China’s Futuristic Industries: Investment Prospects in the Emerging Low-Altitude Economy

China’s low-altitude economy is rapidly growing, driven by supportive policies and technological advancements, with projections indicating a significant economic contribution by 2025. Key regions like Guangdong, Shenzhen, and Chengdu are spearheading development through substantial investments and regulatory support, despite challenges in infrastructure and safety. We examine the investment opportunities and business outlook of this burgeoning sector

During the annual Central Economic Work Conference, which concluded on December 18, 2023, Chinese policymakers outlined priorities for 2024 economic work. The meeting identified the low-altitude economy as a strategic emerging sector, alongside key industries such as bio-manufacturing and commercial aerospace innovation.

The term “low-altitude economy” refers to a spectrum of economic activities occurring within low altitude airspace, defined as the space 1,000 meters above ground. This includes various activities and industries centered around civil-manned and unmanned aerial vehicles, such as passenger transport, cargo delivery, manufacturing, low-altitude flight operations, and integrated services.

Futuristic scenarios, such as drones delivering packages, winged taxis for daily commutes, and hobbyist sightseeing helicopters, could become a reality in China as the low-altitude economy takes off. Such operations could also play critical roles in aerial logistics, emergency medical rescue, and firefighting efforts.

In recent years, buoyed by supportive policies, China’s low-altitude economic sector has experienced rapid growth, witnessing an increase in both low-altitude aircraft and enterprises. With vast potential, it is projected to contribute up to US$700 billion (RMB 5 trillion) to the country’s economy by 2025, as indicated by a white paper published in 2023 by the International Digital Economy Academy in Shenzhen.

In this article, we explore the rapid expansion of China’s low-altitude economy, examining its technological advancements, regional developments, and government policies driving growth, while also addressing the challenges and investment opportunities within this emerging sector.

Understanding China’s robust low-altitude economy market

Backed by advanced technology, rising domestic demand, and government support, China’s low-altitude economy is experiencing rapid expansion. This emerging industry presents an attractive market, catering to diverse needs across commercial, industrial, civil, and military sectors. The applications of low-altitude aerial vehicles are becoming increasingly diverse, covering existing logistic-based services as well as extending into futuristic technological use case scenarios.

For example, drones, integral to various sectors, are experiencing exponential growth. By the end of August 2023, China had over 1.11 million registered civilian unmanned aerial vehicles, a 16 percent increase from the end of 2022, according to the Civil Aviation Administration of China (CAAC). With 182,000 drone pilot licenses issued and over 17,000 registered drone operating enterprises, the development of low-altitude infrastructure is primed to attract substantial investments, fostering economic growth. Civilian drones collectively logged over 16.8 million flight hours from January to August in 2023.

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Embracing low-altitude commercial flights, these vehicles operate logistics and short-distance navigable transportation. Ongoing tests have utilized drones for food delivery to streamline direct deliveries, as seen in Shenzhen. Furthermore, companies like JD.com, SF Express, Meituan, ZT Express, Cainiao, and China Post are increasing their efforts to develop large-scale logistics drones, thereby building an airway logistics network.

The future also envisions a pivotal role for drones in enhancing medical care services, as demonstrated by the Shenzhen-based Heli-Eastern. Operating a fleet of 30 helicopters, the company pioneers fast medical services, spanning emergency rescue, business flights, and helicopter touring.

The rising demand for a next-generation logistics network is also fueling growth prospects in China’s drone market. With a population exceeding 1.4 billion and several cities ranking among the world’s top 20 for highest density, China faces an urgent need for easier movement of people, goods, and services. The country’s robust industrial base, particularly strong in cutting-edge technologies, has become a magnet for enterprises specializing in innovative aviation solutions like manned electric vertical take-off and landing (eVTOL) aircraft. The low-altitude economy is also closely linked with the artificial intelligence (AI) and power battery industries.

Anticipating future urban mobility, commercial passenger drones also offer potential in alleviating rush-hour congestion through their ability to fly in straight lines, avoiding obstacles, and saving time for city commuters with preset autonomous navigation routes. As major cities expand into airspace due to limited ground-level space, the low-altitude economy holds vast future potential, presenting significant opportunities for both upstream and downstream industries.

Policy support from the central government

In recent years, China has released a suite of supportive policies that have partly contributed to the rapid growth and sustained increase in aircraft and enterprises. In particular, the government has intensified efforts to support a batch of leading companies to engage in R&D to develop drone logistics and generate more low-altitude airspace resources.

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In 2020, the CAAC sanctioned 13 national pilot zones in development zones, two of which focused on drone logistics and three on drone delivery in cities. In February 2021, the low-altitude economy was formally written into the national development plan for the first time. Subsequently, in 2022, the CAAC established an additional 4 civil unmanned aerial test zones and 3 civil unmanned test bases.

These initiatives underscore the government’s steadfast determination and commitment to nurturing the low-altitude economy.

Bn 2023, 16 provinces had integrated concepts related to the low-altitude economy and general aviation into their government work reports. Most recently, in January 2024, the Interim Regulations on the Management of Unmanned Aircraft Flights was implemented, marking a further step for the orderly development of the sector.

Low-altitude economy in China’s local provinces

In addition to support from the central government, local governments across China are also facilitating progress in the sector.

Guangdong

On May 29, 2024, Guangdong province released an action plan to promote the high-quality development of its low-altitude economy, aiming to accelerate the commercial use of low-altitude aircraft. This ambitious plan, covering the period from 2024 to 2026, seeks to position Guangdong as a world-leading hub for the low-altitude economy, with a projected economic scale exceeding RMB 300 billion (US$41.4 billion) by 2026.

The government’s comprehensive plan, which addresses airspace management, infrastructure development, urban application expansion, and industrial innovation, is crucial for the industry’s growth.

The plan outlines the creation of a coordinated low-altitude industrial framework among three key cities:

• Guangzhou;
• Shenzhen; and
• Zhuhai.

A significant aspect of the plan is the promotion of commercial deployment for electric vertical takeoff and landing (eVTOL) aircraft and the development of the necessary infrastructure. The plan supports the integration of eVTOLs and helicopters into new low-altitude applications such as air commuting, business travel, aerial shuttles, and cross-border flights, encouraging Chinese companies to prepare for their commercial use. Additionally, the plan seeks to explore and establish low-altitude air routes between Guangdong and Hainan provinces.

EHang, a Guangzhou-based company, has already conducted demonstration flights for its eVTOLs, highlighting their potential in passenger transport, logistics, smart city management, and aerial light shows. EHang’s EH216-S has achieved several milestones, including being awarded the world’s first Type Certificate, production certificate, and standard airworthiness certificate for passenger-carrying pilotless eVTOL aircraft by CAAC.

Similarly, Xpeng Aeroht, the flying car division of Xpeng Motors, has had its Type Certificate application accepted by the CAAC for its latest modular flying car, which integrates both ground and air modules.
Overall, Guangdong’s strategic plan and policy measures are setting the stage for the province to emerge as a leader in the low-altitude economy.

Guangzhou

Guangzhou is actively advancing its low-altitude economy by hosting conferences, forums, and seminars, and recently introduced a comprehensive set of policies to foster high-quality development in this sector. The city has allocated substantial resources, including a notable subsidy of up to RMB 30 million (US$4.2 million), to support eligible low-altitude industry projects.

To build a multi-billion-dollar industry cluster, Guangzhou is pioneering several initiatives. Among them is the introduction of the city’s first unmanned aerial tourist sightseeing route, which will feature over 10 stations across three routes. This effort is part of the city’s broader strategy outlined in the Several Measures of Guangzhou Municipality to Drive the High-Quality Development of Low-Altitude Economy, released in July 2024, which aim to accelerate the growth and expansion of entities in the sector.

The measures emphasize technological innovation and collaboration across the industry. Guangzhou encourages partnerships between leading enterprises, small and medium-sized businesses, universities, and research institutes. The city is also committed to implementing key scientific and technological projects, with funding of up to RMB 10 million (US$1.37 million) available for approved initiatives.

Additionally, substantial financial incentives are offered to local enterprises involved in the research, development, and certification of aerial vehicles. Specifically, companies that secure Type Certificates (TC) and Production Licenses (PC) from the CAAC for large manned or unmanned aerial vehicles will receive a one-time subsidy of RMB 15 million (US$2.06 million).

Shenzhen

Shenzhen stands at the forefront of China’s low-altitude economy development. With up to 1,500 enterprises related to the low-altitude economy chain, the city has achieved an impressive output of RMB 75 billion (US$10.6 billion) as of 2022.

In December 2023, the Shenzhen Municipal Bureau of Transport implemented specific measures to further enhance the high-quality development of the low-altitude economy. These measures include substantial grants of up to RMB 50 million (US$7.03 million) for emerging low-altitude enterprises. Shenzhen aims to expand its low-altitude industrial chain, projecting to include more than 1,700 enterprises with an output value surpassing RMB 100 billion (US$14.06 billion) by 2025. The plan also emphasizes research on key technologies, such as remote identification, perception and avoidance, 5G, and Beidou navigation, with a focus on enhancing international standards.

According to data from the municipal government, Shenzhen’s low-altitude economy achieved an annual output exceeding RMB 90 billion (US$12.37 billion) in 2023, reflecting a 20 percent year-on-year increase. Additionally, Shenzhen led the nation in terms of flight scale, having established 126 low-altitude routes and built 89 drone takeoff and landing sites by the end of the same year.

In 2024, Shenzhen also made history by becoming the first city in China to enact a comprehensive low-altitude economy law. Effective on February 1, 2024, the Shenzhen Special Economic Zone Low-Altitude Economic Industry Promotion Ordinances (hereinafter, the “Shenzhen low altitude law”) utilizes public funds to attract private investment, providing legal support to advance the sector and positioning the high-tech port city at the forefront of this emerging industry.

The Shenzhen low altitude law is based on relevant national laws and regulations, including the Civil Aviation Law and General Aviation Flight Control Regulations, tailored to Shenzhen’s specific needs. It consists of nine chapters and 61 articles, covering general provisions, infrastructure, flight services, industry applications, support measures, technological innovation, safety management, legal responsibilities, and supplementary provisions. Key points include:

• Establishing a city-level coordination mechanism for low-altitude economic development and a joint management mechanism involving military, civilian, and air traffic management authorities.
• Planning and managing low-altitude flight infrastructure, supporting social capital involvement, and ensuring alignment with other infrastructure plans.
• Enhancing flight management services, establishing a flight service platform, and streamlining application processes for low-altitude flight activities.
• Expanding applications in urban management, emergency rescue, transportation, logistics, and tourism.
• Providing government support for industry development, encouraging investment, establishing test bases, and promoting international cooperation and technological innovation.
• Implementing safety regulations, data protection measures, and coordinated supervision to ensure safe and secure low-altitude flight activities.

Moreover, efforts to boost the low-altitude economy are underway across various districts in Shenzhen. Futian District is developing the “Sky City” initiative, while Luohu District has launched an aerial route experience at the Shuibei International Center. Nanshan District plans to introduce targeted support policies to become a global hub for the low-altitude economy. Bao’an District is offering subsidies of up to RMB 30 million (US$4.12 billion) per enterprise, while Longgang District is seeking public input on its plan to create a “Flying Valley” in the Greater Bay Area.

Zhuhai

Zhuhai is positioning itself as a pivotal player in China’s rapidly expanding low-altitude economy. Leveraging its strategic location and robust technological infrastructure, the city aims to advance the sector, which includes both manned and unmanned aviation vehicles operating below 1,000 meters.

To facilitate this growth, Zhuhai has implemented a range of targeted measures. The city offers substantial support for major projects, including subsidies of up to 20 percent for equipment purchases and factory rents related to low-altitude manufacturing. Companies that achieve airworthiness certifications for their aircraft are eligible for substantial rewards, ranging from RMB 500,000 (US$68,733) to RMB 10 million (US$1.37 million), depending on the type and size of the vehicle. These financial incentives are aimed at attracting top-tier enterprises and fostering innovation.

In addition to financial support, Zhuhai is focusing on enhancing infrastructure and expanding application scenarios for low-altitude flight. This includes the establishment of technology innovation centers and UAV testing grounds, as well as subsidies for test flights. The city is also advancing the development of low-altitude cargo and passenger routes, including eVTOL services. Financial support for these initiatives helps integrate low-altitude aviation with other transportation modes, boosting logistics efficiency and public service accessibility.

Xiong’an New Area in Hebei

On July 5, 2024, Xiong’an New Area, located near Baoding in Hebei province, introduced a comprehensive set of measures to support the development of the low-altitude economy.

These measures, comprising 12 distinct policy initiatives, aim to foster the growth and establishment of low-altitude economic innovation entities within the region.

According to the measures, enterprises and research institutions involved in cutting-edge technologies like eVTOL, aircraft, flying cars, and both manned and unmanned aircraft, including general aviation and core component manufacturing, are eligible for significant incentives.

Specifically, companies that establish a presence in the new area with a registered capital of RMB 20 million (US$7.74) or more can receive a settlement reward equivalent to 1 percent of their actual registered capital, up to a maximum of RMB 10 million (US$1.37). This initiative aims to attract and support businesses and institutions dedicated to advancing low-altitude technology.

Additionally, Xiong’an is committed to bolstering the development of public service platforms that support the low-altitude economy. These platforms, which focus on essential services such as flight operations, technology research, testing, certification, and safety, can receive financial assistance covering up to 50 percent of their construction costs. Each project can secure up to RMB 50 million (US$6.87 million) in support, enhancing the infrastructure necessary for a thriving low-altitude sector.

To attract and retain top-tier talent, Xiong’an is implementing a robust incentive program for professionals specializing in the low-altitude economy, which includes high-end roles such as:

• Chief Scientist;
• Chief Technology Officer;
• Chief Information Officer;
• Chief Operating Officer; and
• Chief Architect.

These roles will be supported with substantial annual rewards, ranging from 50% to 100% of their salaries. Moreover, technology experts from academic and research institutions are permitted to hold part-time positions in Xiong’an, with compensation tailored to their contributions.

For urgently needed high-end talent, the area offers monthly allowances between RMB 10,000 (US$ 1,374) and RMB 30,000 (US$ 4,123) based on their accumulated service time.

Other provinces and local initiatives

Several provinces, including Anhui, Jiangxi, and Hainan, have actively participated in low-altitude economic development conferences, forums, and seminars since September 2023.
Anhui, in particular, is leading low-altitude airspace management reforms. It has become the one of the first provinces in the Yangtze River Delta to undertake such initiatives.

Chengdu, the capital city of Sichuan Province, is actively enhancing its low-altitude manufacturing sector, aiming to boost its output to RMB 6.5 billion (US$893 million) and expand the sector to a total scale of RMB 26 billion (US$3.57 billion) this year. By establishing a comprehensive industrial chain encompassing everything from raw materials to operational services, Chengdu has attracted over 110 enterprises, contributing to the rapid growth of its UAV industry with annual output increases exceeding 20 percent as of 2023.

In addition to supporting established technologies, Chengdu is also fostering innovation in emerging fields such as eVTOL aircraft. The city has relaxed policies to encourage the deployment of these “flying cars,” and recent partnerships, such as the one between AEROFUGIA and Sino Jet, aim to integrate eVTOLs into business aviation.

Challenges in the low-altitude economy

The low-altitude economy faces several challenges in establishing and promoting its growth. Unlike the established highway network, there is no pre-existing low-altitude airway network, requiring drone operators to independently navigate airspace applications, airway planning, and risk assessments. While this hinders low-altitude development, the associated infrastructure costs are comparatively lower, allowing for the utilization of rooftop spaces in urban areas.

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The rapid proliferation of drone applications also raises concerns about potential public safety hazards. In this regard, the Chinese government while being supportive of the sector, recognizes the need for regulations to prevent accidents. Certain commercial drone applications are restricted in densely populated areas like Beijing and Shanghai, posing challenges to the implementation of drone delivery methods.

Moreover, while the low-altitude economy is a highly contested frontier among major global economies, the Chinese drone market is witnessing an influx of new players, which could lower average drone prices in the upcoming years. Investors and industry participants eyeing entry into China’s drone industry must be mindful of the escalating competition in this dynamic market.

In addition, drones have become entangled in US-China tensions, notably with Shenzhen-based DJI dominating the US market. DJI, the world’s leading drone manufacturer, facing scrutiny in the US, was put on the country’s investment blacklist in 2021.

In July 2023, China announced export controls on drone and drone equipment to safeguard national security and interests. These restrictions, effective from September 1, 2023, mandate vendors to seek permission for exporting specific drone components and systems, including engines, lasers, imaging, communications, radar gear, and anti-drone systems. Consumer-grade drones meeting certain specifications are also subject to these controls.

How can investors participate in China’s low-altitude economy?

The low-altitude economy signifies a visionary leap into the digital age, leveraging the capabilities of information technology and intelligent systems. Beyond a mere economic sector, it embodies a strategic move towards innovative urban development, positioning itself as a prime investment opportunity. This burgeoning sector not only promises high returns but also stands as a catalyst for groundbreaking advancements in urban infrastructure and services.

As cities grapple with escalating congestion at the ground level, the low-altitude domain emerges as a new frontier for unparalleled growth and innovation. Investing in China’s low-altitude market entails tapping into a transformative landscape where technology, infrastructure, and urban development converge. The commitment to technological advancement showcased in this sector underscores China’s pivotal role in shaping the future of global transport and logistics.

Companies looking to invest in China’s low-altitude market should consider strategic partnerships, technology collaborations, and participation in government-backed initiatives. Engaging with local stakeholders and aligning with the regulatory framework will be crucial for navigating this dynamic and rapidly evolving landscape. The potential for innovation and the promise of reshaping urban dynamics makes the low-altitude economy an enticing prospect for forward-thinking investors who want to be at the forefront of the next era in transportation and urban development. Their experiences in the China market could later equip them to be first-movers closer to home or in other emerging markets.

This article was first published on February 2, 2024, and last updated on July 24, 2024, to reflect the latest changes.

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