China-Taiwan air links on the way


Hong Kong's airport would lose stopover business if direct flights begin between Taiwan and China

By Alex Frew McMillan
CNN Hong Kong

HONG KONG, China (CNN) -- Direct air links between mainland China and Taiwan will likely get approval this year, according to a well-regarded China analyst.

Direct flights across the Taiwan Strait will likely come in 2003, according to Andy Rothman, chief China strategist and research head with CLSA.

Beijing-based Rothman was speaking on a visit to the investment bank's offices in Hong Kong. He said he believes the remaining obstacles are political, not logistical. China regards Taiwan as a renegade province.

Rothman expects the political rapprochement between Taiwan and mainland China to continue (report on two sides meeting).

To many analysts and economists, direct flights are a virtual certainty, even with cross-strait political and military tension.

Mounting business ties

The impetus comes from mounting business ties between the two sides. Taiwanese companies have now invested $100 billion in China, according to Rothman's estimates. That has cemented human and financial relationships.

To aviation experts, the recently completed negotiations on air ties between Hong Kong and Taiwan have set the stage for direct flights. Some strategists believe an announcement is imminent as a result.


There have been demonstrations in Taiwan in favor of closer ties, partly due to the gloomy state of the economy

"I would not be surprised to see an agreement by the end of this year," Rothman told CNN. "I'm not looking for implementation on this until next year," he added.

Dragon Airways, based in Hong Kong, already flies to mainland China and to Taiwan. But travellers keen on flying direct must make a stopover in Hong Kong.

The main loser from direct ties would be Cathay Pacific. Taiwanese carriers China Airlines and Eva Airlines, as well as Chinese carriers Air China and probably China Eastern or China Southern, would gain.

Negative for Cathay Pacific

"It would be a negative for Cathay Pacific because it would cut into the traffic between Taiwan and Hong Kong," Rothman said. "But it would be a positive for the other carriers, who would see a significant increase in traffic on the cross-strait route."

The Hong Kong-Taiwan route is one of the world's most profitable for airlines. Seven carriers serve it, including Thai Airways.

"If there are direct links between Taiwan and China, there must be some effect on Hong Kong in general, because this wouldn't be the stopover place," Lisa Wong, Cathay's corporate communication manager, told CNN.

"There may be some impact on our business," she added, though the airline will let the market set ticket prices.

She said Cathay is currently conducting market research on flying direct to Chinese cities to make up the business. Cathay used to fly to Beijing and Shanghai but stopped that service some two decades ago.

Impact on Macau

Macau's airport, also now a Chinese city, would likely suffer as well. It has successfully cornered market share as an alternative stopover to Hong Kong.

Rothman played down last week's Pentagon report on China's mounting military presence, including increased missile placements within striking range of Taiwan (full story).

China is acquiring modern Russian-built submarines. There is concern one of these could destroy or damage a U.S. aircraft carrier in the Taiwan Strait if China were to mount a full-scale attack.

Rothman noted that all countries, including Japan, the United States and China, modernize their armies. China has deficiencies in its military, relative to the country's size, he added.

"I see no signs that China plans to use its military to attack countries on its borders," Rothman said. "I see no evidence that they plan to use force against Taiwan."

China joined the World Trade Organization in December. It is now so integrated into the world economy, both when it comes to exports and overseas investment in China.

To Rothman, that means the cost of an attack would outweigh any possible benefit to China, which he says has also been playing an increasingly responsible role on international defense.

"While Washington worries that China is preparing to fire missiles at Taiwan, we recommend investing in airlines that will benefit from the upcoming opening of cross-Strait transportation links," three CLSA analysts, including Rothman, wrote in a May report.