China: An Aviation: Finance (PRC Firms) Overview
China Aviation Finance and Low-Altitude Economy:
Refinement Trends and Market Transformation
Introduction: market in transition
The period from 2024 to 2025 marks a transformative phase for China’s aviation finance industry, characterised by unprecedented regulatory clarity and substantial governmental investment in low-altitude economy development. Major financing transactions exceeding USD10 billion by Chinese lessors, coupled with a new legal framework explicitly supporting aircraft finance, have created distinctive competitive advantages for market participants in both aviation finance and the low-altitude economy. China’s aviation finance market in 2026 exhibits a pronounced duality: commercial aircraft finance leasing undergoes sophisticated refinement, while the low-altitude economy sector progressively establishes its legal architecture.
Aircraft finance leasing: navigating a mature legal landscape
The revised Civil Aviation Law of the People’s Republic of China is expected to be formally implemented in 2026, and represents a significant milestone in clarifying and codifying China’s aircraft finance legal framework. The draft revision provides explicit definitions for finance leasing, and refines registration procedures.
The rights registration provisions mandate registration with the Civil Aviation Administration of China (CAAC) for aircraft ownership, lease rights exceeding six months, and mortgages. This registration system constitutes the primary mechanism for publicising rights, whereby unregistered interests cannot be asserted against bona fide third parties. Such codification affords enhanced legal certainty to financiers relying upon aircraft as collateral.
Article 27 of the draft revision defines the financing lease of a civil aircraft as a transaction in which “the lessor purchases a civil aircraft at the lessee’s designated supplier and model, and leases it to the lessee, who pays lease rentals periodically”. Articles 28 through 33 further clarify the lessor’s ownership and the lessee’s possessory and usage rights under the lease.
This transition from practice to legislation carries profound significance. For decades, China’s aviation finance operations functioned under a composite framework comprising the former Civil Aviation Law, Contract Law and various Administrative Regulations. While effective, this patchwork legal system inevitably contained ambiguities. The new law elevates longstanding market practices and regulatory requirements to the status of primary national legislation. The core value lies in the codification itself, providing the market with a more robust and predictable legal foundation.
Cape Town Convention implementation in China: persistent challenges and judicial interpretation
Upon acceding to the Cape Town Convention, China made declarations reserving its position regarding available remedies. China declared that any remedy available under the Convention, where the Convention does not explicitly require court application, must obtain Chinese court authorisation before implementation.
This reservation fundamentally alters the Convention’s intended self-help remedy mechanism. Under the Convention’s default regime, creditors may exercise certain remedies without prior judicial authorisation. However, China’s declaration effectively eliminates this expedited enforcement pathway. Consequently, financiers can no longer rely upon standard Cape Town Convention analysis nor assume streamlined repossession procedures.
The Chinese implementation requires consideration of the declared reservations, which exclude self-help remedies provided under the Convention system and mandate court authorisation for all enforcement measures. This judicial gatekeeping requirement introduces additional procedural complexity and timeline uncertainty into creditor enforcement, necessitating careful documentation and proactive legal strategy in structuring aircraft finance transactions within China’s jurisdiction.
Finance structures and tax optimisation: Free Trade Zone advantages
Pilot Free Trade Zones (FTZs) provide key tax and regulatory conveniences for China’s aircraft leasing industry. The Tianjin Dongjiang Bonded Port Area is a longstanding industry hub commanding significant market share in China’s aircraft leasing sector, and is now facing robust competition from the Hainan Free Trade Port.
The competitive dynamics between these jurisdictions stem from differential tax treatment and operational flexibility. Pursuant to the Notice on the tax policy for goods entering and leaving the “first line” and “second line” of Hainan Free Trade Port and circulating on the island, in conjunction with the current Customs Import and Export Tariff of the People’s Republic of China, certain aircraft, engines and aviation materials whose tariff codes are excluded from the “Taxation Catalogue” may – in principle – enjoy “zero tariff” treatment. This preferential regime creates substantial cost advantages for lessors and operators utilising Hainan’s framework.
However, these benefits entail corresponding operational restrictions. Aircraft imported duty-free by airlines principally based in Hainan Free Trade Port may not be deployed for dry leasing arrangements, thereby limiting certain financing structures. Furthermore, operators must annually satisfy prescribed landing frequency standards for flights originating from or transiting through Hainan Free Trade Port. The utilisation patterns of aircraft both within and outside the island remain subject to mandatory information sharing and reporting requirements to customs and aviation authorities.
The regulatory landscape governing these incentives remains in flux. Whether these terms will remain applicable or be subject to new implementing rules after the customs closure operation warrants further observation
Low-altitude economy: progressive legal framework construction
The revised Civil Aviation Law is expected to be implemented by 2026 and will become China’s first primary law at the national level to formally recognise and promote the development of the low-altitude economy. The draft includes a new chapter on “Development Promotion” to foster general aviation and the low-altitude economy.
Electric vertical take-off and landing (eVTOL) aircraft constitute the core vehicle and critical driver of the low-altitude economy. This sector encompasses diverse application scenarios, including urban air mobility, cargo delivery, emergency response and tourism operations. Despite robust policy support and rapid technological advancement, related legal systems require substantial further refinement to support commercial deployment and financing.
The regulatory infrastructure for eVTOL operations remains nascent and fragmented. Existing registration systems primarily serve administrative tracking and safety oversight functions rather than establishing comprehensive creditor rights frameworks analogous to those governing traditional aircraft. Real-name registration requirements for unmanned eVTOL aircraft principally address ownership identification for operational accountability. However, current regulations governing unmanned eVTOL operations do not contain provisions addressing mortgages, security interests or other creditor protections essential for secured financing.
This legal lacuna creates significant challenges for financing eVTOL acquisitions and operations. Without precise registration mechanisms for security interests and defined creditor priority rules, financiers face heightened uncertainty regarding the perfection and enforcement of collateral. The absence of established legal precedents and standardised documentation further complicates transaction structuring. Consequently, unlocking the substantial financing potential of the low-altitude economy sector necessitates comprehensive regulatory development addressing registration systems, security interest perfection, creditor remedies and enforcement procedures specifically adapted to eVTOL operational characteristics.
Future outlook: 2026 and beyond
By 2026, China’s aviation finance legal landscape will likely draw a clear dividing line. The traditional commercial aircraft sector will operate under a clearer, more modern Civil Aviation Law, while the low-altitude economy, backed by strong policy support, will continue to address foundational legal gaps. Those gaps are critical levers for unlocking its financing potential.
As such, stakeholders in aircraft leasing, lessors, financiers and low-altitude economy operators alike should closely monitor the final form of the revised Civil Aviation Law, judicial practice interpreting China’s Cape Town reservations, and detailed implementing regulations in free trade zones.