On May 19, 2015, China’s State Council issued a long-range planning document that specifically designates China’s unmanned aerial systems industry as a “key sector” to benefit from significant funding and other targeted support by the government of China for decades to come.

The Made In China 2025 Plan creates a blueprint for the first phase of the GOC’s 30-year strategy to transform its manufacturing sector by 2049, which marks the 100th anniversary of the founding of the People’s Republic of China. The Made In China 2025 Plan was drafted “in line with the rapid advances in science and technology” to promote “breakthroughs in ten key sectors,” including UAS and other aerospace equipment.

In order to effectuate these policy goals, the Made In China 2025 Plan calls for increased lending by GOC policy banks and commercial banks to UAS and other key sectors, increased research and development funding and the adoption of preferential taxation policies to stimulate further growth in the targeted sectors. These support mechanisms are similar to other programs provided to preferred industries by the GOC since China’s accession to the World Trade Organization in 2001.

The Made In China 2025 Plan also identifies nine tasks as priorities: (1) improving manufacturing innovation; (2) integrating technology and industry; (3) strengthening the industrial base; (4) fostering Chinese brands; (5) growing green manufacturing; (6) promoting breakthroughs in UAS and other key sectors; (7) advancing restructuring of the manufacturing sector; (8) promoting service-oriented manufacturing and manufacturing-related service industries; and (9) internationalizing manufacturing.

The GOC’s announcement comes at a critically important time in the development of the global UAS industry, and this is certainly true in the United States. On Feb. 15, 2015, the U.S. Federal Aviation Administration issued proposed rules regarding the operation of small UAS (defined as weighing less than 55 pounds), certification of their operators, registration and display of registration markings. To date, the FAA has received 4,574 comments on the proposed rules (with continued interest so high that comments are still being filed after the comment period closed on April 24). Although the exact timetable remains uncertain, many people think that final rules will take effect some time by early 2017.

In the interim, the FAA has utilized its authority under Section 333 of the FAA Modernization and Reform Act of 2012 to grant authorizations for certain UAS to perform commercial operations prior to the finalization of the small UAS regulations. In taking this action, the FAA recognized the “significant economic benefits” associated with the safe and authorized integration of small UAS into the national airspace and identified the Section 333 Exemption process “as a high priority project to address demand for civil operation of UAS for commercial purposes.” The Made In China 2025 Plan and other steps taken by the GOC, however, raise the question of whether China stands to gain a disproportionate share of the “significant economic benefits” made available as commercial UAS integration continues over the next several years.

It is important to acknowledge that the Made In China 2025 Plan is not China’s first step toward achieving its goal to become the world leader in UAS production. To the contrary, the Made In China 2025 Plan is just the latest (albeit important) development which actually furthers China’s already dominant position in the global commercial UAS trade.

For example, an April 16 Reuters article reported that commercial drones made by Chinese UAS manufacturer SZ DJI Technology Co. Ltd. are identified in more than half of the Section 333 exemption requests on file with the FAA. The article also noted a likely cascading effect of the high number of Section 333 exemption requests tied to DJI drones: that DJI’s U.S. market share will continue to grow because of efficiencies created for applications that are based on use of commercial UAS models previously approved by the FAA.

Prior to this latest development, DJI already held the largest commercial UAS market share in the world (about 70 percent of global sales), followed by U.S. manufacturer 3D Robotics Inc. and French manufacturer Parrot SA. As stated above, a fundamental goal of the Made In China 2025 Plan is to “foster Chinese brands.” DJI’s large global market share and the high number of FAA Section 333 Exemption filings that propose to use its products indicates that China has already made great strides toward achieving it.

DJI’s current ascendancy is just one piece of the puzzle, however, because Chinese press reports indicate that state-owned defense contractors in China are quickly taking steps to enter the lucrative commercial UAS market as well. State-owned defense contractors have already begun to allocate substantial funds and engineering expertise to developing commercial UAS in key market segments including aerial mapping, resource surveying and pipeline and grid monitoring.

This intensified focus on the commercial UAS segment by Chinese state-owned defense contractors is consistent with instructions issued to government departments by the Chinese Ministry of Industry and Information Technology to implement the Made In China 2025 Plan through future budget planning. To be clear, government departments are required to build Made In China 2025 Plan mandates into their budgets. This further confirms the high level of coordination — and financial support — that the GOC will leverage in building its commercial UAS industry at the expense of global competitors, including companies in the United States.

China’s transformative gains in the global commercial UAS marketplace are also noteworthy in comparison to the strict controls that the GOC imposes upon UAS operation at home. China Daily reported late last year that “the People’s Liberation Army has pledged to tighten controls on civilian drones and private aircraft, saying unapproved flights pose a severe threat to airlines and national security.” The report continued that unapproved use below the 1,000 meter limit is common and that a PLA helicopter shot down an unapproved commercial UAS flight before “three ground controllers were captured by the police.”

The potential effects of the Made In China 2025 Plan’s designation of unmanned aircraft as a key sector should also be viewed in light of President Obama’s administration strategy on mitigating the theft of U.S. trade secrets, which was issued in 2013. This report confirmed that domestic UAS capabilities and “civilian and dual-use technologies in sectors likely to experience fast growth,” such as commercial UAS, were at significant risk of trade secret misappropriation and other surreptitious information gathering.

Then-Rep. Frank R. Wolf, R-VA, commented on the administration’s trade secrets strategy by noting that “16 of the 19 {trade secret espionage cases brought by the Obama Administration} involved Chinese nationals spying for Chinese institutions,” which equated to “85 percent of all DOJ espionage cases that have involved Chinese espionage.” The report also indicated that several cases involved economic espionage for the benefit of the GOC and its military, including some cases relating to UAS technology.

Thus, the GOC’s demonstrated commitment to its UAS industry could heighten the economic espionage risks facing the U.S. commercial UAS industry. This could have a chilling effect on several other industries that stand to benefit from the useful data and other value-add applications that may be created through commercial UAS technology, including agriculture, news media, insurance, real estate, utilities and oil and gas, among many others.

In sum, the GOC has identified UAS as a key driver of manufacturing growth. The Made In China 2025 Plan sets out clear policy goals and multiple financial support tools to effectuate those goals, including government loans and preferential tax policies. This development is just the latest phase in the GOC’s long-standing commitment to aggressively funding and growing the Chinese UAS industry, and could have profound consequences for UAS manufacturers and associated industries around the world.

This article is originally published at Law360, on 17th June, 2015