and air cargo handling in most airports. There is as yet no advanced computer and telecommunication facilities at airports to meet JIT delivery and modern logistics requirement. Besides, insufficient liberalization in the air cargo business has constrained rapid development of the industry through exploiting MNC capability and technologies in jointventures. Above all, over-reliance on the Hong Kong airport for its international air cargo has masked the imminent need for upgrading and expanding its international air cargo industry, as Chinese airlines reported inadequate cargo to fill the hull of their scheduled airlines on international flights. The present spatial pattern of its airports, air cargo throughput, as well as GDP and FDI concentration (Table 4), suggests that in upgrading and expanding China s air cargo industry, in particular its international air cargo industry, South China, with the international airport of Hong Kong at Cheklapkok (CLK) and the Mainland s two of the four largest airports at Guangzhou and Shenzhen, provides a practical pivot. CLK s ideal location to cover both the China market, and Asia Pacific market, its ideal nodal position for transshipment between Asia and the world and its world class management and business facilities can support the development of a global air cargo hub in the form of a GTP in Asia, while Guangzhou and Shenzhen airports frequent domestic flights to the rest of China and their proximity to Hong Kong further supported Hong Kong s transshipment role. We shall examine this further below. Hong Kong EMR as site for China and Asia s GTP Need for new competitiveness in the Pearl River Delta In 1978 China adopted a new approach of open and reform in its development. Prior to this, Hong Kong was a British-run enclave of free trade, and was barely related to the socioeconomic and political development of its next-door neighbour and natural hinterland the Pearl River Delta (PRD) (Sit, 1991). Since then, local initiatives of Guangdong Province and its constituent municipalities provided an attractive milieu for Hong Kong investment. It has soon grown into Hong Kong s new manufacturing base while Hong Kong itself has expanded its producer services and port functions to support it. The new cooperation has since integrated Hong Kong and Guangdong, in particular its most developed core, the PRD, into an urban economic region the Extended Metropolitan Region (EMR, see Fig. 1). Indeed, the Front-shop; back-factory model of the EMR with its distinct role in the global economy based on export-oriented and low-skill industries of textiles and garments, footwear, watches and clocks, toys and games, and electronic and electrical goods, benefited both Hong Kong and Guangdong between 1978 and It is an example of how a local economy has found a niche in the global economy and successfully made use of globalization forces for steady and rapid economic growth (Sit, 2001). Such development has also enhanced the growth of air cargo in the airports of Guangzhou and Shenzhen (Table 5), besides making Hong Kong the largest international air cargo hub. In 2002 Hong Kong handled a throughput of 2.5 million whereas Guangzhou and Shenzhen handled 0.65 million and 0.28 million respectively. Macau airport has also registered a volume of 0.16 million tonnes. At present it is generally agreed that the Hong Kong Guangdong partnership in the EMR needs to be re-examined with an angle to raise the level of cooperation and to restructure the economy of both parties to meet new challenges in the twenty-first century, which include the changing world market in the information age, increasing international competition and deregulation, as well as China s entry into WTO in The predominance of exportoriented, labour intensive and low skilled consumer industries that have supported the EMR s growth in the past two decades is likely to decline in significance in the future. New competitiveness has to be forged in the EMR to upgrade the level of development there as well as to exploit new market situations in Asia and the world, as has been openly recognized by the 2002 budget speech of the Financial Secretary of Hong Kong and a number of public speeches made by Governor Lo of Guangdong Province (Hong Kong SAR Government, 2002; Guangdong Economic Yearbook, 2002). The new competitiveness should lie with an efficient and cost-effective air logistics that allows for the hubbing of hi-tech and high value-added new as- 153

10 VICTOR SIT Table 4. China economic, trade and air cargo statistics by province, 1996 Foreign Million investment USD total Share of Airport cargo GDP total international exports in and mail traffic (million USD) (million USD) trade GDP (%) (MT) 1997 Guangdong Province 199,064 13, , ,946 Jiangsu Province 74,026 5,489 21, ,823 Shandong Province 71,928 2,872 14, ,290 Zhejiang Province 49,921 1,634 13, ,231 Henan Province 44, , ,313 Hebei Province 41, , ,445 Sichuan Province 40, , ,694 Liaoning Province 37,900 1,892 11, ,958 Hubei Province 35,731 1,099 3, ,257 Shanghai City 34,613 4,838 23, ,011 Hunan Province 31, , ,369 Fujian Province 31,275 4,136 16, ,492 Heilongjiang Province 29, , ,072 Anhui Province 27, , ,903 Guangxi Zhuang A.R. 22, , ,587 Beijing City 19,336 1,721 3, ,540 Yunnan Province 17, , ,696 Jiangxi Province 17, , ,557 Shanxi Province 15, , ,535 Shaanxi Province 14, , ,378 Tianjin City 13,236 2,236 8, ,743 Inner Mongolia A.R. 11, , ,331 Xinjiang Uyghur A.R. 11, , ,951 Guizhou Province 8, ,078 Gansu Province 8, ,075 Jilin Province 6, , ,845 Hainan Province 4, , ,831 Ningxia A.R. 2, Qinghai Province 2, Tibet A.R ,164 Total 927,156 48, , sembling industries and e-commerce fulfilment centres. The existing concentration of five major airports (recently dubbed as A5) and the largest air cargo throughput of Asia and global factory, in the HK EMR meant that it will be the most competitive area in future. We therefore see the GTP as a core infrastructure for the EMR since it can effectively exploit the comparative advantages of Guangdong in land and labour, and Hong Kong in its flexibility and accommodative special geopolitical, socioeconomic and administrative attributes under One Country Two Systems. In short, the GTP can act as a catalyst and springboard for the development of many related activities in the New Economy, such as hi-tech and Just-in-Time assembly industries, e-commerce, air express and air cargo hub activities. We shall now discuss the advantages of the Hong Kong Guangdong cooperation and the Zhuhai site to support the proposal that the EMR is the best location for China and Asia s first and largest GTP. Hong Kong EMR s edge in GTP development Compared to potential competitors in East Asia, such as the city regions around Seoul, Singapore, Kuala Lumpur, Subic Bay, U-Taphao and the Yangtze Delta, the EMR stands out economically and in its port and airport infrastructure (Fig. 1). First, it is China s most developed and fastest growing region which accounts for about 25% of China s GDP (including the GDP of HK and Macau), and which has an export-oriented economy. Within the EMR, the PRD currently accounted for over 75% of Guangdong s GDP, 90% of its FDI and 95% of its exports 154

11 Table 5. The four Largest PRC Airports Year Guangzhou Shenzhen Passengers* Cargo* Passengers Cargo (14.8) 12.5 (18.4) (23.1) 15.1 (20.8) (21.1) 17.1 (13.2) 166 ( ) 2.2 ( ) (2.8) 18.8 (8.2) 255 (53.3) 4.4 (100.0) (15.5) 23.4 (10.9) 319 (25.3) 6.2 (40.9) (17.5) 27.9 (19.2) 412 (29.3) 7.8 (27.8) (0.6) 32.1 (15.1) 435 (5.6) 9.0 (15.0) ( 1.0) 35.2 (9.6) 444 (2.1) 9.9 (9.4) ( 0.7) 40.8 (15.9) 515 (16.0) 11.5 (16.2) Year Shanghai Beijing As % of national total Passengers Cargo Passengers Cargo Passengers Cargo (31.4) 12.7 (19.8) 482 (37.2) 14.2 (40.6) (34.1) 15.6 (22.8) 631 (30.9) 15.2 (7.0) (24.5) 19.0 (21.8) 870 (37.1) 18.7 (23.0) (33.0) 23.6 (24.2) 1029 (18.3) 22.5 (20.3) (14.8) 27.0 (14.4) 1164 (10.3) 24.2 (7.6) (27.1) 36.6 (35.6) 1504 (29.3) 37.1 (53.3) (11.4) 40.8 (11.5) 1639 (9.0) 39.0 (11.5) (7.5) 47.6 (16.7) 1691 (3.2) 45.7 (17.3) (3.2) 57.2 (20.2) 1732 (2.4) 51.1 (11.8) * Passenger in ; cargo in tonnes Notes: Bracketed figures are annual growth rates. Source: Compiled from unpublished PRC data. (Guangdong Statistical Yearbook, 2002). Guangdong s international trade is expected to grow at an annual average rate of 14.8% between Thus, the PRD alone will generate a huge international air cargo demand which may be around 3 million tonnes in 2010 as estimated by Kasarda and Sit (2001). Second the EMR has an excellent geographical location for international trade. The Hong Kong CLK is at the confluence of major European, American, East Asian and Australian interregional air routes. It has maintained its independent air rights after 1997 as guaranteed by the Basic Law which no other Chinese airport and city enjoys (similarly for Macau after 1999). In addition, within the EMR the Guangzhou and Shenzhen airports are two of the largest airports in China s Mainland ranking third and fourth after the airports in Beijing and Shanghai. Zhuhai airport is the third Mainland airport within the EMR which has the longest runway and best air space conditions in South China. At present, the combined daily international flights of the Hong Kong and Macau airports exceed 650, the largest amount in Asia within any city region. Moreover, the five airports or A5, primarily the Guangzhou and Shenzhen airports, offer a daily flight frequency of about 500 fligths to China s major cities. Thus major cities in Asia Pacific and China can be reached from A5 in three hours by air and the sum of their potential flight paths is the lowest compared to any other Asian airport (Fig. 4). A5 in the EMR therefore offer high frequency and efficient coverage of major East Asian, Southeast Asian and the China markets. Of course, the problem is how to enable the five airports to function as a single hub. Locating Asia s GTP in the EMR requires that A5 should function as a unitary airport cluster. Such a design is politically and technically possible, as all constituent parts of the EMR are areas of China, and they have been very intensively integrated economically for over two decades since In addition, the five airports are at within one hour of ground/water transport to each other hence they may be connected by dedicated transportation links in one airport hub. Besides, they are also close to nearby major seaports, inter-regional trunk railways, expressways as well as river transport routes for effective multimodal connections and the achievement of seamless door-to-door service in the China-Asia market (Fig. 1). It must be stressed that the major reason for the 155

12 VICTOR SIT Fig. 4. Location of Asia s GTP and its three hour flight hinterland. Source: Sit, GTP location in the EMR is its present large-size export-oriented economy, future economic growth potential, and the synergy of A5. As two of the constituent members of the EMR are long-established cosmopolitan cities, the EMR is also conducive to high value-added and R&D activities and attractive to high-skill manpower from overseas. On top of these, Hong Kong and Macau s financial and producer services can provide convenient support to the GTP. Their economic autonomy under One Country Two Systems, long experience in international trade, and an established system of rule of law readily accepted by international businesses, enable them to out-compete other Chinese cities such as Shanghai and Beijing as the ideal coordinating centre for globalised activities related to the GTP. Within the EMR, Zhuhai Airport is the most suitable choice as the GTP site. While Hong Kong and Macau has the best air right and institutional factors, their space restriction (mentioned below), airport design and air space conditions prevent their development into a GTP. They can only provide conventional air cargo services based mainly on passenger and combi-planes, with limited valueadded activities that are largely located off the air- 156

13 Fig. 5. The territory of Zhuhai municipality and intermodal situation of Zhuhai Airport. port site. The Fadu and Shenzhen airports also suffer similarly, besides being bounded by highly restrictive air rights common to all Mainland airports. The oversupply of passenger airports in PRD which has resulted in immense underuse of Zhuhai Airport demands its conversion to mainly cargo and manufacturing functions. Yet Zhuhai is benefited by its proximity to Macau, Hong Kong, Guangzhou and Shenzhen, all within one hour s travel time. This makes it possible for Zhuhai Airport to rely on them as feeder and distributor airports in its GTP role. Moreover, the other airports have not got the advantages of space and aeronautics for a GTP. Hong Kong s heavy international passenger traffic and the already cramped CLK site on reclaimed land make it difficult for major expansion in air cargo. The Macau airport is even more constrained by its small site for general development. Its maximum planned air cargo throughput of tonnes a year was reached in In the new Fadu Airport of Guangzhou (to be opened in 2004), its traditional airport design as well as the provision of a maximum of thirteen cargo aircraft parking spaces do not qualify it to be a GTP which requires a lot of dedicated all-cargo plane parking space for international transshipment of air express cargo. Shenzhen too is constrained by its site to a single runway design and which also has air space conflict with CLK. Zhuhai s well-equipped and sizeable airport may therefore be readily turned into a GTP to cut down the time and construction costs of a GTP if it is to be constructed from scratch. More importantly, it has got the space for accommodating the expanded future functions of a GTP and is ideally located for dedicated and bonded connections with the other four airports. The Zhuhai GTP proposal General development background Zhuhai is one of the major municipalities of the Pearl River Delta, next to Macau, west of Shenzhen and south of Zhongshan. It has a land area of about sq. km, and a sea territory of about sq. km (Fig. 5). Its population in 1999 was 1.15 million. The municipality possesses one of China s four special economic zones and enjoys open policies and foreign investment promotional privileges. In 1998, Zhuhai achieved a GDP of RMB26.4 billion, about sixfold that of 1979, with an annual average growth rate of 24.6% between 1979 and Its per capita GDP was RMB (US$2 693). The relative share of the three main economic sectors in the 1998 GDP was: primary sector 5.1, secondary, 52.6 and tertiary, 42.6%. Within the secondary sector, high-tech industries 157

14 VICTOR SIT Fig. 6. Site of Zhuhai Airport. Source: Kasarda and Sit, 2000 accounted for 24.4% of the total gross output value. It is one of the few open economies of China; foreign trade value is equivalent to 94.2% of its GDP. The city has netted a cumulative FDI of US$6.62 billion, and foreign-invested enterprises accounted for 70% of its total gross industrial output. The airport is located on Sanzuo Island which is 150 km from Guangzhou, 45 knots from Hong Kong and 10 knots from Macau. It is linked to these places and to Shenzhen by a network of expressways. The latest, the Guangzhou Zhuhai Expressway, was opened in December 1999, and the Lotus Bridge linking it with Macau opened in February Construction on the Guangzhou Zhuhai Railway began in 1997 and may be completed by 2006 (Fig. 5). The railway s projected volume of freight may reach 9.5 million tonnes and the passenger volume, 160 million persons per year. The railway will also effectively link Zhuhai with the Yangtze Delta and North China via the Beijing Guangzhou and Beijing Kowloon railways. About 20 km to the west of the airport is the emerging potentially largest port of South China, Zhuhai Port (or Golang Port). Its 75 km coastline will allow the construction of more than 100 berths of to tonnes, with a maximum cargo throughput capacity of 150 million tonnes per year. At present two tonnes berths are in operation. There are also a ton oil pier, an oil storage, a LPG pier, a LPG storage, a cereal pier, an edible oils pier and a cereals-processing area in use. The port will be connected with inland river piers to be constructed to its north and the Guangzhou-Zhuhai Railway. Thus the airport is situated in a convenient multimodal setting within the Pearl River Delta and South China for land, rail, sea and inland waterway traffic. The airport was planned and constructed according to the ICAO standards of 4-E grade, with an annual capacity of air movements, 12 million passengers, and tonnes of air cargo. The present single runway measures m long and 60 m wide, with a parallel taxiway of m 44 m (Fig. 6). The distance between the two is 184 m. It is, in effect, close to being a two-runway setup. On the main approach is a precision II landing assistance system and on the opposite side a precision I system. The runway can handle s with an hourly capacity of 37 movements. It can also operate 24 hours a day. The airport has a huge site of

15 sq. km. Even without further expansion by building a second runway, if % of the existing air movement capacity is devoted to all-cargo carriers, it can handle million tonnes of air cargo a year. With the second runway, its annual air movements can be raised to and the airport s cargo volume can rise proportionately. The airport already has flights covering major cities in China, including some cities in the western and interior provinces. International flights are currently restricted. Rationale for the GTP proposal Since Zhuhai has a large modern airport which has been in operation for a few years already, and since the airport is suffering from little business, due to the central government s policy to restrict it to domestic flights and its proximity to competitive airports of Macau, Guangzhou and Shenzhen, it is desirable to be turned into the EMR s GTP site to avoid proven disadvantage in the competition with other EMR airports for passenger traffic, while harnessing the aforementioned comparative advantages of the EMR in the future global economy. The GTP at Zhuhai will therefore need to focus on the more lucrative air express and general air cargo businesses and to integrate with the other members of A5 in its cargo operation. This will add to a new dynamic to economic growth not only for Zhuhai, but it will also create much more demand for air cargo, as well as for land and new jobs throughout the EMR. From the technical perspective, the Zhuhai Airport site has excellent air space which is not in conflict with the Hong Kong, Macau and Shenzhen airports. Unlike these airports it is also located at a good distance from concentrated urban development, such that a large volume of night flights for dedicated cargo aeroplanes will not be a problem. Its close proximity to Macau and Hong Kong also enables it to fully exploit the frequent international flights of these two airports for international multipoint airport airport distribution and collection through functional and logistics integration with these two airports, including bonded high speedboats to link them up in fifteen to forty-five minute trips. This is an edge that no other PRC airport or the New Guangzhou Airport (Fadu) possesses. Zhuhai Airport is also directly connected by expressways (within one hour) to both the new airport of Guangzhou and Shenzhen Airport and thus can make use of their frequent flights to Mainland Chinese cities to cover the China market which is an advantage no other non-prc competing airport in Asia Pacific, (e.g. Singapore, Subic, or Incheon), possesses. Therefore, using Zhuhai as the GTP base can integrate the other A5 airports of the EMR into Asia s most competitive air logistics hub to effectively cover and link up the China market with the world market, an enviable geopolitical asset that best qualifies it as Asia s GTP. In other words, Zhuhai s GTP role depends on, as well as having to be enhanced by, cooperation with the other A5 airports. A recent study has shown that Zhuhai Airport may be quickly and cost-effectively developed, through a number of stages, into Asia s first and largest GTP (Kasarda and Sit, 2000). This has been portrayed in Figs 7 and 8. The proposed Stage 1 development envisages the conversion of the existing airport into an airport predominated by air cargo and related businesses. A new management system will also be necessary to facilitate smooth cargo flow. In short, the purpose is to turn Zhuhai Airport into a GTP with the following key functions: 1. Asia s air express hub, handling mainly transshipment of air express cargo for countries within Asia, and for transshipment between Asia and the rest of the world; 2. Asia s air logistics hub for MNCs that sell goods to the Asia market; 3. Asia s e-commerce fulfilment base; 4. Asia s JIT assembling base for high-tech, highvalue products such as consumer electronics (PC) and IT (mobile phone) products. As mentioned above, for successful operation of the proposed GTP at Zhuhai, there shall be a division of labour between the EMR s A5 and, in this light, may be seen as the effective GTP (see Fig. 1). In general, activities and products that target mainly non-prc markets in Asia and the rest of the world, and which require copious space and a bonded environment, will best be concentrated within Zhuhai Airport. International multi-city and multi-airport distribution and collection will be channelled largely through the Hong Kong and Macau airports which are to be connected by dedicated bonded land and water links to the Zhuhai GTP where most bonded warehousing, sorting and other value-added activities are located. The two SARS of Hong Kong and Macau will also provide most of the supporting producer services to the GTP. The Fadu and Shenzhen airports will provide multi-city and mul- 159

16 VICTOR SIT Fig. 7. Proposed GTP Layout at Zhuhai. Source: Kasarda and Sit, ti-airport distribution and collection functions for the rest of the mainland for the GTP. Most of JIT assembly, warehousing and related value-added activities for China s domestic market may also be provided in the new Fadu Airport where space and convenience in handling qualify it better than the Shenzhen Airport. Detailed coordination and planning for the division of labour of A5 as well as consideration of air rights to support the pan-emr GTP role will need to be further explored by relevant local governments and central ministries of China. More specifically, the Chinese central government has to provide the following minimum conditions for operation of the GTP: 1. Air flight rights for international air cargo integrators, in particular for major operators such as FedEx, UPS, TNT and DHL to fly in and out of Zhuhai. 2. Reposition Zhuhai Airport as a GTP, i.e. with priority for international cargo flights and related activities, while keeping passenger and domestic market business to a minimum. 3. Bonded and free trade zone status to all cargo and activities related to international transshipment within the airport site. 4. Bonded arrangement for speedboat links between Zhuhai Airport and the Macau and Hong Kong airports. At the level of the local governments that constitute the EMR, policy and infrastructural cooperation and coordination will also be crucial, and will be discussed in the conclusion below. Conclusion: the GTP a Hong Kong Macau PRD cooperative approach Creating the GTP and siting its main operation base at Zhuhai will not be possible without the understanding, approval and close cooperation of the Chinese central government, the two SAR governments and local authorities of Guangdong. All of these authorities have to be aware that the GTP is not just a local facility. It is in fact to do with national and even continental competitiveness, and its creation and successful operation will put the Chinese national economy on to a new historical plat- 160

17 Fig. 8. Proposed open interface cargo management at the Zhuhai GTP. For in-transit bonded shipments remaining on the GTP site. Source: Adapted from Master Plan for GTP at U-Taphao, Thailand. form. In short, the GTP is a critical infrastructure that may enable southern China (the EMR) to dominate Asia s e-commerce, JIT assembling, air express and air logistics, a national interest and development target that the Chinese leaders have reiterated. Obviously, as the PRD, Hong Kong and Macau contribute to the success of the GTP through their respective comparative advantages of geography, traditional factor edges as well as the varying and accommodative milieu for business under One Country: Two Systems, they will benefit directly from the GTP. At the initiation of the Hong Kong Airport Authority, the heads of A5 began regular meetings and studies on both passenger and cargo business cooperation among them in 2000 (Hong Kong Airport Authority, 2003), the Hong Kong Guangdong High Level Consultative Meeting meeting on a half-yearly basis. One of its regular agenda items is cooperation between the airports of Zhuhai and Hong Kong. In May 2001, the central government approved Hong Kong s request for Closer Economic Partnership Arrangement (CEPA) negotiation between Hong Kong, Guangdong and the Central Government (Hong Kong SAR Government, 2003). Related studies sponsored by the authorities supported the need for creating a GTP within the EMR, and its main site is to be at Zhuhai (Macro Economic Research Institute, 2001; Tsang, 2002, Tian, 2003). The implied cooperation in feasibility study, planning and construction of related infrastructure, the fabrication and implementation of relevant policies and joint effort in marketing mean a higher and qualitatively different type of cooperation between all levels of government in the EMR as indicated above. In such a context, a new perception of the Hong Kong Macau PRD relationship in the continual evolution of the EMR, and the appropriate positioning of the EMR in the overall Chinese economy will be needed. Institution building involving all these actors will also have to be in place soon in order that the new cooperative approach may be implemented. The above-mentioned recent efforts indicated a positive development in the right direction. As a means to exploit the EMR s geographical/ locational advantage in Asia, i.e. (1) the meeting point of the partially open China airspace and the autonomous and reasonably open airspace of Hong Kong and Macau SARs, (2) the meeting of Two Systems under One Country, (3) increasing glo- 161

18 VICTOR SIT balization of the Asian economies, and (4) the onset of e-commerce, the cooperation of local authorities in the EMR in forging a GTP at Zhuhai is an interaction in space of these forces for enhancing the EMR s national and international competitiveness. It will also be a good example of glocalization, i.e. how global forces are maximised within the context, and in intensive interaction and exploitation of local forces/conditions. Of course, the present restrictive air right situation at Zhuhai Airport is not yet conducive to the development of international air cargo service. A new light in this is now evident, as Singapore Airlines has been granted fifth air right in Xiamen Airport (Takung Pao, 23 May, 2003). As Zhuhai has the same status as Xiamen as one of the Special Economic Zones, the granting of international airport status as well as Zhuhai s opening up to international cargo flights is likely to be implemented soon, and will serve as the first step to enable it to develop into a GTP. The Hong Kong SAR government and the Guangdong government have already begun regular discussions since 2001 on such an issue within the Joint Committee for Guangdong Hong Kong Economic Cooperation a committee with the blessing of the Chinese Central Government and participated in by its relevant ministries. At the same time, the airport authorities of Hong Kong and Zhuhai airports completed in September 2002 a joint study on future air express and air cargo cooperation between the two airports (Hong Kong Airport Authority, 2003). The GTP concept has thus already made some headway under the sponsorship of local governments in the EMR. 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