Come fly with me

Motorbike tycoon wants to become a higher-flier in plane industry

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05 Apr 2013
Week in China

When Zuo Zongshen was profiled for a documentary by the New York Times about the development of modern China, the man behind the Zongshen Motorcycle Technology Corporation characterised his own life as a rags to riches story. “My family and I were ordinary people. In the eyes of Westerners we would be considered very poor. When I had the opportunity I cherished it and worked hard,” he told his interviewer.

If his background sounds modest, Zuo’s latest ambitions are anything but. Already one of China’s richest men (see WiC131), Zuo thinks he can reinvent one of the world’s most complex industries. Indeed, the motorbike tycoon’s plans to move into the world of aviation have created a fair share of disbelief. China Entrepreneur, in an article about his vision, asked simply “Is Zuo Zongshen crazy?”

The magazine describes how Zuo’s epiphany came during a visit to the Zhuhai Air Show. After returning to his home in Chongqing, he announced that his company Zongshen had reached a strategic agreement with two partners to build private jets under a new company, Chongqing Southwest Aircraft Manufacturing. The plan is to invest Rmb2 billion ($322.4 million) into the project.

Success seems to rest on two contingencies. On the one hand, there has to be sufficient demand for private aircraft; on the other hand, China has to open up more of its skies to private flights.

When it comes to demand, Zuo’s case is simple. He points out that China is well behind the US in numbers of planes, something that he expects to change. Zuo is not alone, with forecasts suggesting that numbers of aircraft will soar in coming years (see WiC153).

“Now the Chinese have cars and houses, the next growth point of consumption will be in aircraft,” Zuo told China Entrepreneur.

In another piece of supporting evidence, the China Daily is reporting that two dealerships selling light aircraft opened in Beijing and Wuhan last weekend and that three aircraft have already been ordered.

On the one hand, there has to be sufficient demand for private aircraft; on the other hand, China has to open up more of its skies to private flights

The new planes will also need more sky to fly in. For this, Zuo can point to plans made by the State Council two years ago that lower-altitude airspace will be opened up and senior officials say fuller liberalisation will start from 2015 (currently airspace is hogged by the military). Reforms are being piloted in Guangdong, Hubei and Guangxi, although the timetable for allowing more low-level flying is still unclear. But in preparation for a fuller move, Zuo has announced an investment in a company linked to the national air traffic control commission, which is carrying out research on how best to expand access to the country’s domestic airspace.

Even if both trends turn in Zuo’s favour, why should a man famous for making motorbikes be able to carve a space for himself in aviation? Some scepticism still seems warranted, not least because Zuo wants to participate in several different parts of the aviation industry. Building aircraft is not enough, as Zuo sees himself getting involved in a wide range of other activities, such as airport construction, flight training and even tourism. But Zuo explains that he will start by using manufacturing, the core strength of his motorcycle business, to expand into aviation as a supplier.

A key part of the plan is his involvement with Chongqing Liangjiang New Area, a 10-square kilometre zone already described as “Aircraft City” by the city’s government.

The park has already attracted international attention. Honeywell signed a memorandum of understanding last year promising to help develop Chongqing into an international aviation centre. Part of the deal is that Honeywell will work with local companies to get its turbine propeller engines deployed in civil aircraft manufactured in the region. And Pilatus, a Swiss aircraft manufacturer, has also signed an agreement with the development zone envisaging an investment of $400 million in a company engaged in production, assembly and maintenance of general aircraft, as well as the relocation of some of Pilatus’ production lines from Switzerland to Chongqing.

Zuo says he wants to act as a bridge between the private sector and the local government’s aviation ambitions: “Government investment needs to see performance, so they need me, because I have the experience and resources in the manufacturing sector, so can directly undertake the production of general aviation parts and power systems,” he told China Entrepreneur.

The move might also make more sense against a background in which motorcycle sales have had to contend with policy headwinds (owing to new standards restricting emissions and limits on sales in many Chinese cities), as well as weaker export demand (see WiC132). Motorbike production fell 11% in the first half of 2012 to the lowest levels in six years. Chongqing has three main manufacturers (Zongshen and its local peers Lifan and Loncin) have each been trying to invest outside their core activities. Usually that has meant property (Loncin has turned real estate into its second business) although Lifan has dabbled in a diverse range of industries including clothing, media and football.

At least Zuo’s aviation plans stand out as an attempt to build from Zongshen’s roots as an engineering company, something that a real estate strategy clearly fails to address. But aviation looks like a high-risk pick and one that will require substantial investment, as well as consistent government support.

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