Yahua Zhang

Determinants of Air Passenger Flows in China and Gravity Model: Deregulation, LCC and High Speed Rail

This paper reviews the development of China’s air transport policy and examines the determinants of Chinese city-pair air passenger flows using a gravity model approach accounting for the effects of multilateral resistance. We find enormous positive impacts of both the continuing liberalisation of this industry and the low cost carriers (LCCs) in promoting bilateral traffic flows in China’s domestic aviation market. Local industry structures and high-speed rail (HSR) services also influence the volume of passenger movement. The challenge from HSR will be greater in the near future after the fast-expanding HSR network has connected most of the major cities.

Low Cost Carriers in China and its Contribution to Passenger Traffic Flow

The gradual liberalization of Chinas air transport sector led to the launch of some new private airlines and low-cost carriers (LCCs) in the mid-2000s. However, the large population and geographic market do not necessarily mean that a favorable environment is ensured for the growth of these new airlines. The domestic market is still dominated by the three state-owned carriers that have access to government aid whenever they are in trouble. Despite the less favorable environment, Chinas only low-cost carrier, Spring Airlines, has managed to grow and has achieved limited success. The presence of Spring Airlines on a domestic route has contributed to an increase in passenger volume by 23%, holding other factors constant. This study also finds that when the jet fuel price increases by one dollar per gallon, the number of passengers carried will drop by 6%. The tourism and economic benefits brought about by LCCs should be the driving forces for change in air transport policies in China.

The Shanghai–Beijing “Air Express” Service Model and its Impact on the Pricing Behaviour of Airlines

Using departure day airfare data, this paper examines the pricing pattern on the Shanghai–Beijing route and reveals anti-competitive pricing behaviour following the introduction of the “Air Express” service. This new service adds limited value to passengers because of the airport facility constraints. Jointly providing the “express” service has provided a channel through which the three dominant players can communicate effectively to achieve more stable prices at a higher level. Interestingly, lower prices charged by the fringe airlines on this route were accommodated by the big ones. Meanwhile, the three dominant airlines did not exhibit any obvious deviation in pricing from each other.

Merger between airlines in financial distress: does the merger save them?

The merger in 2009 between China Eastern Airlines and Shanghai Airlines came at a time when both airlines were suffering heavy losses and were struggling for survival during the global financial crisis. An examination of the prices on China Easterns seven domestic Shanghai-based routes suggests that on average fares on departure days increased by 22% post-merger. It appears that the merger conferred China Eastern with significant market power owing to the parallel nature of this acquisition, thereby resulting in the record profit reported in 2010. This reminds regulatory authorities to remain vigilant in handling airline mergers when numerous parallel routes are involved.

A retrospective analysis of the effects of airline mergers on China Eastern's ‘lifeline’ routes: a difference-in-differences approach

We have seen a wave of mega airline mergers in the past few years including Air France/KLM, Delta/Northwest (NW) and United/Continental. However, literature examining the post-merger effects remains sparse. Using a difference-in-differences (DD) approach, this study examines the airfares on China Easterns three ‘lifeline’ routes, Shanghai–Beijing, Shanghai–Guangzhou and Shanghai–Shenzhen, after the 2002 airline mergers that eliminated six state-owned airlines and resulted in three large airline groups. Passengers on these important routes seem to have not been adversely impacted, and even in 2007, the airfares were not significantly higher than that of the 2002 level despite the rise in fuel price, which may provide some evidence to support the 2009 merger between China Eastern and Shanghai Airlines and justify a lenient anti-trust treatment of mergers in Chinas airline industry. Retrospectively examining the actual effects of consummated mergers in China including this research has significant policy implications for the new Anti-Monopoly Law enforcement agencies that have little experience and knowledge in dealing with airline mergers and alliances at this stage.

Gravity Models in Air Transport Research: A Survey and an Application

For more than 50 years, the gravity model has performed well in empirical studies on international trade flows. Its strong economic theoretical foundations have been acknowledged in the last 20 years. Its applications in air transport research remain relatively sparse. A review of the air transport literature employing gravity models in the last ten years shows that most of the studies have not accounted for the advances in empirical estimation techniques developed in international economics. We apply the gravity model in China’s aviation market using the Poisson pseudo-maximum likelihood (PPML) approach with fixed effects. The results indicate an enormous positive effect of the continuous liberalisation in the air transport sector in promoting the demand for air travel. The emergence of high-speed rail (HSR) has been a serious threat to China’s airline industry and could result in a significant reduction in the number of air passengers when given controls for other factors.

Does Foreign Bank Entry Make Chinese Banks Stronger

Abstract China has encouraged its domestic banks to introduce foreign investment since the early 2000s. In the meantime, China has gradually fulfilled its World Trade Organisation (WTO) accession commitment to give foreign banks the same treatment as their Chinese counterparts in the last decade. This research has examined the effects of the two modes of foreign bank entry, namely, minority ownership participation, and setting up branches and subsidiaries, on the performance of Chinese banks. Our results suggest that there is no systematically significant impact of the minority ownership participation on the performance indicators of Chinese banks. However, it appears that the physical presence of foreign banks has been a significant driver for domestic banks to improve profitability and efficiency. Opening the country to foreign banks appears to have made Chinese banks stronger and more competitive.

THE DETERMINANTS OF OUTWARD FOREIGN DIRECT INVESTMENT STRATEGIES OF CHINESE ENERGY FIRMS

This paper investigates the location strategies of Chinese energy firms over the period 2003–2013. The results confirm that market-seeking and resource-seeking are two significant motivations behind Chinese energy firms’ outward foreign direct investment (OFDI). As expected, a higher level of the host country’s energy resource reserves attracts more energy resource related projects and the host country’s renewable energy output influences Chinese firms’ renewable energy investment. However, for OFDI in energy resources, the political stability of the host country is not a significant factor while when investing in renewable energy, it is a significant consideration. Interestingly, for OFDI in energy resources, trade integration measured by the share of exports sold in the host country in China’s total exports, is not statistically significant while for OFDI in renewable energy, trade integration affects the investment decision.

CEO Promotion, Relative Performance Measures, and Institutions in an Emerging Market: Evidence from China’s Listed State-Owned Enterprise

Abstract Purpose This paper investigates CEO turnover and the usefulness of relative performance evaluation (RPE) as a management incentive in an emerging economy lacking market-based competition. Methodology/approach In a sample of China’s listed state-owned enterprises (SOEs) from the period 2001 to 2005, we manually collect the data where a CEO has gone after being removed by reading the annual reports of the firms and searching the major news and business publications, and run OLS regressions to examine how various incentives provided by different CEO turnovers such as promotion, demotion, and rotation affect the firm performance. Findings We find that 41% of departing CEOs in SOEs is being promoted. The promotion is positively associated with preceding firm performance relative to peers in the same region and this association is more significant than that between the promotion and firm’s specific performance. Furthermore, the promotion outperforms other incentive schemes such as CEO demotions by 5–8% in terms of subsequent Tobin’s q in three years. These consequences persist in undeveloped regions where there are fewer firms listed on the stock market, a lower stock market capitalization, or a higher regional Herfindahl–Hirschman Index ( HHI ). Research implications The findings imply that promotion based on RPE provides an important incentive by creating competitions.