China Southern Airlines, one of the nation's three top airlines, is looking for potential partners for a cargo venture.

"We are talking with a handful of foreign airline companies, however, we have not yet reached any practical agreement," an airline publicity executive told China Daily yesterday.

She would not confirm whether Korean Air is a priority partner for the venture.

However, Yi Peng, an analyst with a local securities company in Guangzhou, said that it is very likely China Southern will join with Korean Air in the joint venture.

"Korean Air has been looking for an opportunity to set up a joint cargo venture in China and its year-long negotiations with Okay Airways, a non-State-owned airline, recently broke down," the analyst said.

"And with China Southern on its way to SkyTeam membership, closer co-operation with any of the aviation alliance members including Korean Air is highly likely."

Taiwan-based China Airlines and Europe-based Air France have also been considered as possible partners for the joint cargo venture.

And Li Lei, a veteran Shenzhen-based aviation analyst with CITIC Securities, betted on China Southern giving priority to European or US-based airlines.

Li based his analysis on the likelihood that China's continuing trade imbalance will lead to an air cargo traffic imbalance with domestic airline companies having to wrestle for the limited amount of inbound cargo.

Official statistics say China's trade surplus reached US$102 billion in 2005, nearly tripling the previous year's surplus.

"With a European or American airline company as a partner, China Southern would be able to benefit from its partner's sales network for cargo destined for China," said Li.

At a recent annual meeting on the financing of China's aviation industry in Shanghai, Xu Jiebo, deputy general manager of China Southern, said the company will set up an air cargo company, hopefully by the end of the year.

The cargo venture will be based either in Guangzhou or Shenzhen.

Xu said the cargo venture will primarily focus on the international cargo market, making the best out of the booming foreign trade in Guangdong Province, which accounts for more or less one third of the nation's annual total.

China Southern is the only airline company without a cargo venture among the nation's top three airlines.

Shanghai-based China Eastern set up China Cargo Airlines in 1998 with COSCO, while Beijing-based Air China joined with Beijing International Capital to set up Air China Cargo in 2003.