This article focuses on the emerging low-altitude economy sector, with a central comparative analysis of China, Japan, and South Korea. It systematically compares the legal frameworks of these nations across dimensions including foreign investment access, national security reviews, airworthiness certification, technology export controls, and cross-border data flows. The aim is to provide investors with a comprehensive institutional background and practical guidance for assessing the feasibility of cross-border transactions and designing transaction structures.
Introduction
The low-altitude economy, centered on drones, eVTOLs, and supporting infrastructure, is transitioning from technological validation to commercial deployment. According to a market analysis and investment outlook report for China's flying car (eVTOL) sector from 2025 to 2030, the market size in China reached approximately 3.2 billion yuan in 2024, a year-on-year increase of 226.5%. It is projected to grow to 9.5 billion yuan by 2026. The low-altitude economy has seen its strategic importance rise for three consecutive years and was designated as an "emerging pillar industry" in the 2026 government work report. Against this backdrop, cross-border capital flows are becoming increasingly active.
Chinese companies have taken a leading position in the eVTOL field. The Civil Aviation Administration of China has issued type certificates to companies like EHang Intelligent and AutoFlight, and granted the world's first operational certificate for a manned eVTOL in March 2025. Japan and South Korea are accelerating their industrial policy and demonstration operations. However, the low-altitude economy touches upon multiple sensitive areas including aviation safety, data sovereignty, technology control, and national security. Consequently, countries have established complex review mechanisms for foreign investment in this sector.
This article provides a systematic overview of the legal systems in China, Japan, and South Korea concerning foreign investment access, national security reviews, aviation operational permits, technology export controls, and cross-border data flows. It offers an institutional background for legal due diligence and transaction structuring in related cross-border deals.
Analysis of China's Legal Framework
China's legal regulation of the low-altitude economy features a multi-layered structure of "basic laws + specialized regulations + review mechanisms." The revised Civil Aviation Law, effective from July 1, 2026, legally clarifies the status and operational management framework for unmanned aircraft.
Foreign Investment Access: The Negative List Framework
The Special Administrative Measures for Foreign Investment Access (Negative List) (2024 Edition) has reduced nationwide restrictive measures to 29 items. Restrictions relevant to the low-altitude economy mainly involve general aviation, where foreign investment is only permitted in agriculture, forestry, and fishery sectors, and air traffic control, where it is prohibited. In areas not explicitly restricted by the negative list, such as eVTOL and drone R&D and manufacturing, national treatment generally applies. Concurrently, the Catalogue of Industries Encouraging Foreign Investment (2025 Edition) lists "general aviation, drones, eVTOL R&D and manufacturing" as encouraged industries, providing a supportive policy signal for foreign entry into manufacturing.
National Security Review
The Measures for the Security Review of Foreign Investment stipulate two types of triggers for security review: investment in sectors related to national defense security, and investment in important sectors concerning national security, where actual control is obtained. eVTOL and drone systems, if their technology has dual-use attributes or operations involve sensitive national security areas, are highly likely to fall under this review. Foreign investors acquiring control of a Chinese target company in the low-altitude economy must pay close attention to the potential for triggering a security review.
Industry Permits and Airworthiness Certification
The Interim Regulations on Flight Management of Unmanned Aircraft, effective in 2024, and its supporting rules establish a classified management system for drones. Units using civil unmanned aircraft for flight activities must apply for an operational certificate. Regarding airworthiness certification, the Civil Aviation Administration of China has issued the world's first operational certificate for a manned eVTOL and type certificates for models like the EHang EH216-S. Two mandatory national standards for drones effective from May 2026 further strengthen data security management and product safety requirements.
In cross-border M&A scenarios, a core concern for foreign investors is whether the target company's existing type certificates and operational certificates will face re-examination due to a change in control.
Technology Export Controls
The Dual-Use Items Export Control Regulations, effective in 2024, establish a unified export control system based on an "export control list," supplemented by "temporary controls" and "catch-all controls." The 2026 Directory of Dual-Use Items and Technologies Import and Export License Management imposes export controls on certain high-performance drones and key components. When acquiring Chinese low-altitude technology enterprises, foreign investors need to assess whether the transaction will trigger a re-examination of the target's technology export controls and whether existing export licenses will be affected by the change in control.
Data Security and Cross-Border Transfer
The operation of the low-altitude economy relies on large-scale data collection and real-time transmission. The Cybersecurity Law, Data Security Law, and Personal Information Protection Law impose compliance requirements from different angles. In cross-border investment, foreign investors must focus on two levels: reviewing the target's data compliance during due diligence, and assessing whether the acquisition of control triggers new obligations for security assessment of data leaving China post-transaction. Additionally, providing data to foreign judicial or law enforcement agencies may require approval from Chinese authorities, which could pose extra compliance hurdles.
Cross-Border Impact of New Outbound Investment Rules
The State Council Regulations on Outbound Investment, effective from July 1, 2026, establish China's first unified administrative regulation for outbound investment management. For cross-border transactions in the low-altitude economy, this means that deals involving sensitive technologies may still be subject to security review in China even after obtaining host country approval. Investors must factor the potential intervention of China's outbound investment regulatory system into their transaction considerations.
Analysis of Japan's Legal Framework
Japan manages foreign investment based on the principle of "equal treatment for domestic and foreign capital." Except for sectors related to national security and other core areas, investment in other industries does not require prior approval. Japan's foreign investment legal framework centers on the Foreign Exchange and Foreign Trade Act, supplemented by specialized laws like the Economic Security Promotion Act and the Civil Aeronautics Act. In recent years, Japan has significantly increased the density of its systems in national security review and technology control areas.
Foreign Investment Access: "Freedom in Principle, Review as Exception"
In principle, the Foreign Exchange and Foreign Trade Act allows foreign investors to freely make inward direct investments, but prior notification is generally required for investments in "designated industries." The manufacture of aircraft and drones is included in the "core industry" category. A 2019 revision lowered the shareholding threshold triggering a review from 10% to 1% and expanded the scope of industries requiring prior review. This significantly lower threshold means a larger proportion of foreign investments involving Japan's core low-altitude economy enterprises are subject to prior review, with a standard review period of 30 days, extendable to 5 months.
Supplementary Review under the Economic Security Promotion Act
Enacted in 2022, this law established four systems, including a patent non-disclosure system. A list of 25 technical fields for patent non-disclosure includes "drones related to weapons, autonomous control technology, etc." Additionally, a government-funded project supports research in autonomous and distributed control technologies for small drones.
Civil Aeronautics Act and Drone Regulation
In December 2022, amendments to Japan's Civil Aeronautics Act officially lifted the previous ban on Level 4 flights. The current system classifies drone flight permits into four risk-based levels. Level 4, the highest, permits beyond visual line of sight flight in populated areas and requires a flight permit involving both operator skill certification and aircraft certification. The amendments introduced an aircraft certification system and a national license for drone operators for Level 4 flights. Aircraft certification is divided into two types with different validity periods.
In the eVTOL field, Japanese ministries have been promoting system development through a public-private council established in 2018. The latest roadmap, updated in March 2026, states that commercial eVTOL operations are slated to begin in specific regions between 2027 and 2028. Further goals for the early 2030s include developing national systems for new traffic management and remotely piloted passenger transport.
Technology Export Controls
Japan's export control system combines "list control" and "catch-all control." The Export Trade Control Order lists controlled items. Furthermore, in January 2025, the Ministry of Economy, Trade and Industry updated its End User List, adding foreign entities of concern related to weapons of mass destruction and missile development. In investment transactions, if a foreign investor gains control of a target enterprise, the company's technology export activities may trigger a re-examination of export licenses due to the change in the "end user."
Analysis of South Korea's Legal Framework
South Korea's foreign investment system centers on the Foreign Investment Promotion Act, following a basic architecture of "openness in principle, with negative list exceptions." It is supplemented by technology protection legislation like the Industrial Technology Protection Act and the Advanced Strategic Industries Act, as well as aviation-specific laws like the Urban Air Mobility Utilization Promotion and Support Act.
Foreign Investment Access: Open Architecture with Exception Controls
The core framework is the Foreign Investment Promotion Act. Annually, the Ministry of Trade, Industry and Energy issues a consolidated foreign investment notice summarizing all legal restrictions on foreign investment access in a negative list format to enhance transparency. In the negative list, air transport is listed as a restricted sector. Additionally, investments that hinder national security, public order, health, environment, or violate Korean law are restricted or prohibited. Drone manufacturing and aircraft component manufacturing, if involving core technology or potential military conversion, may trigger this mechanism.
Industrial Technology Protection
The Industrial Technology Protection Act is a key legal tool for reviewing technology transfer in foreign investment. Companies holding national core technologies are obligated to implement protection measures and must obtain approval or file a report before exporting such technologies. Furthermore, foreign investors intending to acquire or merge with a company holding national core technologies must also undergo approval or reporting procedures. A revised announcement on the designation of national core technologies, effective in July 2024, added and adjusted technologies across several fields. Technologies related to aerospace, drones, autonomous flight control, and smart transportation may be designated as national core technologies. Acquiring a Korean company holding such technologies may trigger approval or reporting obligations under this Act.
The Urban Air Mobility Act
South Korea enacted the Urban Air Mobility Utilization Promotion and Support Act in 2023, effective from April 25, 2024. It requires the Ministry of Land, Infrastructure and Transport to formulate a basic plan for urban air mobility every five years and establishes systems for "test project zones" and "demonstration operation zones" to provide a legal framework for technology R&D, testing, and commercial operation. The Act also sets up an access system for UAM operators and stipulates requirements for vertiports, UAM corridors, and liability insurance.
Implications for Cross-Border Investment Practice
Synthesizing the above analysis, cross-border investment in the low-altitude economy reveals the following institutional trends worthy of attention in legal practice.
First, the trend toward the "securitization" of foreign investment review is irreversible. All three countries are incorporating more low-altitude economy-related areas into security review scopes through mechanisms like foreign investment review, technology export controls, and industrial security regulation, simultaneously increasing investors' notification obligations and review uncertainty.
Second, the "national differences" in aviation operational permits constitute a technical barrier to cross-border integration. Mature international mutual recognition systems for eVTOL and large drone airworthiness certification are not yet established. Post-transaction, market expansion by the target enterprise still requires obtaining airworthiness permits country by country, which lengthens the investment return cycle and increases transaction risk.
Third, the cross-synergistic effect between technology export controls and foreign investment review is strengthening. A single cross-border transaction may require obtaining multiple independent regulatory approvals, including foreign investment review, technology export licenses, and industrial technology protection review, imposing higher demands on transaction timelines and legal risk management.
Cross-border investment in the low-altitude economy involves multi-jurisdictional legal coordination, multi-level regulatory approvals, and the regulatory uncertainty of emerging technologies. Transaction structuring and compliance analysis require case-specific professional assessment based on the particular transaction circumstances, target jurisdictions, and the technological characteristics of the target enterprise.
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