US advises carriers to comply with China air zone

BEIJING (AP) — The United States advised U.S. carriers to comply with China's demand that it be told of any flights passing through its new maritime air defense zone over the East China Sea, an area where Beijing said it launched two fighter planes to investigate a dozen American and Japanese reconnaissance and military flights.

It was the first time since proclaiming the zone on Nov. 23 that China said it sent planes there on the same day as foreign military flights, although it said it merely identified the foreign planes and took no further action.

China announced last week that all aircraft entering the zone — a maritime area between China, Taiwan, 

South Korea and Japan — must notify Chinese authorities beforehand and that it would take unspecified defensive measures against those that don't comply. Neighboring countries and the U.S. have said they will not honor the new zone — believed aimed at claiming disputed territory — and have said it unnecessarily raises tensions.

State Department spokeswoman Jen Psaki said in a statement Friday that the U.S. remained deeply concerned about China's declared air identification zone. But she said that it is advising U.S. air carriers abroad to comply with notification requirements issued by China.

On Wednesday, Psaki had said the U.S. government was working to determine if the new rules applied to civil aviation. But she said that in the meantime, U.S. air carriers were being advised to take all steps they consider necessary to operate safely in the East China Sea region.

In Beijing, the Ministry of Defense said the Chinese fighter jets identified and monitored the two U.S. reconnaissance aircraft and a mix of 10 Japanese early warning, reconnaissance and fighter planes during their flights through the zone early Friday.

"China's air force has faithfully carried out its mission and tasks, with China's navy, since it was tasked with patrolling the East China Sea air defense identification zone. It monitored throughout the entire flights, made timely identification and ascertained the types," ministry spokesman Col. Shen Jinke said in a statement on its website.

In Washington, a Pentagon spokesman, Army Col. Steve Warren, said when asked about China's statement, "The U.S. will continue to partner with our allies and will operate in the area as normal."

Japanese officials declined to confirm details of any flights, but said routine missions in the area were continuing.

"We are simply conducting our ordinary warning and surveillance activity like before. We have not encountered any abnormal instances so far, therefore we have not made any announcement," Japanese Defense Minister Itsunori Onodera told reporters in Tokyo.

The United States and other countries have warned that the new zone could boost chances for miscalculations, accidents and conflicts, though analysts believe Beijing's move is not intended to spark any aerial confrontations but rather is a long-term strategy to solidify claims to disputed territory by simply marking the area as its own.

June Teufel Dreyer, who specializes in security issues at the University of Miami, said the Chinese government — while backing down from strictly enforcing the zone to keep a lid on tensions — is walking a delicate line because it is faced with strong public opinion from nationalists at home. Sending up the fighter planes Friday was aimed at the domestic audience, and China is likely to send planes regularly when foreign aircraft enter the zone without notifying Chinese authorities, she said.

"They will be 'escorting' the intruding planes, but they are not going to shoot them," she said.

The zone is seen primarily as China's latest bid to bolster its claim over a string of uninhabited Japanese-controlled islands in the East China Sea known as Senkaku in Japan and Diaoyu in China. Beijing has been ratcheting up its sovereignty claims since Tokyo's nationalization of the islands last year. However, there are questions whether China has the technical ability to fully enforce the zone due to a shortage of early warning radar aircraft and in-flight refueling capability.

The United States, Japan and South Korea all have said they sent military flights into the zone over the past week without notifying China. Japanese commercial flights have continued unhindered — although China has said its zone is not intended to have any effect on commercial flights not heading to China.

Dreyer said the U.S. and Japan have kept sending planes into the zone to make good on the message that they are ignoring it. "They have to do it more than once to show they are serious," she said.

Dreyer said the Chinese government may have miscalculated the strength of the international response to the establishment of the zone, but that China will hold its line in the long run.

"The Chinese government is not going to concede the substance," she said. "When circumstances are more conducive, they will try to enforce it more strictly in the future. This is a pattern we have noticed for decades."

Source: Associated Press by Ian Mader

Along the Tea Horse Road in China’s Yunnan Province

On the dashboard of our van, a solar-powered Tibetan prayer wheel spins continuously as we make our way through the bumpy roads linking Lijiang, Dali and Tengchong.

After our fourth or fifth near-collision, I begin to stare at that miniature golden cylinder. Maybe a little Buddhist intervention will save us from crashing into a truck laden with giant boulders or plunging off the road into the canyons below.

We had come to see the northwest part of Yunnan, bordering Myanmar and Tibet, an ancient landscape that is rapidly changing. With the countless shops in fake-historic Lijiang selling identical Yunnan handicrafts, along with the rowdy backpacker scene in Dali, sections of Yunnan are being lost to the kind of tourism that involves busloads of passengers wearing matching baseball caps.

Lijiang, “restored” in the ancient style after a 1996 earthquake, was exactly the sort of place we wanted to avoid. Having lived in China for almost two years, we had already seen “Impression West Lake,” Zhang Yimou’s over-the-top evening extravaganza in Hangzhou, so there was no need to take in “Impression Lijiang,” set against the backdrop of Jade Dragon Snow Mountain. And if we wanted to fight crowds like those on the cable car up the mountain, we could stay home in Beijing and wander through the Forbidden City on a hot summer day.

Shaxi, located roughly halfway between Lijiang and Dali, turned out to be the perfect antidote. It feels as removed from the modern world as Lijiang—where you can find McDonald’s, Pizza Hut and KFC—is immersed in it. A stop on the so-called tea-horse road (sometimes called the Southern Silk Road) for centuries, Shaxi today is placid and friendly, its quiet disturbed only by the occasional pigs or turkeys wandering through the cobblestone town square.

Walking around, we could imagine what it was like to be among the traders of old. The roads linked China to Tibet, Myanmar and other parts of Southeast Asia, bringing Yunnan’s tea to the world in a network that “vastly predates the modern world,” says Ed Jocelyn, founder of Red Rock Trek, a tour-guide company based in Dali.

We were far from the first foreigners to trek these parts. The Austrian-American explorer Joseph Rock lived near Lijiang from the 1920s to 1940s and cataloged the area’s people, plants and languages with a thoroughness that hasn’t been upstaged since.

His Yunnan was a far rougher place, with bandits attacking caravans and yak-butter-greased rope slides being used to ferry both people and terrified horses across raging rivers. At one point he describes a village as “charmingly situated, if not overclean.”

In Shaxi, we stayed in Laomadian Lodge, a restored inn once used by tea and horse traders, and it was easy to envision them trudging up the narrow wooden stairs and resting inside the low-ceiling rooms. Today, the inn features slate-floored bathrooms and other modern updates. In the evening, a handful of tourists walked around the town square, which includes a Buddhist temple and a restored theater that now houses a trading-route museum.

Fueled by a surprisingly good cappuccino from the nearby Old Tree Café (now that’s modernization I can get behind), we met our guide, Frank Hitman, for a hike to the base of a mountain called Shibaoshan, or Stone Treasure Mountain. This region of China is famed for its biodiversity, a contrast to Beijing, where we make do with tightly landscaped parks and a few sad birds. Unesco says that the area known as “Three Parallel Rivers”—the Yangtze, Nu and Mekong—may harbor “the richest biodiversity among the temperate areas of the world,” with 6,000 species of plants and endangered species such as the red panda.

As the heat, elevation and birdcalls increased, I started to think of the hike as a Buddhist boot camp. Maybe true awakening comes through sweat.

A few hours later we were rewarded with the sight of the Shizhong temple, which includes 16 grottoes carved in the reddish rock that date back to the eighth century. Yunnan’s ethnic diversity and links to the outside world have meant that the province is home to several forms of Buddhism, Confucianism, animist religions such as Dongba, and other faiths.

More than one statue can be seen in the grottoes at Shizhong, including a layman, Vimalakirti, whose worried facial expression stands out in contrast to the serene Buddhist visages.

It’s possible he was worried about what we saw next: something called the Yoni Shrine, a miniature grotto with a carving that may or may not be connected to worship of female reproduction. A tourist from Guangzhou began telling us about the other intimate body parts he’s seen represented on his travels, and our faces started to take on the look of Vimalakirti as we inched away.

The Buddhist boot camp continued with a post lunch hike to Baoxiang, another mountaintop temple. Mist rising from a nearby waterfall cooled us as well as a colony of macaques, who eyed us for snack potential and, unimpressed, settled into the arms of a statue. The mist made it feel as if the religious site was suspended in midair, which added to the holy feeling even if it wasn’t clear which of the many deities could take credit.

A few more hours of driving under the protection of our solar prayer wheel added yet another religious faith to the mix. As we dodged traffic and headed south, we saw minarets in the distance. Muslim towns are scattered across the plains, populated by the Hui, who were converted by the Mongolian invaders and played a critical role in trade as drivers of the caravans on the tea-horse road.

In Donglianhua, a village about 35 kilometers south of Dali, we had a pork-free lunch in a courtyard home owned by the Ma family. The three Ma brothers, having made themselves into wealthy men in Thailand, eventually returned to Yunnan to pour money into restoring the village and the local mosque.

As we wandered its grounds, we were greeted by the elderly imam, who showed us a stone tablet used in the past to call the faithful to prayer. Today, the call is piped through loudspeakers that enter individual homes, although while we were visiting, the only call we heard involved an announcement that someone needed to register his car. It was a rare touch of modernity in a place that seemed fixed in time, somewhere in the Ming dynasty.

Source: Wall Street Journal 

Shenzhen Airport Launches New Terminal

The launch of a new 8.5 billion yuan ($1.39 billion) terminal at Shenzhen Bao’an International Airport marks this southern Chinese city’s ambition to tap the region’s rapidly growing demand for air traffic.

A Shenzhen Airlines Co. flight bound for Hohhot, Inner Mongolia, was the first to depart from the new 451,000-square-meter terminal—which is shaped like a plane preparing for takeoff—early this morning.

Despite already-congested airspace in the skies above China’s southern Pearl River Delta region, airport operators in Hong Kong, Guangzhou, Shenzhen, Macau and Zhuhai—which currently manage a total of eight runways in five commercial airports—are investing in more infrastructure in an attempt to win over more of the growing number of travelers in the region.

In the first 10 months of 2013, passenger traffic in China rose 11% to 297.6 million, thanks to the robust demand for air traffic despite poor on-time performance.

A plan to construct a third runway at the Hong Kong International Airport is under public evaluation; Guangzhou Baiyun Airport will launch its third runway next year, with a second terminal expected to begin operations in 2016.

The new Shenzhen terminal is part of a 21.8 billion yuan expansion plan, which includes a second runway that opened in July 2011 and a hotel, commercial complex and freight terminal. The new terminal, designed by Italian firm Studio Fuksas, is three times the size of existing terminals. It’s expected to boost the airport’s capacity to 45 million passengers annually by 2020 from around 30 million passengers currently.

Shenzhen is the country’s sixth-busiest airport and its main domestic gateway in Southern China. It has for years been attracting passengers away from the rival airport across the border in Hong Kong, lured by its more extensive Mainland China network as well as lower prices. The Shenzhen airport’s network covers 169 routes to 109 domestic and international cities; Hong Kong services routes to only 44 destinations in Mainland China.

No word on whether the increased traffic will add to delays in China—which is already ranked as the world’s worst for on-time arrivals and departures.

Source: Wall Street Journal 

China Seeks to Play Down Passport Row

Source: Wall Street Journal by Cris Larano, Vibhuti Agarwal and Celine Fernandez

China on Wednesday sought to play down a regional backlash sparked by maps printed on new Chinese passports that its neighbors consider provocative, one day after the U.S. State Department said it would raise the issue with Beijing.

The dispute isn't likely to cause major damage to relations between China and other Asian nations, according to regional officials and experts. But it offers a glimpse into the tensions sparked by China's growing heft both economically and military, as well as its increasingly assertive attitude toward territories it has long claimed as its own.

At a regular media briefing on Wednesday, China Foreign Ministry spokesman Hong Lei said China began issuing new passports this past spring to introduce new technology, including smart chips, also used by other countries. "The picture on the passport should not be overinterpreted," he said. "China is ready to maintain communication with relevant countries and promote the sound development of personnel exchanges."

Mr. Hong's comments follow those by U.S. State Department spokeswoman Victoria Nuland on Tuesday, who said the U.S. would bring up the matter with Beijing, following protests from India, the Philippines, Vietnam and Taiwan. The map "is causing tension and anxiety between and among the states in the South China Sea," she said. She added that China has the right to design the passport as it wishes but "that's a different matter than whether it's politically smart or helpful to be taking steps that antagonize countries that we want to see a negotiation happen with."

The map depicts waters and islands claimed by Vietnam and the Philippines as part of China, as well as two inland areas also claimed by India. The passport also has images from Taiwan, an island that China considers its sovereign territory, sparking a protest from Taipei.

The dispute has caused inconveniences for some Chinese travelers in the region as governments such as those in Vietnam and the Philippines look for alternatives to stamping the new Chinese passports. David Li, who works in the shoe manufacturing industry, said customs officials in Vietnam initially refused to stamp his passport on his Nov. 19 arrival. After a half-hour, he said, customs officials gave him a separate sheet of paper that they stamped instead. "I think the government should be actively negotiating with related countries," he said. "Otherwise, people who need to go abroad will eventually face the impact."

Said a user of Sina Corp.'s popular Twitter-like Weibo Chinese microblogging service, who said Vietnamese customs kept her waiting for two hours, "I come here to spend money, and if Vietnam declines me, they will lose money. "

In a statement, Vietnam's Foreign Ministry said it protested to the Chinese embassy in Hanoi and asked Chinese officials "to repeal the wrongful contents" in the new passport.

India hasn't officially complained to China about the issue, said Syed Akbaruddin, a spokesman at India's foreign ministry. Instead, the Indian embassy in Beijing has responded by issuing visas to Chinese nationals stamped with maps that show the two areas claimed on the map by China as falling within India's borders.

"Every country has a right to determination on its boundaries," Mr. Akbaruddin said. "The Chinese side have expressed its view on where its boundary lies. We have our own opinion."

The dispute is part of broader regional jostling over claims to areas that, in the case of the South China Sea, could be potentially resource rich. The territorial claims were a major issue at a meeting of the Association of Southeast Asian Nations in Phnom Penh, Cambodia, last week, where U.S. President Barack Obama backed an effort by many in the group to negotiate a regionwide agreement with China. China has said the dispute should be settled one-on-one just with the nations involved.

"While it is far-fetched to consider the new Chinese passports as an act of provocation, it is damaging to Asean-China ties, and will further inflame the already tense situation in the South China Sea," said Tang Siew Mun, director, foreign policy and security studies at the Institute of Strategic and International Studies, a Malaysian think tank. "If anything, this shows Beijing's lack of regard for Asean sensitivities."

Others were quick to play down the impact of this episode. In the Philippines, Finance Secretary Cesar Purisima said he is confident the dispute won't significantly affect relations among businessmen. "Relations among nations are multidimensional. While there's a territorial dispute, business relations, people to people, cultural relations are still doing well," he said. The Philippines' exports to China totaled $3.4 billion during the first six months of the year, while imports hit $3.2 billion.

Still, the Philippines's Department of Foreign Affairs said Wednesday it would no longer stamp its visas on the Chinese passport, and would instead stamp a separate visa form.

Shen Dingli, a professor of international relations at China's Fudan University, said the map is counterproductive to China's position that the South China Sea has historically been part of its territory. "The point is not to stress the differences but to see the common ground," he said.

SKorea, Japan defy Chinese air defense zone

BEIJING (AP) — South Korean and Japanese flights through China's new maritime air defense zone added to the international defiance Thursday of rules Beijing says it has imposed in East China Sea but that neighbors and the U.S. have vowed to ignore.

While China's surprise announcement last week to create the zone initially raised some tensions in the region, analysts say Beijing's motive is not to trigger an aerial confrontation but is a more long-term strategy to solidify claims to disputed territory by simply marking the area as its own.

China's lack of a response so far to the flights — including two U.S. B-52s that flew through the zone on Tuesday — has been an embarrassment for Beijing. Even some Chinese state media outlets suggested Thursday that Beijing may have mishandled the episodes.

"Beijing needs to reform its information release mechanism to win the psychological battles waged by Washington and Tokyo," the Global Times, a nationalist tabloid published by the Communist Party's flagship People's Daily, said in an editorial.

Without prior notice, Beijing began demanding Saturday that passing aircraft identify themselves and accept Chinese instructions or face consequences in an East China Sea zone that overlaps a similar air defense identification zone overseen by Japan since 1969 and initially part of one set up by the U.S. military.

But when tested just days later by U.S. B-52 flights — with Washington saying it made no effort to comply with China's rules, and would not do so in the future — Beijing merely noted, belatedly, that it had seen the flights and taken no further action.

South Korea's military said Thursday its planes flew through the zone this week without informing China and with no apparent interference. Japan also said its planes have continuing to fly through it after the Chinese announcement, while the Philippines, locked in an increasingly bitter dispute with Beijing over South China Sea islands, said it also was rejecting China's declaration.

Analysts question China's technical ability to enforce the zone due to a shortage of early warning radar aircraft and in-flight refueling capability. However, many believe that China has a long-term plan to win recognition for the zone with a gradual ratcheting-up of warnings and possibly also eventual enforcement action.

"With regard to activity within the zone, nothing will happen — for a while," said June Teufel Dreyer, a China expert at the University of Miami. "Then the zone will become gradually enforced more strictly. The Japanese will continue to protest, but not much more, to challenge it."

That may wear down Japan and effectively change the status quo, she said.

The zone is seen primarily as China's latest bid to bolster its claim over a string of uninhabited Japanese-controlled islands in the East China Sea — known as Senkaku in Japan and Diaoyu in China. Beijing has been ratcheting up its sovereignty claims since Tokyo's privatization of the islands last year.

But the most immediate spark for the zone likely was Japan's threat last month to shoot down drones that China says it will send to the islands for mapping expeditions, said Dennis Blasko, an Asia analyst at think tank CNA's China Security Affairs Group and a former Army attache in Beijing.

The zone comes an awkward time. Although Beijing's ties with Tokyo are at rock bottom, it was building good will and mutual trust with Washington following a pair of successful meetings between President Barack Obama and Chinese President Xi Jinping. However, the zone feud now threatens to overshadow both the visit by Vice President Joe Biden to Beijing next week and one by Australian Foreign Minister Julie Bishop expected before the end of the year.

China's defense and foreign ministries offered no additional clarification Thursday as to why Beijing failed to respond to the U.S. Air Force flights. Alliance partners the U.S. and Japan together have hundreds of military aircraft in the immediate vicinity.

China on Saturday issued a list of requirements for all foreign aircraft passing through the area, regardless of whether they were headed into Chinese airspace, and said its armed forces would adopt "defensive emergency measures" against aircraft that don't comply.

Beijing said the notifications are needed to help maintain air safety in the zone. However, the fact that China said it had identified and monitored the two U.S. bombers during their Tuesday flight seems to discredit that justification for the zone, said Rory Medcalf, director of the international security program at Australia's Lowy Institute

"This suggests the zone is principally a political move," Medcalf said. "It signals a kind of creeping extension of authority."

Along with concerns about confrontations or accidents involving Chinese fighters and foreign aircraft, the zone's establishment fuels fears of further aggressive moves to assert China's territorial claims — especially in the hotly disputed South China Sea, which Beijing says belongs entirely to it.

Defense Ministry spokesman Yang Yujun confirmed those concerns on Saturday by saying China would establish additional air defense identification zones "at an appropriate time."

For now, however, China's regional strategy is focused mostly on Japan and the island dispute, according to government-backed Chinese scholars.

China will continue piling the pressure on Tokyo until it reverses the decision to nationalize the islands, concedes they are in dispute, and opens up negotiations with Beijing, said Shen Dingli, a regional security expert and director of the Center for American Studies at Shanghai's Fudan University.

"China has no choice but to take counter measures," Shen said. "If Japan continues to reject admitting the disputes, it's most likely that China will take further measures."

Source: Associated Press by Christopher Bodeen

Japanese Airlines Defy China Demand for Data in Air Zone

ANA Holdings Inc. (9202) and Japan Airlines Co. (9201), the nation’s largest carriers, flew through a new Chinese air-defense zone without notifying the country after Japan asked airlines to stop giving flight information to China.

ANA’s flight from Tokyo touched down in Taipei at 1:11 p.m. Japan time, Yoichi Uchida, a spokesman for the company, said by telephone. JAL’s flight from Osaka touched down in Taipei at 12:24 p.m., Kazunori Kidosaki, an airline spokesman, said. 

Japan’s government yesterday told its domestic airlines to stop providing flight information to China, which has mandated planes to give details when flying through the new zone it created. Japan has denounced the creation of the area and the U.S. military flew two unarmed B-52 bombers into the area, which includes a chain of islands in the East China Sea that Japan purchased in September 2012, leading to a flare-up in tensions and slump in tourism.

“The Chinese and Japanese governments are playing a game of chicken,” said Edwin Merner, president of Atlantis Investment Research Corp. in Tokyo. “The government said no to reporting and the airlines had a choice of ignoring it or going around and they took the decision to comply.”

Peach Flight

China has the ability to effectively manage and control the air-defense zone, Defense Ministry spokesman Geng Yansheng said, according to a statement posted on the ministry website. The U.S. planes’ flight along the zone was under Chinese military surveillance, according to the statement.

Peach Aviation Ltd., a low-fare affiliate of ANA, also flew through the area from Osaka and reached the gate in Taipei at 11:16 a.m. Japan time, Naoto Domeki, a spokesman for the carrier, said today.

ANA and JAL yesterday said separately they are reversing an earlier decision and would stop reporting flight plans for planes traveling through the new Chinese zone from today.

Shares of JAL fell 0.8 percent to 5,150 yen at the close of Tokyo trading, declining for a ninth consecutive day. ANA was unchanged at 208 yen.

The carriers shifted their stance on instructions from The Scheduled Airlines Association of Japan, the airlines’ trade group that acted as an intermediary between the airlines and Japan’s Civil Aviation Bureau, Maho Ito, an ANA spokeswoman, said by telephone.

The U.S. military flew two unarmed B-52 bombers into the zone without any incident, according to a U.S. defense official. China announced the air-defense identification zone effective Nov. 23 and said its military will take “defensive emergency measures” if aircraft enter the area without reporting flight plans or identifying themselves.

Disputed Islands

“Japan is our most important ally in the region,” Caroline Kennedy, the U.S. Ambassador to Japan, said in a speech in Tokyo today. “This relationship has underwritten the peace, security and prosperity of the Asia Pacific region for more than six decades. Disputes should be resolved through diplomacy and dialogue and we are ready to assist in this process anyway we can.”

The disputed islands, known as Diaoyu in Chinese and Senkaku in Japanese, lie inside the new air defense zone. Both nations claim sovereignty over the area, whose waters are rich in oil, natural gas and fish. The dispute comes as China and Japan seek a greater role in the region, courting nations in Southeast Asia.

The information that ANA had been supplying to China was the same shared with other countries, according to Ryosei Nomura, a spokesman for the Tokyo-based carrier. The data included planes’ route, and cruising altitude and flight time, Nomura said.

Other countries’ carriers are awaiting government guidance.

‘No Guideline’

“There has been no change to our operations,” Lee Hyo Min, a spokeswoman for Seoul-based Asiana Airlines Inc. (020560), said yesterday. “We have not yet provided any flight plans to China on services that pass through the zone because there has been no guideline from the government. We will make change if and when the government revises this guidelines.”

Cathay Pacific Airways Ltd. (293), the Hong Kong-based carrier, said its flight operations are normal. The creation of the zone hasn’t affected operations of commercial flights so far, the International Air Transport Association said in an e-mailed response to Bloomberg News.

“Some airlines have had to take some extra steps at the moment, such as filing flight plans manually,” IATA said. “We are trying to get more details from the Chinese authorities to clarify ongoing operational requirements.”

The announcement of the zone follows a decision by Communist Party leaders this month, after a meeting led by President Xi Jinping, to form a state committee to coordinate security issues as China broadens its military reach.

Source: Bloomberg News By Chris Cooper & Kiyotaka Matsuda 

China now top source of leisure travelers to US

The number of Chinese tourists visiting the United States eclipsed that of travelers from other countries during the first half of this year -- up 46% from a year earlier, said the US Department of Commerce.

The department reported 658,756 Chinese tourists arrived during the first six months of the year, far exceeding the 7% growth in overall inbound tourist numbers. China has registered the fastest growth of tourists traveling to the US among the ten leading source countries. The number of Chinese nationals traveling to the US annually for leisure is expected to double over the next five years. The growth in the
Chinese tourist market has provided a shot in the arm for the US economy, the department said.

The Hurun Report, the work of a China-based research firm best known for producing a China "rich list," said in June the country's global outbound travel figures put its citizen's first place over the past two years, and it is an accelerating trend. Chinese tourists in the US spend an average of US$6,000 per head, the most among any group of any nationally, the department said in May.

The increase in tourists has also brought more job for the US businesses, said China's state mouthpiece, the People's Daily. Around 7.6 million jobs have been created in the US travel industry as of October while some 296,000 new jobs have been generated in the industry since December 2009, said the US' National Tour Association.

Source: Want China Times

Cathay's Bump to Upper Class

The global jet-set crowd is stirring. For a leveraged bet on a travel rebound, investors should book into Cathay Pacific  Airways.

After a tepid first half of the year, long-haul business travel from continent to continent appears to be getting back up to speed. The global airline industry's profits could grow 40% next year, according to the International Air Transport Association. That's welcome news for big international carriers, who are also celebrating less-menacing fuel prices.

Cathay Pacific, Hong Kong's hometown airline, is in the captain's seat for a travel rebound. Like other Asian airlines, Cathay is seeing its traffic to and from Europe starting to edge up after a year and a half of decline, as Europe seems to put the worst of its recession behind it. Traffic rose 7% on average the past four months.

And Cathay's North American business, which generates roughly a quarter of its revenue, remains solid with room for growth. Cathay is adding a flight to Newark, expanding its reach in the New York area. It will add a fourth daily nonstop flight to Los Angeles, a monopoly route for Cathay. Meanwhile chief rival Singapore Airlines is grounding its nonstop Singapore-Los Angeles and Singapore-Newark flights.

Singapore Airlines faces a more competitive landscape than Cathay. Middle Eastern rivals such as Emirates are encroaching on lucrative routes connecting Australia to Europe, and closer to home it contends with a flock of low-cost carriers branching out across Southeast Asia. Cathay has stayed relatively insulated from the low-cost threat, and has recently pushed Hong Kong's government to prevent a low-cost carrier from encroaching on its turf.

An increase in passenger traffic should fall quickly to Cathay's bottom line thanks to cuts it made in capacity when demand suffered in recent years. Operating and net-profit margins will have doubled between 2012 and 2014, says Citi's Michael Beer.

Higher debt lets it lever sales better, too—Cathay's net debt as of June 30 was equivalent to 60% of its equity. State-owned Singapore Airlines holds more cash than debt, making it safer in a downturn, but less of a leveraged play when business take off.

Cathay's stock has rallied 18% in the last three months, so some of the optimism is baked in. But shares trade at an inviting 15 times forward earnings, compared with Singapore's 19. Cathay is valued a third cheaper than its five-year average, though a spike in valuations during the financial crisis affects the comparison.

If the global economy speeds up, both Cathay and Singapore Airlines will get into the slipstream. The Hong Kong carrier is the more aerodynamic one.

Source: Wall Street Journal by Abheek Bhattacharya

Asian airlines to give flight plans to China after airspace zone created

(Reuters) - Asian airlines will inform China of their flight plans before entering airspace over waters disputed with Japan, regional aviation officials said on Monday, effectively acknowledging Beijing's authority over a newly declared "Air Defense Identification Zone".

China published coordinates for the zone on the weekend. The area, about two-thirds the size of the United Kingdom, covers most of the East China Sea and the skies over a group of uninhabited islands at the centre of a bitter row between Beijing and Tokyo.

Japan and its close ally, the United States, sharply criticized the move, which experts said was aimed at chipping away at Tokyo's claim to administrative control over the area, including the tiny uninhabited islands known as the Senkaku in Japan and the Diaoyu in China.

While China said the new rules would not affect "normal operations" for international flights, it added that it would take "defensive emergency measures" against aircraft that failed to identify themselves properly.

China's latest move could help spread the view that Japan was losing administrative control of the area, said Hiroko Maeda, research fellow at Japanese think-tank the PHP Institute.

"China has already been sending its ships (there). It is clear China is trying to undermine Japan's administrative control. Now they are stepping up their effort in the sky as well," Maeda said.

Civil aviation officials from Hong Kong and Taiwan said their carriers entering the zone must send flight plans to Chinese aviation authorities. A transport ministry official in Seoul said South Korean planes would do the same.

An official at the Japan Civil Aviation Bureau said Japanese airlines flying through the region to non-mainland Chinese destinations would likely need to inform China of their plans. "Airlines have been advised to take greater care in the area," said another bureau official.

Singapore Airlines and Qantas Airways Ltd said they would keep Chinese authorities informed of their flights through the area.

Korean Air said its flight plans would be delivered to Chinese authorities but the routes its pilots took would not be affected. Japan Airlines and ANA Holdings also said the zone had not affected their flights.

WAR OF WORDS

Japan protested the weekend move, warning of an escalation into the "unexpected" if Beijing enforced the rules. U.S. Defense Secretary Chuck Hagel called the move a "destabilizing attempt to alter the status quo in the region".

While Washington does not take a position on the sovereignty of the islands, it recognizes that Japan has administrative control over them and is therefore bound by treaty to defend Japan in the event of an armed conflict.

Tensions flared last year between Beijing and Tokyo when the Japanese government bought three of the islands from a private landowner to fend off a potentially more inflammatory purchase by the Tokyo metropolitan government, at the time headed by nationalist governor Shintaro Ishihara.

In the continuing war of words, China's Defence Ministry said on Monday it had lodged protests with the U.S. and Japanese embassies in Beijing over the criticism from Washington and Tokyo of the zone.

China also summoned Japan's ambassador, warning Tokyo to "stop (their) words and actions which create friction and harm regional stability", China's Foreign Ministry said. Meanwhile, Tokyo and Seoul summoned Chinese diplomats to protest.

Asian and Western diplomats said the zone was a problem for Japan, the United States and other countries that may be wary of any acknowledgement of China's claims over the area.

"No one wants to be in a position where by following Chinese instructions you are giving tacit acknowledgement of their sovereignty over a disputed area," one Asian diplomat said. "And there is a fear that is precisely the game that is being played - it seems no accident that the disputed Senkaku islands are now in the heart of overlapping zones."

Japan has its own Air Defence Identification Zone but officials said Tokyo only required aircraft seen to be approaching Japanese territorial airspace to identify themselves.

In its announcement on Saturday, China's Defence Ministry said it would set up other such zones when preparations were finalized. It gave no further details and the ministry's news department declined to elaborate when contacted by Reuters.

China also claims the South China Sea, which is believed to be rich in oil and gas. The Philippines, Vietnam, Malaysia, Brunei and Taiwan also claim parts of the South China Sea, making it one of the region's biggest 
flashpoints.

CHINA PATROLS UNDER WAY

China's official Xinhua news agency said the rules for the East China Sea came into effect on Saturday and that the Chinese air force conducted its first patrol over the zone. The patrol included early warning aircraft and fighters, it said.

Japanese Prime Minister Shinzo Abe said China was forcing other countries to conform to its rules.
Abe, who came to office last December promising to beef up the nation's military, has said Tokyo's door is open to dialogue to improve Sino-Japanese ties but has declined to acknowledge the existence of a formal territorial dispute over the islands, a step upon which Beijing insists.

"It's a unilateral step, changing the status quo in the East China Sea," Abe said in parliament on Monday.
China's Defence Ministry said it was within the country's right to set up the zone.

"We reiterate that the purpose of China's approach is to defend national sovereignty and territorial airspace security, maintain the order of airspace flight, and is an effective exercise of our right of self-defence," spokesman Yang Yujun said in a statement.

Yang said China's move complied with international law.

"The United States, on the issue of the Diaoyu islands, must earnestly not take sides, not make inappropriate remarks and not give the wrong signal to Japan and encourage (its) risky behavior," Yang said.

Japan's own Air Defense Identification Zone extends around the Japanese archipelago and overlaps with China's new zone in part of the East China Sea.

"We might have more risk of encounters with Chinese aircraft in the area," said one former Japanese air force official. "We need to establish a system to avoid unnecessary incidents."

The topic was hot on China's Twitter-like Sina Weibo, with some users calling for war with Japan. "There can be no discussion on territorial issues, only war," wrote one user.

Source: Reuters By Ben Blanchard and Tim Kelly

China's Dalian to start 72-hour visa-free stays

DALIAN, Nov. 24 (Xinhua) -- The coastal city of Dalian in northeast China will start 72-hour visa-free stay service for travelers from 45 countries on Jan. 1, 2014, local tourism authorities said.

Dalian is the sixth city on the Chinese mainland to introduce the policy.

Travelers from countries such as the United States, Britain, Russia, France, Germany and Canada may enjoy the policy if they hold third country visas and have booked plane tickets to leave for a third country or region within 72 hours.

The scheme will boost local tourism development and exchanges with the world, said a local tourism official on Saturday.

In 2012, Dalian hosted 49 million tourist arrivals, including 1.28 million from overseas, with total tourism revenues of 76.7 billion yuan (12.5 billion U.S. dollars).

So far, Beijing, Shanghai, Guangzhou and Chengdu have already launched the 72-hour visa-free service. Chongqing Municipality is expected to launch the same service this month.

Source: Xinhua

Tai'erzhuang ancient city in Zaozhuang

File photo taken on Oct. 10, 2012 shows the scenery of Tai'erzhuang ancient city in Zaozhuang, Shandong Province. Tai'erzhuang ancient city was approved to be the national 5A-level tourist area on Nov. 22, 2012. (Xinhua/Gao Qimin)

China Eastern seals $5.4 billion deal to buy 60 A320s

(Reuters) - China Eastern Airlines (600115.SS) (0670.HK), one of the country's top three carriers, has agreed to buy 60 Airbus (EAD.PA) A320 aircraft for about $5.4 billion, expected to be delivered in stages from 2014 to 2017.

This is the first major deal involving Europe's Airbus and a Chinese airliner after the European Union agreed on November 12 to "stop the clock" for a year on plans to force non-EU airlines to adopt its Emissions Trading Scheme (ETS).

The new aircraft will help the airline satisfy rising demand for domestic medium- and short-haul passenger routes, China Eastern said on Friday. The deal is subject to approval by the airline's shareholders and mainland regulators.

In a filing to the Hong Kong Exchange after markets closed, China Eastern said it planned to fund the purchase from its working capital, commercial bank loans and other sources it didn't specify.

While this may increase its debt-to-equity ratio, the airline said it did not expect the deal to have a substantial impact on its cashflow position or its business operation.

China Eastern said it had also entered a disposal agreement with Airbus for eight of its Canadair Regional Jets and 10 Embraer Regional Jets that have a combined book value of 1.5 billion yuan ($240 million).

These 18 aircraft are expected to be delivered to Airbus in stages from 2014 to 2016. China Eastern said it received these aircrafts between 2000 and 2007, which now have an average usage of about 8.2 years.

Airbus' Paris-listed shares was down 1.8 percent at 1120 GMT, having pared losses on the day. Shares of China Eastern Airlines rose 1.8 percent in Hong Kong and 0.3 percent in Shanghai on Friday.

SkyTeam Alliance steps up to counter threat of low-cost carriers

Faced with the emergence of budget airlines, established carriers will focus on enhancing service quality, rather than strive for a market share, and they will intensify cooperation with peers to share the market, said Michael Wisbrun, managing director of SkyTeam Alliance, on November 19.

During the annual meeting of the alliance, attended by executives of its 19 member airlines, Wisburn remarked that the European air market will maintain low growth next year, while the North American market will feature a healthy balance between supply and demand, thanks in part to moderate recovery facilitated by the continuing quantitative easing policy, and Asian airlines will be strained by surging demand, especially during peak seasons such as Chinese Lunar New Year holiday for cross-straits airlines which need to step up their cooperation in deployment.

SkyTeam Alliance boasts major airlines across the strait among its members, including China Airlines, China Southern Airlines, China Eastern Airlines, and Xiamen Airlines, with the four having garnered a 32% share in the greater China market.

Meanwhile, Shanghai-based Spring Airlines, China's leading low-cost carrier, is intensifying its marketing initiatives with the launch of "match-making flights," for three routes, Shanghai to Kunming, Shijiazhuang to Kunming, and Tianjin to Kunming, starting Dec. 1. Participating passengers can bring a friend, who must be single, free of charge to take the flight. A "matchmaking" section will be set aside inside the cabin, so long as 10 or more passengers participate.

The fierce competition between budget airlines, which now account for 15% of the global market share, in terms of flight seats, has prompted established carriers in the US and Europe to merge.

The strong competition has been complicated by soaring operation costs, prompting members of Sky Team alliance to step up, in terms of cost saving and the sharing of resources, such as common ground services, common VIP rooms, joint procurement, and joint training, according to Su Liang, vice managing director of SkyTeam alliance. In addition, passengers can accumulate their mileage record by taking flights with any alliance member.

Source: Want China Times  

Autum scenery at Sun Yat-sen Memorial Park

Autum scenery at Sun Yat-sen Memorial Park


Source: Xinhua

Tourism year proves a big hit

Tours between China and Russia have become popular since their 'tourism year' in 2012, travel agencies said on Friday.

The tourism year is a new strategy to improve the Sino-Russian strategic cooperative partnership and boost friendship between the countries, the China National Tourism Administration said in a recent statement.

Since the tourism year began on March 22, almost 400 activities, including summer camps and business studies, have been conducted in the two countries, attracting large numbers of visitors to engage in cross-border travel, the statement said.

From January to September, exchange visits between the two countries totaled 2.37 million, the statement said.

Thanks to the policy, the number of Chinese travelers joining tour groups to Russia rose more than 50 percent over last year, said Gao Zhiquan, vice-president of China Youth Travel Service.

The tours focus mainly on Moscow and St. Petersburg, and the company has come up with new activities to improve cultural exchanges, said Diao Shuang, manager of the agency's European Travel Department.

"We prefer tour projects that can improve interactions between people in the two nations, such as having Chinese tourists stay in Russian-style wooden houses and make Matryoshka (Russian nesting) dolls," Diao said.

"It's also easy to go to Russia under the policy," he said. "Chinese citizens must only provide a copy of their passport's front page in order to enjoy their Russia trip."

Rao Tian, manager of the European Travel Department of China International Travel Service, echoed Diao, saying trips to Russia have become his company's most popular tours.

Chinese tourists going to Russia last year rose by 30 percent compared with 2011, and most travelers opted for an eight-day trip, according to Rao.

In the busiest month, the company sent almost 10 tour groups to Russia, and its hotline received hundreds of calls, he said.

"We are studying some new travel routes, such as visiting Lake Baikal and the Volga River," he said, adding that the price of an eight-day trip increased to 15,000 yuan ($2,460) per person last year and is still going up.

Tan Diqiang, a 63-year-old from Changsha, Hunan province, went to Russia with his wife in August and told China Daily that the seven-day tour left the couple with great memories.

The retired pair went to Moscow and St. Petersburg with a tour group of 36 people, visiting famous sites and taking part in cultural activities.

"In the beginning, we chose Russia for its cool weather in summer, but its beautiful scenery and museums enriched our trip," he said, adding that he will recommend the trip to others.

Chinese tourism bureaus, including those in Beijing and Hainan, developed summer camps for Chinese and Russian youth in June, while a Shanghai authority held a China-Russia sports meeting in July, the tourism administration statement said.

Also during the tourism year, 120 Russian business people visited China from July to October, studying travel lines and tourism products, the statement said.

To better promote the tour year project, the Ministry of Foreign Affairs and Ministry of Public Security have simplified visa procedures for Russians and increased the number of tour groups at travel agencies, it added.

Source: By Cao Yin (China Daily)

Taiwan's China Airlines to Join Low-Cost Aviation Market

HONG KONG—Taiwan's China Airlines Ltd. is set to become the first carrier on the island to join the race in Asia's booming low-cost aviation market, and will make public its plans as early as December, according to the company's chairman.

The move by the Taiwanese full-service airline follows those of its many Asian rivals, including Singapore Airlines Ltd. and Japan Airlines Co., to invest in the budget-carrier market in response to growing competition from no-frills startups in the region. Low-cost carriers now account for around a quarter of the Asia-Pacific's airline traffic.

China Airlines Chairman Huang-Hsiang Sun said he expects faster growth in the low-cost market in northeastern Asia because of further liberalization in the region's aviation industry, such as new open skies agreements signed between Taiwan and Japan. He said though that the market in that part of Asia remains at a very nascent stage as against other Asian regions.

"Therefore China Airlines would also like to have our own low-cost carrier as a defense against (other budget airlines)," Mr. Sun said in an interview with The Wall Street Journal.

However, he declined to give details of the planned investment and whether it will involve a transformation of one of its existing airline units or a partnership with other investors. "We don't expect explosive growth at the start but we don't want to be absent in this marketplace."

Mr. Sun said the airline had been considering investing in the budget carrier market for four years but Taiwan had lacked the necessary air rights to accommodate new startups. The gradually liberalizing skies in Asia has helped make such plans feasible now, he said.

Meanwhile, China Airlines' domestic rival EVA Airways Corp. has no plans to join the low-cost race or cut fares to compete with no-fills carriers, says EVA President Austin Cheng. "The impact of LCCs is limited in Taiwan and we will continue to monitor the situation," Mr. Cheng said. He said the carrier would instead to strengthen its full-service offerings by boosting transit capabilities and further improving services and products.

Still, both China Airlines and EVA are facing mounting pressure from more low-cost airlines flying into the market. Spring Airlines Co., China's biggest budget carrier, will launch a Shanghai-Taipei service, which according to some airline executives is the most lucrative route in the China-Taiwan market, starting in December. The airline is marketing one-way fares of as low as 199 Chinese yuan (US$33), a substantial discount to current fares on the route.

Other budget carriers including Malaysia's AirAsia Bhd., Japan's Peach Aviation, Singapore's Scoot and Australia's Jetstar Airways are also serving the island.

The 11 budget airlines now serving Taiwan account for just 4% to 5% of the total market share in terms of airline capacity on the island, according to Mr. Sun, adding that China Airlines sees strong potential for more growth in that segment.

In addition, China Airlines, Taiwan's biggest airline by fleet size, also hopes to further boost its full-service operations by acquiring new widebody jets and adding more frequencies over the next few years.

"It's like operating a hotel group," Mr. Sun says of the airline's two-pronged strategy. He said the planned budget carrier is a one-star hotel, while China Airlines is positioned as a four-star hotel chain. He said the airline will unveil new cabin designs and crew uniforms in September next year when it receives the first of 10 Boeing  777-300 extended range aircraft on order.

Mr. Sun says he expects transit traffic, which currently accounts for 10% of total passengers, to rise to 30% over the next few years when the Chinese government allows mainland Chinese travelers to transit to other destinations from Taiwan.

Visitors to Taiwan from mainland China have surged in recent years as relations have between both sides of the Taiwan Strait have improved. The number of Chinese visitors to Taiwan jumped to 2.6 million in 2012 from 1.8 million a year earlier. The number of mainland visitors in the first nine months this year jumped by 15% to 2.2 million, according to Taiwan's tourism bureau.

Mr. Sun said China Airlines, which also plans to receive its 14 Airbus 350 widebody jets on order from 2016, will in the first half of 2014 decide on a new round of aircraft purchase plans that involve up to 25 narrow-body jets, with new generations of the Airbus A320 and Boeing 737 families under consideration.

Source: Wall Street Journal by Joanne Chiu

Beautiful scenery of Daming Lake in Jinan

Photo taken on Nov 14, 2012 shows the scenery of Daming Lake, a scenic spot in Jinan, Shandong province. [Photo/Xinhua]

Scenery of Luobu Village in Xinjiang

Located 35 km southwest of Yuli County of Bayangol Prefecture, Xinjiang, Luobu Village covers an area of 72 square kilometers and is home to over 20 households. It is one of the largest villages in China's western region. Featuring vast desert, beautiful scenery of Tarim River, diversiform-leaved poplar and unique folklore, the village of Luobu People attracts large numbers of visitors every year. [Photo: China.org.cn]

Home Inns & Hotels Management's CEO Discusses Q3 2012 Results

Source: Seeking Alpha

David Sun - Chief Executive Officer

Hello, everyone, and thank you for joining us today to discuss our third quarter 2012 results. We are pleased to have achieved another quarter of solid results. We experienced normal seasonality during the third quarter. The broad operating environment remained subdued and there has been no clear sign to recovery. Our core business delivered stable performance despite absence of systematic pricing increase.

Integration of Motel 168 generated another set of continued operating metrics improvement. Yitel brand of hotels are establishing healthy development framework and operating [lesson]. Our cost control and productivity initiatives at both hotel level as well as corporate level are effectively addressing rising costs and helping to protect margins. And we expect to exceed our new hotel opening targets for the full year driven by strong and mature programs of franchised-and-managed hotels. The company is well-positioned to leverage its solid business fundamentals to navigate through challenging time and to capitalize on the long-term growth prospects within the travel and lodging industry in China.

Turning to specific results, total revenues for third quarter increased 61.8% year over year to RMB1.6 billion. Our organic revenue reached RMB1.2 billion, a 21.4% growth year over year, exceeding our previous guidance. The uneven market condition throughout China, depending on the level of concentration of manufacturing industries and the maturities in economic development, presents challenges as well as opportunities for us to operate [homogeneous] hotel products. We see the price opportunities driven by seasonality and events in relatively strong markets and effectively managing the yield between price and occupancy rate in soft market -- in soft markets.

Occupancy rate of the core business was still relatively high at 92.7% compared with 94.1% in the same quarter last year. And the RevPAR of RMB164 this quarter compared with RMB169 a year ago was in line with market conditions. Excluding Motel 168, 833 mature hotels that have been in operation for at least 18 months achieved RevPAR of RMB177, flat from last year. By end of the third quarter, we had six hotels operating under the midscale Yitel brand, four of which have been operation for nine months or less. The overall occupancy rate for the Yitel was 89.2% in the third quarter. We are very encouraged by the development of the Yitel framework and excited about its future to further our multi-brand strategy.

Total revenue for Motel 168 was RMB398.9 million in the third quarter, coming at the high end of the revenue guidance. Occupancy rate and average daily rate continued to increase, taking advantage of seasonality as well as incremental benefit from integration efforts. The core branded operation armed to address the challenging of large-scale hotels is showing positive results, with double-digit increase in RevPAR by the entire base during the preliminary testing period. Based on this initiative success, we have identified another 15 to 20 locations to gradually adopt this conversion in the next six months.

The restructuring of Motel 168 to food and beverage operation had been consolidated with co-branded initiatives. To further update everyone to Motel 168 integration, I'm pleased to report that as of November 1, Motel 168 and the core Home Inn brands will consolidate to form the economy hotels, led by our Chief Operations Officer. After the first stage of stabilization and foundation building, this reorganization is another step forward in our integration plan to fully leverage the company's institutional strengths and maximize resource utilization at regional and city operation levels to drive execution effectiveness.

Moving on the hotel development, we opened a total of 108 new hotels, including 39 new leased-and-operated hotels, including two Yitel hotels and two Motel 168 hotels, and 69 new franchised-and-managed hotels, of which four were franchised-and-managed hotels for Motel 168 brand. Compared to the previous few quarters, we have improved our hotel operation pace given the healthy flow in the pipeline. At the end of third quarter, we had a robust pipeline of 252 hotels constructed or under construction, including 87 leased-and-operated hotels and 165 franchised-and-managed hotels. We believe our well-established and high-margin franchise platform will be a key aspect of our portfolio's growth and profitability expansion. Driven by strong demand in our franchised-and-managed hotels, we expect to open no less than 360 hotels in total for the year and exceed the high end of our new hotels opening guidance for the year.

As of September 30, 2012, our frequent guest program reached a new level of 10.6 million unique active non-corporate numbers, increased from 9.2 million as of June 30, 2012. Home Inns is voted the Chinese brand of the year 2012 by Chinese Central Television or CCTV, one of the largest television broadcasters in China. We continue to capitalize on our increasing brand value and our loyalty program continues to provide a stable revenue base across all our hotel brands.

In the first part of the year we implemented a new wave of cost control and productivity initiatives. The third quarter results showing the hotel personnel cost increase at our core business will keep below the level of revenue growth. Further, G&A as a percentage of gross revenue for the total group continued to decrease year over year as our headquarter operation generated further productivity gains during the quarter. The ability to manage and keep the cost increase in check is one of our competitive advantages and we expect to continue to benefit from the scale and leverage across the business as we grow our multi-brand portfolios.

Looking into the next six to nine months, we remain cautiously optimistic that the market environment may remain stable but material improvements may be slowly sure to come. We remain positive, however, on the long-term view of the growth of the Chinese economy and we'll continue to strengthen our brand equity and the scale of our networks. Combining a stable level of annual [unit expansion], a shift towards capital-free but margin-rich franchise growth [and space], well-integrated Motel 168 brand ready for new growth, fully-developed Yitel brand for scalable expansion, lean and productivity-driven operating structure and leverage, the company is strategically well-positioned better than ever to wade through external challenges and embark on another cycle of growth in revenues, profitability and cash generation in the near future.
With that, I will turn to Huiping.

Huiping Yan - Chief Financial Officer

Thank you, David, and hello to everyone on the call. I'm pleased to first discuss our third quarter results and will then provide our guidance for the full year.

Once again the company has consolidated Motel 168 operation and financial results since October 2011, we have presented consolidated group numbers in the main body of our earnings release. Business and financial figures exclusive of Motel 168 are being presented separately in an appendix to the earnings release. Financial data for the group and exclusive of Motel 168 are also presented in spreadsheet attached to our earnings release, which is available for download from our Investor Relations website. On this call I will review group financial results as well as selected non-Motel 168 information to provide more context. As I take you through the numbers, please note that I only speak in RMB terms unless specifically mentioned.

For the third quarter, total revenues for Home Inns Group were RMB1.6 billion, increasing 61.8% year over year. Excluding Motel 168, total revenues were RMB1.2 billion, an increase of 21.4% year over year.
Total revenue from leased-and-operated hotels was RMB1.43 billion, a 62.3% increase year over year and a 10% increase sequentially. Excluding Motel 168, total revenues for leased-and-operated hotels were RMB1.05 billion, increasing 19.1% year over year and 11.7% sequentially. Total revenues for franchised-and-managed hotels were RMB166.6 million, increasing 57.2% year over year and 11.3% sequentially.
Excluding Motel 168, total revenues for franchised-and-managed hotels were RMB148.8 million, increasing 40.5% year over year and 12.7% sequentially.

Total operating costs and expenses excluding share-based compensation expense, acquisition and integration costs, were RMB1.3 billion, representing 81.6% of total revenues, compared with RMB77.6 for the same quarter a year ago and 82.4% for the previous quarter. Total leased-and-operated hotel costs excluding share-based compensation expenses and integration costs were RMB1.19 billion, 82% of the leased-and-operated hotel revenues, compared to 76.3% of leased-and-operated hotel revenues in the same period of 2011, and 84.3% in last quarter. This year-over-year increase in expense ratio was mainly driven by overall soft market conditions not suitable for systematic price increases, higher cost ratio from Motel 168 hotels which are still being integrated, and certain non-recurring charges to other operating costs. The sequential decrease in this ratio was mainly driven by seasonality.

Excluding Motel 168, total leased-and-operated hotel costs, excluding share-based compensation expenses, integration costs, were RMB836.7 million, representing 79.6% of the leased-and-operated hotel revenues, compared to 76.3% for the same quarter in 2011 and 81.8% for the second quarter of 2012. The year-over-year increase in this expense ratio was again mainly driven by softer market conditions resulting in lack of price opportunities and certain one-time charges. The sequential increase in this ratio was mainly attributable to seasonality.

Excluding share-based compensation expenses, personnel cost of franchised-and-managed hotels was RMB42.6 million, representing 25.6% of franchised-and-managed hotels revenues. This compared to 22.4% for the same quarter of 2011 and 20.2% for the second quarter of 2012. The year-over-year increase in its ratio was mainly due to impact of Motel 168 as the revenue from franchised-and-managed hotels at Motel 168 was relatively lower while it's been integrated. The sequential increase in this ratio was mainly due to a higher accrual of performance-based bonuses in the third quarter.

Excluding Motel 168, total personnel costs of franchised-and-managed hotels excluding share-based compensation expenses were RMB35.1 million, representing 23.6% of franchised-and-managed hotel revenues compared to 22.4% for the third quarter of 2011 and 18.8% for the second quarter of 2012. The slight year-over-year increase in this expense ratio are driven by slightly lower revenue base due to market conditions, while the increase in dollar amount of such costs are in line with unit increase of franchised-and-managed hotels. The sequential increase in this ratio was mainly due to a higher bonus accrual of performance-based bonus in this quarter.

Excluding share-based compensation expenses, sales and marketing expense were RMB17.9 million, representing 1.1% of total revenues, compared to 1.6% in the same period a year ago and 1.0% in the second quarter 2012. We maintain vigilant cost control on maximizing return on investment, and the level of sales and marketing spending is well-managed to continue to support a growing revenue base.

General and administrative expenses excluding share-based compensation expense and integration costs were RMB57.4 million or 3.6% of total revenues, compared with 5.5% of the total revenues in the same period of 2011 and 3.7% in the second quarter of 2012. The company continues to benefit from economy of scale and leverage.

The above resulted in an income from operations, excluding share-based compensation expenses, acquisition and integration costs, of RMB204.7 million or 12.8% of total revenues, compared to RMB160 million or 16.2% of total revenues in the same period 2011 and RMB170.4 million or 11.8% of total revenues in the second quarter 2012. The year-over-year decrease in the ratio of income from operations was mainly caused by a higher cost ratio at Motel 168, absence of systematic selling price increase, and one-time charges. The sequential increase was mainly due to seasonality.

Adjusted EBITDA was RMB375.5 million or 23.5% of total revenues compared to RMB272.9 million or 27.6% of total revenues in the same period in 2011 and RMB331.6 million or 22.9% of total revenues in the second quarter of 2012. Excluding Motel 168, adjusted EBITDA was RMB322.3 million or 26.9% of total revenues compared to RMB272.9 million or 27.6% of total revenues in the same period of 2011 and RMB274.3 million or 25.6% of total revenues for the second quarter of 2012.

Adjusted net income attributable to Home Inns Group's shareholders was RMB135.8 million for the third quarter compared to adjusted net income of RMB132.0 million in the same period of 2011 and adjusted net income of RMB108.5 million for the second quarter of 2012. Adjusted diluted earnings per ADS for the third quarter of 2012 was RMB2.93 or USD0.47.

During the third quarter, the company generated a net operating cash flow of RMB239.9 million compared to RMB276.9 million in the same quarter of 2011. Capitalized expenditures for the third quarter 2012 were RMB357.4 million, while related cash paid for CapEx during the quarter was RMB225.3 million. We believe the cash generation capability of the company will strengthen as Motel 168 performance further improves and normal annual price increases resume when market condition improves.

As of September 30, 2012, Home Inns Group had cash and cash equivalents of RMB752.5 million. The outstanding balance of convertible bonds issued in 2007 was RMB113.5 million including principal and accrued interests. Financial liability of the convertible notes issued in December 2010 and interest rate swap contracts both measured at fair value totaled RMB1.03 billion. During the third quarter, the company paid an additional USD21 million towards it US dollar denominated four-year term loan, bringing the outstanding [face] balance of the term loan down to USD124 million.

For outlook, we expect a stable operating environment in a broad sense and uncertainties within certain markets relatively more impacted by economic structural reform. We are reaffirming our previously provided revenue expectations for the full year of 2012 which are gross revenues for the total group are expected to be in the range of RMB5,715 million to RMB5,810 million. Gross revenues for Motel 168 brand for the full year are expected to be in the range of RMB1,475 million to RMB1,500 million. Gross revenues for the full year of 2012 excluding Motel 168 are expected to be in the range of RMB4,240 million to RMB4,310 million.

The company expects to deliver on our leased-and-operated hotel opening target of 105 to 125 hotels for the full year. And as David mentioned earlier, the strong growth momentum of franchised-and-managed hotels will top the total number of our new hotel openings in 2012 over the high end of our previous guidance of 360.

Above forecasts reflect the company's current and preliminary view which are subject to change.