The Low-Altitude Economy’s Great Leap Upward
Executive Summary
- The People’s Republic of China (PRC) has championed the low-altitude economy as a critical new engine for economic growth, yet the officially promoted market scale is significantly exaggerated.
- A severe lack of consumer-side demand renders the sector unsustainable. Its core applications are not economically competitive and long-term capabilities are constrained by technological bottlenecks and safety risks.
- Currently, the low-altitude economy relies on government investment, which is fiscally unsustainable. Even more dangerous is the exploitation of this concept by local governments for “asset fabrication,” artificially manufacturing bubbles.
- The West often exhibits excessive alarm regarding the PRC’s slogan-driven economic campaigns. Rather than a formidable competitive threat, the LAE represents a symptom of internal exhaustion—a speculative bubble engineered to absorb industrial overcapacity.
Amid a deepening real estate recession and diminishing returns on traditional infrastructure investment, Beijing has introduced a series of policy concepts aimed at stimulating growth. Among these, the “low-altitude economy” (低空经济) has emerged as a particularly prominent focal point.
Since the inclusion of the low-altitude economy in the 2024 Government Work Report as a representative “new quality productive force” (新质生产力), a campaign of state-directed industrial mobilization has unfolded nationwide (Xinhua, March 13, 2024). Official rhetoric envisions a market worth Renminbi (RMB) 2 trillion ($290 billion) by 2030, encompassing drone logistics, electric vertical takeoff and landing (eVTOL) aircraft, and massive airspace infrastructure (People’s Daily, April 2, 2024). The initiative attempts to replicate the industrial policy success of the new energy vehicle (NEV), lithium battery, and solar photovoltaic sectors.
This goal is infeasible. Structural analyses of cost models and industrial chains show that low-altitude economy proliferation is currently driven almost exclusively by supply-side mandates rather than genuine demand-side traction. The sector lacks scalable commercial applications capable of forming a closed loop. Consequently, the actual market size likely remains orders of magnitude below official forecasts. The aggressive pursuit of this capital-intensive sector by local administrations, coupled with the current negative return on investment, risks exacerbating local fiscal crises, while the strategy of absorbing industrial overcapacity through technological substitution directly conflicts with a fragile employment structure in the People’s Republic of China (PRC).
Government Framing Masks Reality
In the current PRC context, the low-altitude economy is a carefully reconstructed political-economic term. Transcending its traditional definition in general aviation, where it refers to civil aviation activity conducted in low-altitude airspace, PRC authorities now use the term to refer to a broader industrial ecosystem focused on manufacturing and infrastructure. But in policy guidance, Beijing is limiting the concept to refer to airspace below 3,000 meters, and often below 1,000 meters (Xinhua, September 27, 2024). This delineation circumvents the intractable issue of high-altitude military control, capitalizing on this “residual airspace” (存量空间).
The central government has escalated promotion of the low-altitude economy since it was first incorporated into the National Comprehensive Three-Dimensional Transportation Network Planning Outline (国家综合立体交通网规划纲要) in 2021. Momentum accelerated significantly following the Central Economic Work Conference in late 2023, which designated the sector a “strategic emerging industry” (战略性新兴产业). The subsequent implementation of the “Interim Regulations on the Flight Management of Unmanned Aircraft” (无人驾驶航空器飞行管理暂行条例) in 2024 provided standardized regulatory guidance for industrial development. Responding to these central directives, local governments have initiated “tournaments,” launching a proliferation of projects that create the facade of prosperity (Xinhua, March 9, 2024, January 26).
Official forecasts also provide a deceptive image of profitability. According to the Civil Aviation Administration of China (CAAC) in late 2025, the PRC’s low-altitude economy market size was expected to reach RMB 1.5 trillion ($220 billion) by the end of that year and RMB 3.5 trillion ($500 billion) by 2035 (Xinhua, December 23, 2025). These figures rely on a broad definition, however, that obscures a more prosaic reality. As outlined in the “Statistical Classification of Low-Altitude Economy and Its Core Industries (Trial)” (低空经济及其核心产业统计分类(试行)), the term refers to a combination of four major categories of industry players: manufacturing, operations, infrastructure and information services, and support services (NDRC Low-Altitude Department, December 26, 2025). By aggregating all related sectors, official statistics blur the distinction between stock markets with relatively fixed demand—such as agricultural spraying and industrial inspection—and incremental markets in which new demand drivers are created. Stripping away legacy sectors, the burden of growth expectations falls on only two novel consumer-facing industries: drone logistics and eVTOL aircraft. But until organic consumer demand drives revenues in these areas, the purported market remains a mirage built upon fiscal subsidies and buttressed by state media hype.
Drone Logistics Are Not Economically Viable
Consumer adoption will serve as the litmus test for the low-altitude economy’s viability. While established agricultural and industrial applications have matured, these specialized production tools are inherently limited by the finite scale of their downstream sectors. To bridge the gap between insufficient applications and economic strategy, official propaganda has touted urban last-mile delivery as the industry’s primary breakthrough point (People’s Daily, May 24, 2024). But this scenario faces severe economic and operational barriers.
A principal hurdle lies in unit economics. The PRC’s logistics efficiency is predicated on the extreme utilization of the country’s demographic dividend rather than on high technology. According to estimates based on financial data from Meituan, a delivery service, the average delivery cost for a human rider is approximately RMB 4.13 ($0.60) (Huxiu, March 25, 2025). This hyper-efficient ground network constitutes a cost barrier that drones cannot easily overtake. Conversely, the costs of drone delivery remain prohibitive. Meituan’s operating data in Hong Kong reveals drone delivery fees as high as Hong Kong Dollars (HKD) 30 ($3.84), which executives admit fails to cover operational costs (The Standard, June 6, 2025). Even assuming economies of scale in the mainland, after factoring in equipment depreciation, ground battery-swap personnel, and pilot monitoring, the comprehensive cost per order remains significantly higher than that of human labor. In non-specialized scenarios, drone delivery possesses no comparative cost advantage.
Operational inefficiencies further erode profit projections. Drones currently fail to achieve door-to-door service due to safety restrictions, landing instead at fixed lockers. Compared to the traditional model where riders deliver to the doorstep, this represents a degradation of service. In the PRC’s service-oriented economy, just as elsewhere, consumers will not pay higher fees for a service that requires additional effort. While drones possess comparative advantages in special scenarios with low transport efficiency—such as cross-sea transport in the Zhoushan Archipelago—forcing this logic onto general urban scenarios constitutes the core source of the industrial bubble (China National Radio, May 22, 2024). Experts are seemingly aware of these limitations too. In 2023, Meituan’s director of drone delivery services speculated that it could take 20–30 years before drone delivery surpassed human delivery in terms of efficiency, and said that, in an ideal future, drones may make up only five or ten percent of all delivery orders (MIT Tech Review, May 23, 2023).
Safety and political red lines in the PRC’s highly centralized authoritarian system further constrain expansion. In urban areas, the potential risks extend beyond accidental crashes to encompass malicious attacks and espionage activities, involving unacceptable public safety and political liabilities. [1] In this context, Beijing remains extremely sensitive to airspace security. The capital’s administrative region has been a strictly enforced no-fly zone and new national standards require civilian drones to install remote identification and countermeasure interfaces, effectively granting authorities a kill switch for commercial drones (Beijing Municipal Government, August 4, 2025; Xinhua, December 9, 2025). A business model that faces constant no-fly risks in core cities contains inherent limits to its national expansion.
Large-scale promotion of drone logistics may even present a gray rhino risk to social stability. The immediate delivery industry currently serves as a vital social stabilizer, absorbing over 13 million riders by 2024, most of whom are migrant laborers from rural regions (Huaon, December 15, 2025). However, technological substitution threatens to dismantle this employment reservoir, inevitably leading to mass structural unemployment.
eVTOL Aircraft Are Commercially Immature
If drone logistics is commercially unviable, the eVTOL sector resembles an industrial bubble designed to absorb excess capacity. Often dubbed “electric cars that can fly” (飞行汽车), eVTOLs share approximately 70 percent of their supply chain with NEVs, including batteries, motors, and carbon fiber composites (Securities Daily, March 7, 2025). For battery manufacturers and automakers grappling with “involution” (内卷) and overcapacity, promoting eVTOL development functions as a critical “spatial breakout” (空间突围) strategy. But this logic, based on supply-side spillover, encounters hard technological and safety constraints.
Current lithium battery energy density severely limits flight endurance. Industry insiders frankly admit that “very few brands can fly for more than 15 to 20 minutes,” citing this as a “critical flaw.” Even the most optimistic manufacturers concede that flight durations rarely exceed 30 minutes (BBC, May 16, 2025). After deducting energy consumption for vertical takeoff/landing and mandatory safety redundancy, the effective commercial range is negligible. Although some manufacturers have extended flight range by scaling up the airframe and battery capacity, this comes at a prohibitive cost, surpassing RMB 13 million ($1.8 million) per unit (Securities Times, February 11, 2025). At this price point, the industry is effectively reinventing the helicopter, but with significantly lower utility and higher capital costs.
Safety is the Achilles’ heel for eVTOL aircraft. Unlike NEVs, an eVTOL power failure can result in a catastrophic fall. Market events since 2025 have undermined public confidence and led to the bankruptcy of German entity Lilium and the crash of a prototype from Xpeng AeroHT during a rehearsal (Yahoo Finance, February 21, 2025; BBC, September 17, 2025). For these reasons, the CAAC restricts flights to daytime flights in non-adverse weather conditions in which visual line of sight can be maintained. This compresses application scenarios and effectively reduces the technology to an expensive “aerial cable car” (Low Altitude Economy, March 25, 2025).
Commercially, eVTOLs face a small consumer base. For the public, ticket prices significantly exceed those of high-speed rail, rendering such transport largely unnecessary for daily needs (The Standard, February 2, 2025). Meanwhile, general aviation has historically struggled in the PRC, with small markets for private helicopters and aircraft. Even experts within the system acknowledge this. According to an expert at the State Information Center, a think tank under the National Development and Reform Commission (NDRC), high eVTOL production costs and low passenger capacity mean that early applications will “primarily serve a small, time-sensitive demographic willing to pay a premium, remaining far from large-scale societal adoption” (主要服务对时间敏感、愿意支付更高费用的小范围群体，距离全社会规模化推广普及相对遥远) (NDRC, December 30, 2024).
Government Investment is Unsustainable
In the absence of genuine consumer demand, the low-altitude economy depends heavily on government procurement and massive infrastructure investment to sustain the appearance of prosperity. Beijing is attempting to replicate the path dependence seen in high-speed rail and 5G by artificially creating application scenarios through enormous public spending.
Current orders in the low-altitude economy primarily come from local governments and their affiliated entities for applications such as patrols, mapping, flight performances, and emergency rescue. This model essentially represents an internal circulation of fiscal funds. With local finances under severe strain, relying on continued state procurement of costly low-altitude services is financially unsustainable. Many so-called “mega-orders” are merely non-binding letters of intent or involve local government financing vehicles as buyers, primarily designed to generate market hype rather than address genuine operational or business needs.
Infrastructure construction displays similar shortsightedness. Local governments are rushing to build vertiports and 5G-A networks based on projected rather than actual demand. Unlike high-speed rail, which supports massive population mobility, low-altitude infrastructure lacks underlying commercial traffic. Initiatives such as the Xiong’an New Area’s low-altitude economy demonstration zone—which encompasses multiple drone bases, testing facilities, and shared experimental sites—risks adding to local debt burdens without generating significant economic activity (Hebei Daily, April 22, 2025).
More alarmingly, government involvement has transformed the low-altitude economy itself into a tool for “asset fabrication.” A prime example is Pingyin County’s attempt to auction low-altitude franchise rights for RMB 924 million ($133 million) to a state-owned enterprise wholly owned by its own finance bureau (China Brief, February 3). Rather than fostering a genuine industry, some local governments are exploiting the low-altitude economy as a vehicle for financial engineering, leveraging administrative jurisdiction to mask systemic insolvency. Such state-led maneuvers only serve to further inflate this speculative bubble.
Conclusion
The PRC’s vision for the low-altitude economy, under current economic and technical conditions, constitutes a strategic misjudgment. Decision-makers in Beijing are attempting to transplant the industrial logic that fueled prior successes to a sector that lacks fundamental consumer demand. Unlike NEVs, which displaced internal combustion vehicles through superior user experiences, the low-altitude economy offers a regression in terms of cost, convenience, and safety for mass-market applications.
Facing sluggish growth, the central government is heading down the path of supply-side mobilization, attempting to replicate economic miracles through administrative fiat. While the PRC possesses manufacturing advantages based on supply chain spillover, the conversion of capacity into economic benefit requires genuine demand. At present, this is negligible, and state-led demand represents debt that mortgages the future.
As fiscal subsidies recede, enterprises relying on speculative financing face bankruptcy, and infrastructure projects risk stagnation. This “new quality productive force” is poised to become another “unfinished project” (烂尾工程), stalling as it runs up against economic laws. Foreign observers should be less alarmed over competitive threats and more focused on the risks triggered by the inevitable burst of this bubble: the PRC’s propaganda offensive might imply that the sky is the limit, but the reality is that the low-altitude economy is still struggling to get off the ground.
Notes
[1] Such accidents have already taken place, as exemplified by a recent logistics drone crash in downtown Shenzhen (Lianhe Zaobao, February 10).
