Taiwan-based China Airlines Wednesday became a shareholder of the mainland-based China Cargo, by signing a framework agreement with China Eastern Airlines and China Ocean Shipping Company (COSCO).

China Airlines holds a 25 percent share of the cargo company, the first agreement of its kind between the Chinese mainland and Taiwan.

The cargo company was set up by China Eastern and COSCO, with a total investment of 1.5 billion yuan (US$181 million), of which China Eastern accounted for a 70 percent share.

China Eastern will decrease its shares to 55 percent, and COSCO's share will be reduced by 10 percent. The remaining 25 percent will go to China Airlines, which will invest in China Cargo in cash, said Luo Zhuping, secretary to China Eastern Airlines Co Ltd.

"But its cash-amount going to China Cargo will be finalized after the assets assessment of China Cargo is completed,'' Luo said.

Insiders said the co-operation is mutually beneficial to China Airlines -- which will be able to elbow its way into the mainland's air market -- and China Eastern -- which can expand its world cargo market.

"With the investment from China Airlines,'' Luo said, "China Eastern can augment its overseas cargo business and improve its worldwide air network.''

Before the agreement was signed, China Eastern had made long negotiations with China Airlines.

Insiders said the co-operation is considered a positive step towards forming a direct air route from the mainland to Taiwan.

"China air cargo is a coveted market to many overseas investors but China Eastern chose China Airlines as a partner,'' Luo said.

China Cargo now has three MD-11 freighters. Its future development plan will be worked out later this year.

Last week, China Eastern said it planned to launch a route between Taipei and Shanghai, via Hong Kong, to obtain cargo consignments.

China Eastern's shares Wednesday soared 9.57 percent to HK$1.03 following the announcement.

(People's Daily 09/06/2001)