China is the world’s second largest and one of the world’s fastest growing civil aviation markets. In recent years, Chinese Aircraft Manufacturing industry has grown at double-digit rates. AerospaceSociety group forecasts that several key factors will continue drive the industry growth. The rate of which will be commensurate to county’s gross domestic product (GDP) growth rate.
The Chinese Aircraft Manufacturing industry composition is diverse and can be categorized based on activities. The industry provides
· Aircraft manufacturing activities for various aircraft involved in carrying freight, passengers, or for national defence;
· Aircraft maintenance and repairing activities, and
· Aircraft parts/accessories manufacturing and life-cycle management
China’s aviation industry is a national priority, and the Chinese government is expending significant resources to develop the industry overall capabilities, such as developing a large aircraft strategy to improve the domestic manufacturing processes and to challenge the market share of foreign OEMs, boosting the repair and maintenance capacity, building new airports and training new pilots to meet demand. China is one of the largest overall export markets for U.S. aerospace products. The U.S. aviation sector exported $13.2 billion products to China in 2016, accounting for 58 percent of China’s total imports in the aviation sector .
Under the auspices of the Chinese central government, the aircraft manufacturing industry has emerged from the developing stage and entered into the growth stage of it life cycle. This means the industry is expanding and growing to meet the increasing demand not only from the civil aviation market, but also from the national defence. A substantial number of passenger and freight airplanes are anticipated to replace the existing aging fleet as well as to add capacity. The industry revenue growth rate is estimated to be at an annualized 6.9% in the next five years to $88.7 billion . AerospaceSociety group predicts the growth rate will then continue at a stabilized rate thereafter. As permitted by the government policy, some new, non-state enterprises have been established in recent years, such as Taixiang Aviation Science & Technology, Beijing Keyuan Light Aircraft Industry and Shanghai Chuying Science & Technology. However, due to national defense requirements and major capital needs, the government still heavily controls the Aircraft Manufacturing industry in China. Therefore, business and manufacturing facility numbers are low compared with many other major Chinese industries.
The industry also has large footprint in the country. The notable provinces are Shanxi, Heilongjinag and Liaoning. Shanxi province is one of the largest manufacturing provinces of aircraft in China, contributing 21.0% to the total industry revenue. The aviation and spaceflight industries have over 50 years of development forming a large industry base. At the beginning of 2008, a large aircraft-manufacturing base was established in Xi'an, which will further benefit the development of the industry in Shanxi province. Heilongjiang province and Liaoning province are also aircraft manufacturing bases. As China's traditional heavy industry base, the North East generates about 34.5% of industry revenue. The efficiency and scale of manufacturers in China's North East are more efficient than other regions.
In terms of market segmentation, the industry provides the majority of its civil products and services to airlines, accounting for 61.5% of industry revenue in 2018. Government purchases of aircraft are expected to account for 30.0% of industry revenue in 2018. The government purchases general aviation planes for general aviation purposes and other needs, such as agriculture and forestry mapping, the creation of artificial rain, aerial photography and aerial exploration. Exports and other markets makes up the rest of the market.
Key Growth Factors
Several key factors can directly influence the industry growth trajectory in the next five years. They are summarized in this section.
Domestic Goods Prices and Aircraft Prices
Aircraft manufacturing costs are heavily influenced by raw material costs, technology input levels and wage input costs. Increases in these costs can have a negative impact on downstream demand for aircraft. Raw material used in aircraft and aircraft spare parts manufacturing include aluminum alloy, titanium alloy, stainless steel, composite materials, and other specialized materials. Increased pricing levels of these materials leads to increased costs for the industry, which may not always able to be passed onto downstream buyers. The recent relatively low price level for steel has benefit the manufacturing cost of aircraft in general . As Chinese-made aircraft are likely to have pricing advantages compared with aircraft manufactured in high labor-cost countries, foreign demand for China's aircraft is expected to increase in future years, particularly in Africa and some Asian countries.
Air Travel Demand and Household Disposable Incomes
Increased passenger, freight and cargo transportation by air from and within China drives stronger demand for aircraft and the repairing of aircraft by enterprises from the Aircraft Manufacturing industry. Increasing household disposable incomes not only make it more affordable to travel by aircraft, it also encourages more business trips by aircraft, which stimulates the development of air transport industry and increases aircraft demand.
National defense spending
The level of defense spending greatly influences this industry. Increased national defense development and construction drives demand for aircraft and parts. The compulsory purchase of Chinese-made aircraft by the government has a major positive influence on demand for this industry's products. Increases in defense spending will lead to stronger demand for military aircraft and related equipment and services.
Exchange Rates - Chinese Yuan per $US
Exchange rates greatly affect the cost of importing aircraft. Since the Chinese currency began to depreciate from the second half of 2014, exports of aircraft are further encouraged, and exports growth are expected to speed up in the coming years. Furthermore, many aircraft and aircraft spare parts manufacturers in China have undertaken considerable subcontracting business for foreign aircraft firms in recent years. Depreciation of Chinese yuan will drive greater demand from some export markets
 Export Commercial Guide – China Aviation
 IBISWorld Industry Report, Aircraft Manufacturing in China
 The World Bank GDP Data 2018
 2018 STEEL PRICE FORECAST, Trading Economics