When subsidy stops being necessary: resource logic in China’s low-altitude economy under new-quality-productive-forces
This study employs a configurational necessity analysis on Chinese listed firms to demonstrate that government subsidies, while a critical driver of innovation in the early stages of the low-altitude economy, lose their status as a necessary condition as the industry matures under China's "new-quality-productive-forces" agenda, revealing that resource necessity is time-varying rather than fixed and that no single alternative resource simply replaces subsidies as the new binding constraint.
Original paper licensed under CC BY 4.0 (https://creativecommons.org/licenses/by/4.0/). This is an AI-generated explanation of the paper below. It is not written or endorsed by the authors. For technical accuracy, refer to the original paper. Read full disclaimer
In the world of business and technology, companies often rely on a mix of ingredients to create new products: money, skilled workers, government support, and official certifications. For decades, researchers studying how companies innovate have treated these ingredients as static tools. The assumption has been that if a certain resource, like a government grant, helps a company invent something today, it will likely remain the most important ingredient tomorrow. This view works well for stable industries, but it struggles to explain what happens when the rules of the game change completely. In China, a new national strategy called "new-quality productive forces" has emerged, aiming to shift the economy from simple growth to high-tech, high-quality innovation. This shift suggests that the very definition of what a company needs to succeed might be changing. The question for observers is simple yet profound: as the environment transforms, does the one thing a company absolutely cannot do without also change?
A team of researchers from the Zhangzhou Institute of Technology set out to answer this question by looking at China's low-altitude economy. This sector includes the manufacturing of drones, the development of flying taxis, and the logistics services that operate in the sky below commercial flight paths. To understand how these companies turn resources into new inventions, the team examined a decade of data from 70 publicly listed Chinese companies that hold patents in this field. They split the timeline into two distinct eras: an early period from 2013 to 2019, when the industry was being nurtured with heavy government subsidies, and a later period from 2020 to 2023, when the national focus shifted toward deepening high-tech capabilities. The researchers did not simply count how much money or how many workers each company had; instead, they used a method that asks a specific logical question: is a particular resource so essential that a company cannot produce new patents without it?
The results reveal a striking shift in what drives innovation. In the early years, the intensity of government subsidies was the single most critical factor. During this incubation phase, a company's ability to secure and utilize government grants was a necessary condition for producing new technology; without it, the path to innovation was effectively blocked. The data showed that this reliance was so strong that it crossed a high threshold of necessity. However, as the industry matured and the national strategy evolved, this dynamic flipped. In the later years, the necessity of government subsidies faded dramatically, dropping to the lowest level among the four resources the team tracked. The companies that were once held back by a lack of grants were no longer defined by that constraint.
Interestingly, the researchers found that while the need for subsidies disappeared, no single new resource immediately took its place as the new absolute requirement. Capital size, which refers to the scale of a company's financial backing, became the most important resource by default, simply because the subsidy requirement had vanished. Yet, the data showed that the necessity of capital itself did not actually grow stronger; it merely inherited the top spot because the previous bottleneck had been removed. This distinction is crucial. It suggests that the industry did not simply swap one dependency for another. Instead, the mechanism that filtered which companies could innovate had changed. The policy environment moved from screening companies based on their ability to access government funds to a broader, more complex landscape where no single resource acts as a strict gatekeeper.
To ensure this finding was real and not just a statistical fluke, the researchers tested their results against different ways of splitting the timeline and even reconstructed their data from scratch using independent methods. The pattern held firm: the era of subsidy dependence ended, and the era of a new, undefined necessity began. They also tried to analyze the data using traditional statistical models that look for average effects, but those methods failed to see this shift. The traditional models could not detect that the rules had changed because they were looking for a steady relationship between resources and results, whereas the reality was a sudden break in the logic of the industry. This failure of standard tools highlights why a different approach was needed to see the change clearly.
The study concludes that for policymakers and business leaders, the lesson is clear. The tools that worked to build the industry in its early days are no longer the binding constraint on its growth. Continuing to rely heavily on subsidies may no longer be the most effective way to foster innovation, as the industry has outgrown that specific need. However, the research does not point to a single replacement tool. Instead, it suggests that the industry has entered a phase where success depends on a more flexible combination of resources, and the specific mix required may vary from company to company. The era of a single, obvious lifeline is over, replaced by a more complex reality where the path to innovation is less about securing one specific resource and more about navigating a landscape where the old rules no longer apply.
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