Economy

China Takes Aim At Foreign Investment Big Leagues

Chinese public and private enterprises are looking abroad, and expanding ever more into higher technology industries. It will reshape the future for China, and the world.

Aiming high
Aiming high
Sun Qizi

BEIJING — With $1.2 trillion in overseas direct investments (ODI) planned for the next decade, China is preparing to leap into the "global investor era." As a capital exporter, China "may still be in its infancy, but it's about to enter the fast lane," says Cheng Qingtao, vice-president of the China Chamber of International Commerce.

China's "Go Out" investment policy, launched in 1999, has already had a major effect on ODI, which grew from $2.7 billion in 2002 to $107.8 billion last year, according to data from the Ministry of Commerce. Deputy-Minister of Commerce Zhang Xiangchen expects the number to reach $120 billion this year and continue increasing by approximately 10% over the next five years.

Huang Yiping, an economics professor at Peking University's National School of Development, reckons that China has a real demand for outbound investments. "China's largest motive in exploiting overseas investment is to seek resources," he explains. "Approximately 41% of its overseas investment projects are concentrated in the natural resources sector which itself accounts for 51.3% of the total investment amount. The search for markets comes second. The third motive is to seek strategic assets."

State-owned enterprises continue to be the driving force behind China's ODI growth. But as Cheng Qingtao explains, the private sector is playing an expanded role. In 2013, non-state-owned enterprises accounted for 45% of China's outward foreign direct investment.

When it comes to the various overseas mergers and acquisitions Chinese companies have been involved in, "traditional business services make up the mainstream, especially in the wholesale and retailing, construction and manufacturing sectors," says Cheng. "But it is also very evident that the foreign investment is flowing from the low-technology sector to high technology and high value-added industries. Such investment has a huge growth potential and higher profit margins."

Trimming the red tape

To further promote outbound investments, China’s Ministry of Commerce amended and adopted a series of measures last month aimed at loosening regulations and simplifying administrative procedures. "The amended measures will facilitate overseas investments of private companies so long as they conform to anti-money laundering regulations," says Chen Daofu, director of the Comprehensive Research Office at China's State Council Institute of Finance.

Cheng Qintao believes there is room to further simplify the country's cumbersome investment procedures. Even with the new measures in place, companies have to go through various ministries and governmental agencies to obtain approval for their overseas projects, he points out. Cheng says legislation is also needed to fill in various legal gaps. China has no insurance law related to overseas investments, for example. Chinese companies, as a result, face serious difficulties when it comes to claiming damages.

Addressing the Asia-Pacific Economic Cooperation (APEC) forum two weeks ago, President Xi Jinping pledged to set up a $40 billion "Silk Road Fund" to support infrastructure construction and resource development in countries along the so-called Silk Road Economic Zone and the 21st Century Maritime Silk Road, a pair of economic belts where China plans to focus its business efforts.

The first of the two routes begins in China's former western capital of Xi’an, passes through West and Central Asia, and ends in Europe. The other follows a maritime trajectory by way of Malacca, west Myanmar, Bangladesh, Sri Lanka and East Africa. Chinese authorities refer to the two routes together as the "One Belt and One Road" initiative.

The Taldyk Pass in Kyrgyzstan, along the Silk Road. Photo: Gustavo Jeronimo

New sources of capital

In October, China called for the establishment of an Asian Infrastructure Investment Bank, another financial institute to provide funding for infrastructure construction. The financial ministers and representatives of the first batch of member states have endorsed the deal. It is headquartered in Beijing with a statutory capital of $100 billion.

As Cheng Qingtao reckons, Chinese investments in the One Belt and One Road countries will boost the region's infrastructure facilities. And as these regions “interconnect and intercommunicate,” new investment opportunities will arise in the communication industry, in human resource development, tourism, agriculture, public health, environmental protection, trade and logistics, and in finance, he predicts.

Chen Daofu points out that most of the countries along the two "Silk Roads" are underdeveloped and lack the ability to build infrastructure facilities and maintain them over the long term. The Silk Road Fund will thus provide them with supplementary support and enable them to access a very market-oriented financing channel.

The Silk Road Fund and Asian Infrastructure Investment Bank promise to serve China's interests in a way existing financial institutions such as the Asian Development Bank do not.

"The Asian Development Bank is controlled by the U.S. and Japan to provide special funding for the projects related to their needs. It directs funds to the development points they want," says Fan Mingtai, director at the Institute of Quantitative & Technical Economics of Chinese Academy of Social Sciences. "There is a certain competition between the Asian Development Bank and the Asian Infrastructure Investment Bank. China will now be able to direct, through the Asian Infrastructure Investment Bank, the financing for building the One Belt and One Road."

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Future

7 Ways The Pandemic May Change The Airline Industry For Good

Will flying be greener? More comfortable? Less frequent? As the world eyes a post-COVID reality, we look at ways the airline industry has been changing through a pandemic that has devastated air travel.

Ready for (a different kind of) takeoff?

Carl-Johan Karlsson

It's hard to overstate the damage the pandemic has had on the airline industry, with global revenues dropping by 40% in 2020 and dozens of airlines around the world filing for bankruptcy. One moment last year when the gravity became particularly apparent was when Asian carriers (in countries with low COVID-19 rates) began offering "flights to nowhere" — starting and ending at the same airport as a way to earn some cash from would-be travelers who missed the in-flight experience.

More than a year later today, experts believe that air traffic won't return to normal levels until 2024.


But beyond the financial woes, the unprecedented slowdown in air travel may bring some silver linings as key aspects of the industry are bound to change once back in full spin, with some longer-term effects on aviation already emerging. Here are some major transformations to expect in the coming years:

Cleaner aviation fuel

The U.S. administration of President Joe Biden and the airline industry recently agreed to the ambitious goal of replacing all jet fuel with sustainable alternatives by 2050. Already in a decade, the U.S. aims to produce three billion gallons of sustainable fuel — about one-tenth of current total use — from waste, plants and other organic matter.

While greening the world's road transport has long been at the top of the climate agenda, aviation is not even included under the Paris Agreement. But with air travel responsible for roughly 12% of all CO2 emissions from transport, and stricter international regulation on the horizon, the industry is increasingly seeking sustainable alternatives to petroleum-based fuel.

Fees imposed on the airline industry should be funneled into a climate fund.

In Germany, state broadcaster Deutsche Welle reports that the world's first factory producing CO2-neutral kerosene recently started operations in the town of Wertle, in Lower Saxony. The plant, for which Lufthansa is set to become the pilot customer, will produce CO2-neutral kerosene through a circular production cycle incorporating sustainable and green energy sources and raw materials. Energy is supplied through wind turbines from the surrounding area, while the fuel's main ingredients are water and waste-generated CO2 coming from a nearby biogas plant.

Farther north, Norwegian Air Shuttle has recently submitted a recommendation to the government that fees imposed on the airline industry should be funneled into a climate fund aimed at developing cleaner aviation fuel, according to Norwegian news site E24. The airline also suggested that the government significantly reduce the tax burden on the industry over a longer period to allow airlines to recover from the pandemic.

Black-and-white photo of an ariplane shot from below flying across the sky and leaving condensation trails

High-flying ambitions for the sector

Joel & Jasmin Førestbird

Hydrogen and electrification

Some airline manufacturers are betting on hydrogen, with research suggesting that the abundant resource has the potential to match the flight distances and payload of a current fossil-fuel aircraft. If derived from renewable resources like sun and wind power, hydrogen — with an energy-density almost three times that of gasoline or diesel — could work as a fully sustainable aviation fuel that emits only water.

One example comes out of California, where fuel-cell specialist HyPoint has entered a partnership with Pennsylvania-based Piasecki Aircraft Corporation to manufacture 650-kilowatt hydrogen fuel cell systems for aircrafts. According to HyPoint, the system — scheduled for commercial availability product by 2025 — will have four times the energy density of existing lithium-ion batteries and double the specific power of existing hydrogen fuel-cell systems.

Meanwhile, Rolls-Royce is looking to smash the speed record of electrical flights with a newly designed 23-foot-long model. Christened the Spirit of Innovation, the small plane took off for the first time earlier this month and successfully managed a 15-minute long test flight. However, the company has announced plans to fly the machine faster than 300 mph (480 km/h) before the year is out, and also to sell similar propulsion systems to companies developing electrical air taxis or small commuter planes.

New aircraft designs

Airlines are also upgrading aircraft design to become more eco-friendly. Air France just received its first upgrade of a single-aisle, medium-haul aircraft in 33 years. Fleet director Nicolas Bertrand told French daily Les Echos that the new A220 — that will replace the old A320 model — will reduce operating costs by 10%, fuel consumption and CO2 emissions by 20% and noise footprint by 34%.

International first class will be very nearly a thing of the past.

The pandemic has also ushered in a new era of consumer demand where privacy and personal space is put above luxury. The retirement of older aircraft caused by COVID-19 means that international first class — already in steady decline over the last decades — will be very nearly a thing of the past. Instead, airplane manufacturers around the world (including Delta, China Eastern, JetBlue, British Airways and Shanghai Airlines) are betting on a new generation of super-business minisuites where passengers have a privacy door. The idea, which was introduced by Qatar Airways in 2017, is to offer more personal space than in regular business class but without the lavishness of first class.

Aerial view of Rome's Fiumicino airport

Aerial view of Rome's Fiumicino airport

commons.wikimedia.org

Hygiene rankings  

Rome's Fiumicino Airport has become the first in the world to earn "the COVID-19 5-Star Airport Rating" from Skytrax, an international airline and airport review and ranking site, Italian daily La Repubblica reports. Skytrax, which publishes a yearly annual ranking of the world's best airports and issues the World Airport Awards, this year created a second list to specifically call out airports with the best health and hygiene standards.

Smoother check-in

​The pandemic has also accelerated the shift towards contactless traveling, with more airports harnessing the power of biometrics — such as facial recognition or fever screening — to reduce touchpoints and human contact. Similar technology can also be used to more efficiently scan physical objects, such as explosive detection. Ultimately, passengers will be able to "check-in" and go through a security screening anywhere at the airports, removing queues and bottlenecks.

Data privacy issues

​However, as pointed out in Canadian publication The Lawyer's Daily, increased use of AI and biometrics also means increased privacy concerns. For example, health and hygiene measures like digital vaccine passports also mean that airports can collect data on who has been vaccinated and the type of vaccine used.

Photo of planes at Auckland airport, New Zealand

Auckland Airport, New Zealand

Douglas Bagg

The billion-dollar question: Will we fly less?

At the end of the day, even with all these (mostly positive) changes that we've seen take shape over the past 18 months, the industry faces major uncertainty about whether air travel will ever return to the pre-COVID levels. Not only are people wary about being in crowded and closed airplanes, but the worth of long-distance business travel in particular is being questioned as many have seen that meetings can function remotely, via Zoom and other online apps.

Trying to forecast the future, experts point to the years following the 9/11 terrorist attacks as at least a partial blueprint for what a recovery might look like in the years ahead. Twenty years ago, as passenger enthusiasm for flying waned amid security fears following the attacks, airlines were forced to cancel flights and put planes into storage.

40% of Swedes intend to travel less

According to McKinsey, leisure trips and visits to family and friends rebounded faster than business flights, which took four years to return to pre-crisis levels in the UK. This time too, business travel is expected to lag, with the consulting firm estimating only 80% recovery of pre-pandemic levels by 2024.

But the COVID-19 crisis also came at a time when passengers were already rethinking their travel habits due to climate concerns, while worldwide lockdowns have ushered in a new era of remote working. In Sweden, a survey by the country's largest research company shows that 40% of the population intend to travel less even after the pandemic ends. Similarly in the UK, nearly 60% of adults said during the spring they intended to fly less after being vaccinated against COVID-19 — with climate change cited as a top reason for people wanting to reduce their number of flights, according to research by the University of Bristol.

At the same time, major companies are increasingly forced to face the music of the environmental movement, with several corporations rolling out climate targets over the last few years. Today, five of the 10 biggest buyers of corporate air travel in the US are technology companies: Amazon, IBM, Google, Apple and Microsoft, according to Taipei Times, all of which have set individual targets for environmental stewardship. As such, the era of flying across the Atlantic for a two-hour executive meeting is likely in its dying days.

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