August 2006 China News

China's booming commercial aviation industry is taking off faster than the country can train pilots, threatening future growth and hard-won advances in air safety.

The number of passenger planes in service in China was expected to double to 1,600 in the next five years, the China Daily newspaper quoted an aviation official as saying.

Every 100 new planes would require 1,000 extra pilots, China's industry regulator said in February, while official media estimate that Chinese flying schools can only graduate 600 pilots a year.

One pioneering foreigner, Philippe Burtonboy, a pilot with United Eagle Airlines Co., one of the country's four private airlines, had become famous, the paper said.

"The 50-year-old Belgian is a celebrity in Chengdu, even though he has been here for just four months, as he is the first foreign captain to pilot a plane in southwest China," the paper said.

Last month, China Eastern Airlines announced 16 Indians had completed professional training as air stewardesses, the first group of Indian cabin staff ever hired by a Chinese airline.

Oil prices may fall if progress is made in talks with Iran over its nuclear program, but things like surging auto sales in China and record gasoline demand in the United States mean that oil prices near record highs are probably here to stay.

Prices could fall as talks, which many expect to be constructive, continue with Iran over it's disputed nuclear program. But few think they'll fall too far.

"If there's a breakthrough, we could head back to around $70," said Nauman Barakat, an energy trader at the investment bank Macquarie. "But fundamentally, it's difficult to make a bearish case."

That's because Barakat keeps getting information like this: Despite national average gas prices of nearly $3 a gallon, near the inflation-adjusted high of $3.18 a gallon from the early 1980s, Americans used more gas in June than in any other month, according to preliminary data from the Energy Information Administration, the statistical arm of the Energy Department.

It is true that high prices are eating into demand growth for gasoline, with the latest EIA numbers showing the growth rate slowing to 0.5 to 1 percent per year from 1.5 to 2 percent a year. But the fact remains that demand is not dropping.

"Price is causing some substitutions, but in my opinion it's not enough, " said Peter Tertzakian, chief energy economist for ARC Financial and author of the book "A Thousand Barrels a Second."

Enough, that is, to significantly bring down prices, although those high prices have so far shown little ability to cut into economic growth as the economy is more efficient than it used to be.

Although the country uses about 20 million barrels of oil a day, more than three times the 6 million barrels used in China, the No. 2 consumer, demand is growing much more quickly in China.

Chinese consumption is growing at about 500,000 barrels a day each year versus growth of about 200,000 in the United States, according to Tertzakian.

That's no doubt helped by China's new-found love for the automobile. Just Monday a news report said car sales in the country surged nearly 50 percent in the first half of 2006.

But there's more. Growing demand in other developing countries, notably India, the lack of big new oilfield discoveries, and the soaring cost of getting oil out of the ground are a recipe for sustained high prices.

Tertzakian said most people just won't make the necessary sacrifices to significantly cut energy use. For any meaningful conservation to take place he said prices would have to rise to somewhere around $130 a barrel, although an economic slowdown would probably happen before prices reached that high, which would itself reduce demand.

Instead, he said, barring a drop in prices from a recession, people will simply deal with paying more, hobbling along until a new energy source or sources begin to replace oil, a transition process that he said was just starting and could last for decades.

In the meantime, any hint of political instability or supply disruption will move oil prices in a market hypersensitive to any piece of news.

Why are markets so sensitive? The world's easy to get light crude oil has been mostly gotten, so big oil-producing nations can't easily boost production when local supplies are disrupted.

Worldwide spare production capacity dropped from 5.5 million barrels a day just a few years ago to around 1 million in 2006, said Doug MacIntyre, a senior oil market analyst with EIA.

"That's not enough to cover a full disruption from Iran or Nigeria or Iraq or even the hurricanes," said MacIntyre. "So the market is going to become a lot more volatile on a day-to-day basis."

Chinese to open car plant in Oklahoma

China's Nanjing Automobile Group, which took control of Britain's collapsed MG Rover last year, plans to set up a factory in Oklahoma to build MG-brand cars, Automotive News said, in what could become the first Chinese attempt to assemble cars in the United States.

Nanjing Automobile is planning three production sites for its reborn MG cars - a shuttered factory in Longbridge, England, a Nanjing plant and the Ardmore, Okla., site, the industry paper reported Wednesday, citing a news release from the unlisted Chinese automaker.

Nanjing Automobile in China said it had no statement.

Nanjing Automobile is one of several Chinese car makers, including Geely Automobile Holdings Ltd. and Chery Automotive Co., hoping to crack the global car market amid a slowdown in demand at home.

It has a small joint venture in China with Italy's Fiat, but has struggled to make headway against bigger rivals that tied up with top brands General Motors Corp. and Volkswagen AG.

Construction of Nanjing's Oklahoma plant would begin early next year, with production starting by late 2008, the newspaper said.

About 60 percent of the 12,000 to 16,000 TF coupes to be built annually in Oklahoma is aimed at North America, and the rest for Europe. The Longbridge plant will build the TF roadster and the Nanjing site would assemble three sedans.

MG cars will likely go on sale in the United States in May or June of 2008, Automotive News cited MG as saying. That would mark the first resurrection in the United States of the famed British sports car since 1980.

Nanjing said capital investment in the United States would be more than $2 billion, to be funded by state and local governments in Oklahoma, the state's development agency and private investors, according to Automotive News . It did not specify how the funds would be allocated.

The automaker would create 550 jobs in Oklahoma, which was hit by the closure in February of a GM assembly plant, the newspaper said.

Nanjing Automobile, one of China's oldest automakers, surprised the motoring world when it outbid top Chinese car manufacturer Shanghai Automotive Industry Corp. to buy MG Rover out of bankruptcy for £53 million ($98 million) in mid-2005.

Earlier this year, it took a 33-year lease on the former MG Rover plant at Longbridge in central England and said it still hoped to revive production at the site.

China's airlines are opening up their cockpits to foreigners in a bid to solve a serious pilot shortage, state media reported.