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AUGUST 4, 2000 VOL. 26 NO. 30 | SEARCH ASIAWEEK

Business Buzz
Getting Ready for WTO Takeoff
By ALEJANDRO REYES

China's July 21 announcement that it will merge 10 of the country's airlines into three groups had been expected for months. But the extent of the restructuring — it affects 73,000 employees and $18.1 billion in assets — and the swiftness of its implementation are surprising. Seven carriers (China Northern, China Northwest, China Southwest, Great Wall, Xinjiang, Yunnan and Zhejiang) will be grouped under the country's three largest — Air China, China Eastern and China Southern. Much of the reorganization could be done by the end of the year.

Each of the three merged entities will have roughly $6 billion in assets. The move is sure to lead to further deregulation and allow carriers to operate more like private companies. And the Civil Aviation Administration of China (CAAC) will no longer directly administer the carriers.

Why now? Last year rumors abounded of a merger between the national carrier Air China, which operates the most international routes, and China Southern, which carries the most passengers. The companies began talks, but China Southern made it clear that it was not too enthusiastic about a deal. China Southern (listed in Hong Kong and New York) is among the best managed enterprises in China, but Air China has far to go. In fact, Shanghai-based China Eastern is widely regarded as second best behind China Southern. Obviously, Beijing took note and decided to loosen control on the industry while strengthening its key players.

With China poised to join the WTO, its airlines must become more efficient. The CAAC is expected to raise the limit on foreign ownership of domestic airlines from 35% to 49%, allowing outsiders to buy strategic stakes in any carrier. China Eastern is talking to Cathay Pacific and to Taiwan's China Airlines. An alliance with one of them might be among the first made in the WTO era. — By Alejandro Reyes


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From an environmentalist in China to a mayor in the Philippines, Asiaweek presents the five extraordinary winners of the 2000 Ramon Magsaysay Awards
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