By Daniel Schaefer
Drones are a young and multifaceted industry that have only recently begun to show their true potential. In China, drones are now being used to change the business landscape and alter how companies conduct their operations in a wide variety of commercial sectors, from agriculture to mining to cinematography.
Leading the rise of the drone industry, China is home to five out of the world’s top 11 venture capital-funded drone companies. Foreign companies are already beginning to participate in China’s drone market – in August 2015, Intel invested US $60 million in Chinese drone manufacturer Yuneec. Although the regulatory environment is still developing and can be restrictive for certain usages, growth in the industry shows no signs of abating.
Commercial drone usage in China
China’s commercial sector is well-positioned for drone use, as the country is increasingly adopting advanced technology and automation to counter rising labor costs. The agriculture sector is particularly suited for drones, and some provinces such as Henan, Zhejiang, and Hubei are encouraging companies to implement agricultural drone use by offering training sessions, licensing assistance, and financial reimbursements. Drones are more efficient than manual labor for certain tasks in the agricultural sector; according to a report by Smart Agriculture Analytics, drones can spray up to 100-130 acres of pesticides and fertilizers in one day, at only 40 percent of the cost of manual labor. With other reports stating that drones are 15-40 times more effective than human labor, it seems logical that Chinese companies will increasingly utilize drones for agricultural operations.
However, there are still challenges preventing agricultural drone use from being implemented nationwide. Since rural farmers often lack education and are not accustomed to using this kind of technology, the cost of training them to operate drones would be quite high. Technological limitations such as battery life and carrying capabilities also pose barriers, though drone technology is rapidly improving. For example, Chinese engineers are developing solar powered drones that can stay airborne for at least a month, and according to Shi Wen, head of unmanned aircraft development at the China Academy of Aerospace Aerodynamics (CAAA), the next generation of drones will be able to carry a payload of at least 50 kg.
Drones are not being used exclusively for agriculture in China; they are also being used in the photography and filmmaking sectors, among others. Aerial photography has been given a big bump thanks to drones, with many photographers using these devices to get pictures that would otherwise be impossible to obtain. The adoption of drones for photography range from local marriage photographers to multinationals such as Intel, which has been collaborating with Yuneec to add 3D photography capabilities to their drones.
Regulations facing drone use
Certain commercial drone uses in China can be limited. For companies like Alibaba that are exploring drones for delivery and fulfillment purposes, regulations limiting drone use in densely populated areas pose a challenge to the potential implementation of this emerging method of delivery. Significant safety concerns over drone use remain, as demonstrated by an online video that went viral showing a drone crashing into a landing military jet while Alibaba was testing its delivery system.
Typical of most regulations in China, regulations around drone use differ depending on the region. Densely populated areas such as Beijing and Shanghai will have stricter policies concerning when drones can be flown and what flight path they are allowed to take. The extent of the regulations vary for small consumer drones and larger commercial-purpose drones, as there is more freedom to operate the former. China wants to support its booming consumer drone market, but still needs to regulate it to prevent accidents.
Additionally, in 2015, the Chinese government implemented an export limit on drones due to national security concerns. If the device meets certain requirements – such as being able to stay airborne for longer than an hour, operate in bad weather, and reach altitudes of over 1.5 km – the export limit will be applied. China’s Ministry of Commerce did not clarify how exporting this level of drones constitutes a threat to national security, but companies exporting drones which qualify under the terms of the export limit will have to apply for a special exporting license. Consumer drones, however, will not face such rules and restrictions as they generally only have a battery life of 30 minutes, are unable to reach high altitudes, and cannot operate in strong winds.
With the drone industry still in its infancy, it remains to be seen what shape it will ultimately take. However, China has already established a leading position in the industry, with Chinese company Dajiang Innovation (DJI) estimated to have accounted for 70 percent of the drone market in 2015. Given China’s dominance in manufacturing consumer and commercial drones, and the bevy of domestic industries they could be applied to, China looks set to be at the industry’s forefront for the foreseeable future. With investment increasing and leading to greater innovation, the Chinese drone market is one that should not be ignored.
|About the author: This article first appeared in China Briefing by Dezan Shira & Associates, a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory, and compliance, accounting, payroll, due diligence, and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email [email protected] or visit www.dezshira.com.