Policy-industrial capital collaboration and firm innovation in the low-altitude economy: Evidence from government-guided funds’ equity participation in China
This study demonstrates that joint equity participation by government-guided funds and industrial capital significantly enhances innovation in China's low-altitude economy, an effect that is further strengthened by effective compensation mechanisms, industrial relatedness, and specific firm characteristics such as non-state ownership and lower airworthiness certification dependence.
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
The low-altitude economy is a rapidly growing sector built on the idea that the sky just above our heads is an untapped resource for transport, logistics, and public services. It relies on machines like drones and electric aircraft that can take off and land vertically, moving people and goods without the need for long runways. However, turning these technologies into reliable, everyday tools is difficult. Developing them requires years of research, strict safety testing, and massive amounts of money, all while facing the risk that a new invention might fail before it ever reaches the market. Because these projects are so risky and take so long to pay off, private investors often hesitate to fund them, fearing they will not see a return on their money soon enough. This creates a gap where promising ideas stall for lack of support. To bridge this gap, governments often step in with special investment funds designed to encourage innovation in strategic industries. The challenge for policymakers is figuring out how to mix government money with private business expertise so that the funding actually leads to new inventions rather than just sitting idle.
A team of researchers set out to understand how this mix works in China's booming low-altitude economy. They focused on a specific strategy where government-backed funds team up with established companies to invest in new ventures. In this arrangement, the government provides the policy direction and a safety net for risk, while the private companies bring their deep industry knowledge and technical resources. The researchers wanted to know if this partnership actually helps companies invent more. They looked at data from hundreds of listed companies in China between 2006 and 2024, tracking which ones received funding from these joint ventures and counting how many new patents they filed afterward. By comparing companies that received this special funding with those that did not, and looking at their progress before and after the investment, the team could isolate the true effect of the partnership.
The study found that when government funds and industrial companies invest together, the recipient companies do indeed innovate more. They filed significantly more patents for new inventions compared to similar companies that did not receive this type of support. This suggests that the combination works: the government's willingness to wait for long-term results complements the private sector's ability to spot and nurture good technical ideas. However, the researchers discovered that this success is not automatic; it depends heavily on how the deal is structured. The positive effect is much stronger when the investment agreement includes specific rules that share risks and rewards fairly. For instance, if the government agrees to absorb some of the potential losses or gives up a portion of its profits to reward the private partners, the private companies become more willing to take the risks necessary for long-term innovation. These contractual arrangements act as a bridge, aligning the different goals of the public and private partners so they can work together effectively.
The researchers also found that the relationship between the investors and the companies they fund matters greatly. When the private company investing in the new venture operates in a similar industry, the innovation boost is even greater. This is because the investor already understands the technology and the market, making it easier to provide useful advice and connections. The study ruled out the idea that this partnership helps all companies equally. It found that the benefits are most visible in companies that do not face extremely strict safety certification hurdles immediately, and in regions where the government has already set up pilot zones to test these technologies. Furthermore, the effect is strongest for private companies rather than state-owned ones, likely because private firms face tighter financial constraints and gain more from the government's credibility and resources.
Ultimately, the paper suggests that simply throwing money at a new industry is not enough. The way the money is organized and the people involved matter just as much as the amount of funding. For the low-altitude economy to grow, policies need to be designed so that government capital and industrial expertise can truly complement each other. This means creating investment contracts that encourage risk-taking and ensuring that the investors have the right industry knowledge to guide the companies they fund. The findings offer a clear path forward for other nations trying to support emerging technologies: success comes from carefully matching the right kind of capital with the right kind of expertise, rather than relying on a one-size-fits-all approach.
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