TITLE:                   AVIATION INDUSTRY CORP. I & II

SUBJECT COUNTRY(IES):    CHINA

POST OF ORIGIN:          CHINA

SERIES:                  INTERNATIONAL MARKET INSIGHT (IMI)

ITA INDUSTRY CODE:       AIR

DATE OF REPORT (YYMMDD): 991130

DELETION DATE (YYMMDD):  201130

AUTHOR:                  JILI SUN, COMMERCIAL SPECIALIST

APPROVING OFFICER:       WILLIAM ZARIT, DEPUTY SENIOR COMMERCIAL OFFICER

OFFICER'S TITLE:

NUMBER OF PAGES:         4

The following IMI is based on articles in the July 2, 1999
edition of China Aviation News on China Aviation Industry
Corporation (AVIC), and interviews with industry experts.

SUMMARY:

In an effort to become more competitive, China established ten
new state-owned aviation corporations, including splitting AVIC
(Aviation Industry of China) into AVIC I and II.  AVIC I focuses
on large- and medium-sized aircraft, while AVIC II gives
priority to feeder aircraft and helicopters. AVIC I and II are
both cooperators and competitors.

BACKGROUND:

During the past 10-15 years, international aviation experienced
dramatic change.  Finding itself lagging behind in this
industry, on July 1, 1999 China decided to make strategic
changes to address this situation, creating ten new state-run
corporations:

China Nuclear Industry Group Corporation,
China Nuclear Industry Construction Group Corporation, China
Aerospace Science and Technology Group Corporation, China
Aerospace Machinery and Electronics Group Corporation,
China Aviation Industry Corporation I (AVIC I)
China Aviation Industry Corporation II (AVIC II),
China Ship-Building Industry Group Corporation,
China Ship-building Heavy Industry Group Corporation,
China Weapons Industry Group Corporation and
China Weapons and Equipment Group Corporation.

AVIC I

AVIC I has 53 large- and medium-sized industrial enterprises, 31
research institutes, 19 specialized companies and institutions
respectively engaged in foreign trade, material supply,
scientific research and product development. Nearly 240 thousand
people are employed in industrial enterprises while 45,000 more
employees work in research institutes. Total assets are RMB 34.9
billion.

Examples of AVIC I enterprises include Chengdu Aircraft Company,
Xian Aircraft Company, Nanchang Aircraft Company, Shenyang
Aircraft Company and their National Trade Bureau.  Parts for
Boeing jetliners and other non-Chinese aircraft are made at
these facilities.  Y-7 and military aircraft are also under the
responsibility of AVIC I.  AVIC I & II each hold 50% of CATIC
(China National Aero-Technology Import & Export Corporation)
shares.

AVIC I mainly engages in the development, manufacturing, sales,
and after-sales services of military and civil aircraft,
engines, airborne equipment, weaponry systems. They also produce
non-aviation products.

Military products include fighters, fighter-bombers, bombers,
transports, trainers and reconnaissance aircraft. Fighters in
mass production are F7, F8 and their derivatives. Bombers
include the H5 and H6 series. Trainers include the FT6, FT7, and
HJ5. Civil aircraft include the Y7 and its derivatives, which
are short to medium range transport aircraft.  Non-aviation
products include more than 3000 different types of products in 8
major categories including industrial gas turbines, automobiles,
motorcycles, refrigerating machinery and environmental
protection equipment.  AVIC I services include aircraft leasing
and general aviation services, geotechnical engineering,
construction contracting and real estate.


AVIC II

AVIC II owns 54 large- and medium-sized industrial enterprises
and 3 scientific research institutes involved in helicopter,
airplane, engine and airborne equipment. They control an
additional 22 enterprises, institutes and specialized companies
including China Aviation Industry Supply and Marketing
Corporation and the 50% ownership with AVIC I of CATIC. They
employ 210,000 workers, and control assets of 31.5 billion RMB.

AVIC II manages state-owned assets (including land utilization
rights) and shares of invested enterprises; investment,
financing and other financial business at home and abroad;
military and civil aircraft including helicopters, transporters,
trainers, and attackers, UAV and related aviation products and
airborne equipment.  They also produce automobiles, motorcycles
and related engines and parts, textile machinery, pharmaceutical
equipment, medical apparatus, environmental protection equipment
and other non-aviation products.  Services include aircraft
leasing, general aviation services, engineering development and
design, engineering contracting, real estate development,
intermediary service and import and export services.


RELATIONSHIP:

AVIC I AND II are equal economic entities authorized by the
state to make investments, operating as a state holding company
under the direct supervision of the Central Government.  The
scope of business for AVIC I and AVIC II look similar, but have
a different emphasis. Generally speaking, AVIC I focuses on
large- and medium-sized aircraft while AVIC II gives priority to
feeder aircraft and helicopters.



Contact information for AVIC I and AVIC II is as follows:

Ms. Xuan Baishi
Division Chief
Department of Marketing & International Cooperation
China Aviation Industry Corporation I (AVIC I)
Tel: (8610)6409-3421
Fax: (8610) 6401-1632
No.67 Jiaonan Street
Beijing 100009, PR of China
Also:
Mr. Liu Gaozhou, Director General, AVIC I
Mr. Tang Xiaoping, Director, National Trade Bureau
Mr. Shen Xiaoping, Deputy Director, National Trade Bureau
Mr. Zhou Xunwu, Deputy Director, National Trade Bureau

Mr. Zhou Xiuyang
Project Manager
Department of International Cooperation and Trade
China Aviation Industry Corporation II (AVIC II)
Tel: (8610) 6409-4308
Fax: (8610) 6403-2109
No.67 Jiaonan Street
Beijing 100712, PR of China
Also:
Mr. Zhang Yanzhong, Director General, AVIC II


The Commercial Section of the U.S. Embassy in Beijing, part of
the worldwide network of the U.S. & Foreign Commercial Service,
helps U.S. firms export their goods and services to China.  To
accomplish this mission we conduct a number of services on
behalf of the U.S. Department of Commerce (USDOC), including our
Gold Key Service, which includes arranging meetings with
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partners.  For information on the Gold Key or other USDOC
services, contact the U.S.-based Export Assistance Center
nearest you, or contact us at 86/10/6532-6924, fax:
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