Several factors explain why Beijing suddenly seems so interested in civil aviation reform. It’s about more than merely enabling Chinese billionaires to be flown around in helicopters and private jets

Chinese Reform Starts to Take Off

CHRISTOPHER JACKSON

Dec. 18, 2013 12:12 p.m. ET

For the most part, businesses and investors are in wait-and-see mode following last month’s Third Plenum meeting of China’s leadership. Beijing has promised reforms, and now the question is whether and how those reforms will be implemented. But in one industry, big changes are already underway: aviation. This offers a case study to examine, both in the extent in which reform is possible, and in how difficult it will be to execute.Despite its potential to be a major industry, general aviation in China has long struggled to take off. A 2011 report by the U.S. Federal Aviation Administration states that general aviation (all civilian non-commercial activity) in the U.S. accounts for 1.5% of GDP and provides more than 1.3 million jobs, a stark contrast to China’s nascent level.

Thanks to reforms announced following the Third Plenum, this could finally change. Perhaps the biggest measure concerns airspace. The People’s Liberation Army (PLA) and the Civil Aviation Administration of China (CAAC) last month announced an overhaul of rules for non-scheduled flights. Flights previously had to follow an “application and approval” process to secure permission to take off, an onerous burden for even the largest of operators. The authorities will now only require that operators notify officials of their flight plans.

Beijing also is reforming aviation oversight. Up to now, the CAAC, as the civilian regulator, has been clearly subservient to the PLA in connection with air-space management. Airline passengers have frustratingly experienced this same problem, witnessing the world’s worst delays when the PLA unpredictably closes key air traffic corridors. Over the past month, however, the CAAC has been placed on a more equal footing with the PLA regarding air-space management decisions.

Some caveats remain. For instance, it’s not yet clear how the CAAC and PLA moving forward will negotiate disputes over use of air space. Also, limits on foreign pilots and carriers will continue to constrain foreign operations. However, the reform still introduces an unprecedented degree of ease and transparency to flying in China.

Several factors explain why Beijing suddenly seems so interested in civil aviation reform. It’s about more than merely enabling Chinese billionaires to be flown around in helicopters and private jets. In developed economies, those kinds of flights make up less than 5% of the total users.

Instead, leaders may be thinking about all the other components of a successful civil aviation industry. Emergency medical and disaster relief services can help save lives, something the government especially wishes was available during recent natural disasters. Agricultural flights can spray pesticides over crops, helping enhance China’s food production to feed its expanding population. New tourism opportunities can be developed, providing reliable transportation in and out of hard-to-reach areas.

Chinese aviation enthusiasts obtaining pilot licenses could provide a talent pool from which to find pilots for the country’s fast-growing commercial aviation industry. And there’s also a multitude of industries that surround airplanes, such as training, maintenance, and operators, along with the traditional employers including manufacturers, suppliers, construction firms, and others, all of which will supply new jobs.

Boosting civil aviation will also serve other attempts to rebalance the economy. America’s general aviation industry supports domestic consumption by facilitating package delivery—FedEx alone operates its own fleet of 250 turboprop aircraft to serve smaller communities. Replicating that kind of service in China would provide rural consumers unprecedented connections to the rest of the economy, not least allowing them to exploit Internet shopping. A burgeoning aviation industry would also help China’s politically contentious trade balance through the increased importation of foreign airplanes.

More broadly, the recent aviation reforms can also offer insight into the kind of reforms Beijing is seeking to undertake in other parts of the economy. For instance, the conceptual shift from “application and approval” to notification will need to occur in many other industries, freeing the private sector to make more decisions without waiting for bureaucrats to sign off. Beijing knows this, which is why this same regulatory shift also is being proposed in the new pilot Shanghai Free Trade Zone. This shift simultaneously helps bolster President Xi’s anti-corruption drive, by taking away a potential avenue for bribery of officials.

The changes also illustrate how disruptive reforms can be against the status quo. Wresting total control of the air space away from the PLA has been a multi-year process, and aviation reformers still face pressure from those who suggest the military needs to keep its grip on aviation, and that eliminating the need for pre-flight approvals cedes too much control. For now the reformers are in the ascendant in the aviation industry, but that kind of debate will happen again and again as China continues moving forward with serious economic reforms.

For now, however, the good news is that liberalization is coming to general aviation in China. These issues have been under discussion for a long time, and the fact that Beijing is willing to act now may augur well for the course of other reforms.

Mr. Jackson is a director at Genesis Investment, a Shanghai-based firm that is the sales representative for Cessna Aircraft in China.