Hangzhou Xiaoshan International Airport, which is 35 per cent owned by the Airport Authority Hong Kong, plans to raise about US$800 million from an initial public offering by the end of the third quarter next year to fund expansion, sources said. The Airport Authority's holding would be diluted to 25 per cent after the sale, the sources said. They said investment banks had been invited to pitch next month for the mandate to arrange the deal. Hangzhou Airport planned to sell shares in Shanghai and Hong Kong, the sources said. 'The Airport Authority wanted it all done in Hong Kong but the [mainland] regulators wanted an onshore component,' one source said. Airport Authority chief executive Stanley Hui Hon-chung said last month that he preferred a Hong Kong listing and the offering process was at an early stage. Gong Zhiye, chief of Xiaoshan International Airport's administration office, said the company had a share-listing plan but it had yet to work out the details including the timetable and size of the offering. Airport Authority spokeswoman Kathy Cheung said the plan was at an early stage so she could not comment on details. Proceeds from the offering would fund the expansion of the airport terminal and eventually a new runway, the sources said. Construction of phase two of the airport's estimated seven billion yuan expansion began last month, a Xinhua Financial Network report said, citing authorities. Passenger capacity at the airport would triple to 26 million people a year when work is completed in 2011, the General Administration of Civil Aviation of China (CAAC) said. It expects cargo capacity to rise to 500,000 tonnes annually and total aircraft movements to 260,000 takeoffs and landings. 'China's airlines show very high growth compared with the rest of the world and even the Asian region,' said Kelvin Lau, an aviation analyst at Daiwa Institute of Research. 'With its growing economy, people are willing to spend more on travel and we have the Olympic Games coming up.' Mainland airlines' revenue per kilometre rose a compound annual rate of 23.5 per cent from 2002 to last year, against 5.17 per cent in Asia and 6.58 per cent for the rest of the world, Bloomberg data showed. The number of international mainland tourists tripled to 31 million last year from 10.5 million in 2000, the National Bureau of Statistics said. Over the same period, per capita salary had risen to just over 18,000 yuan from about 9,000 yuan. Domestic tourist numbers recorded a compound annual growth rate of 11 per cent from 2001 to 2005, hitting 1.2 billion in 2005, according to the statistics bureau. Hangzhou Airport is China's eighth-largest airport by passenger volume. China Eastern Airlines is the heaviest user of the airport while Air China dominates Beijing.