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Hong Kong Freight Transportation Report Q2 2008Product Type: Market Research ReportPublished by: Business Monitor International Published: May 2008 Product Code: R302-3361 Description In Q407 Hong Kong based Cathay Pacific was once more looking at ways to move into mainland China, now one of the world’s most promising passenger and air freight markets. The battle for control of China Eastern Airlines, and for a share in China’s potentially vast aviation market, took a new turn in late 2007 and early 2008, when China National Aviation Corporation (CNAC) made a counter-bid for a 24% stake the airline, designed to thwart the initial offer made by Singapore Airlines (SIA) and its parent group Temasek. The joint SIA-Temasek bid had offered a price of HKD3.80 per share (US$0.49), but CNAC offered a higher HKD5.0 (US$0.64). Cathay Pacific said it was prepared to team up with Air China and its parent group, CNAC, to form a strategic partnership with China Eastern if the SIA-Temasek bid failed.Cathay and Air China have cross-shareholdings between them, and had initially considered, but eventually dropped a bid for China Eastern in September 2007. Whatever the outcome of the bidding war, it was clear that buying into one of the key China mainland airlines remained an attractive long term proposition for other aviation companies. At the end of December it was announced that Hong Kong and mainland China had agreed to ease a series of restrictions on aviation services, allowing carriers such as Air China and Cathay Pacific to expand passenger and cargo flights. Restrictions on the number of all cargo services would be lifted from October 2008, both sides said, allowing more frequent flights between Hong Kong and Beijing on the one hand, and Hong Kong and Shanghai on the other. In addition, passenger airlines would be allowed to operate without capacity restrictions on 49 routes, up from the current total of 35 routes. The Hong Kong government welcomed the agreement, saying it would strengthen the city’s status as ‘an international and regional aviation hub’. In our Hong Kong Freight Transport Report Q407 BMI predicts that Hong Kong air freight carried will grow at an average annualrate of 5.5% over the next five years.All the evidence indicates that the powerful economic boom in mainland China will continue to create acomplex mix of opportunities and threats for Hong Kong. In general, as the Special Administrative Region (SAR) repositions itself, we believe it will be the higher-value/lower-bulk transport modes that are most resilient. So we remain relatively confident about prospects for airfreight, particularly forregional trade in electronics, IT products and express/parcel delivery. Airfreight capacity will also grow as a result of the expansion of the passenger business, driven by the spread of low-cost airlines.The territory retains some extremely important advantages. In BMI’s freight transport rating, Hong Kongscores a total of 76.9 (out of a potential maximum of 100), with particular strength in both the regulatory and competitive environments and a satisfactory showing in the ratings for long-term economic risk and infrastructure growth. This will continue to make it an attractive place for the freight industry, more so ifit can begin to grapple with its higher costs, relative to the mainland. According to our latest estimates, transport and communications GDP rose by 7.2% in 2007, onepercentage point faster than overall GDP, which we estimate to have increased by 6.2%. For the 2008-2012 forecast period we expect the transport and communications sector to continue outpacing the economy as a whole, although by a smaller margin. It will achieve average annual growth of 5.9%, versus 5.5% for overall GDP. The total value of transport and communications GDP will rise to US$32.66bn in nominal terms by 2011, representing 11.0% of Hong Kong’s GDP. We continue to trim sea-borne freight forecasts to take account of the growing competitive threat fromrival ports, particularly those in Mainland China, with lower labour costs, such as Shanghai and Shenzhen. We expect throughput to grow by an annual average of 4.1%, down from the 8.1% figure over the preceding five years. Rail freight, always relatively marginal in Hong Kong, will grow at 5.9%, an increase on the rate over the preceding five years. Table of Contents
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