TheChek News Flow

Ping An-backed China Fortune Land fails to repay $530m bond

A Chinese property developer backed by the country’s largest insurance group has defaulted on a $530m bond in the latest test for the country’s debt-laden real estate sector and the international investors backing it.

The failure of China Fortune Land Development to repay the bond, investors in which include BlackRock and HSBC, comes against a backdrop of mounting pressure from Beijing on China’s biggest developers to reduce their debts. It follows a spate of corporate defaults late last year that sent shockwaves through the country’s $15tn onshore bond market.

In a statement to the Singapore stock exchange on Friday, the industrial park developer said the repayment, which was due on Sunday, would be delayed. It said it “intends to honour its debt obligations but needs time to address its short-term liquidity issues”.

China Fortune Land is 25 per cent owned by Ping An, China’s biggest insurance company, and has debts of $4.6bn, according to data compiled by Bloomberg. In early February, it said it had missed payments of more than Rmb5.3bn ($820m) on onshore loans.

China Fortune Land’s $530m bond, which is now listed as defaulted on Bloomberg, was trading at deeply distressed levels of 52 cents on the dollar last week in Asia’s dollar-denominated high-yield bond market, where Chinese property developers are among the largest borrowers.

Fitch Ratings downgraded the company’s debt rating to CC from CCC in early February. It estimated China Fortune Land was owed around Rmb50bn in delayed payments from local governments for development of industrial parks. The property developer ranked 43rd by sales last year, according to Mingtiandi, an online real estate information service.

Those delays had compounded a difficulty in refinancing and an absence of support from Ping An, said Fitch analyst Chloe He. “The market price has dropped too much . . . they can’t refinance at the current yield,” she said.

Ping An, which said last month that it had total exposure of $8.4bn to the property developer, declined to comment on whether it was continuing to support China Fortune.

BlackRock and HSBC, which hold about $14m and $10m of the dollar-denominated bonds, respectively, declined to comment.

The Chinese government outlined a plan in August aimed at reducing leverage according to three metrics — the so-called three red lines. Analysts have suggested the guidelines are directly affecting primarily the 12 biggest developers.

“I think what happens is they [the government] want to test the policy with the 12 [largest] developers first and then they’ll decide . . . how can the policy be implemented consistently, with all the developers,” said He.

Prices of bonds and shares in China Evergrande, the world’s most indebted property company and China’s largest, swooned in September as it fought off fears of a crash crunch after a letter, which it denied, circulated that it had sought government aid.

Shares in China Fortune Land Development have fallen 34 per cent this year, but gained almost 20 per cent on Thursday and Friday as part of a broad sector rally on news of a new land sales programme in big cities.

• Government revenue expected to remain low in the next five years, with no prospect of spending cuts, Lou Jiwei says
• Lou accuses the US of transferring its debt burden to the rest of the world

China’s fiscal situation is “extremely severe with risks and challenges”, former finance minister Lou Jiwei has warned, citing fallout from aggressive US stimulus policies, the global economic slowdown during the pandemic, an ageing Chinese population and mounting domestic local government debt.

Lou offered his sharp critique in December but the assessment has only been made public more recently, with just days to go now before China’s political elites meet for their annual legislative session to decide the details of economic policy.

Among the big issues will be whether to scale back the fiscal stimulus implemented last year to combat the impact of the coronavirus pandemic, and instead focus on curbing rising debt risks. Beijing is expected to cut back fiscal stimulus even as Washington closes in on approval for an additional US$1.9 trillion in economic stimulus proposed by President Joe Biden.

Lou, who served as China’s finance minister from 2013 to 2016, warned that the country’s fiscal revenue was expected to be stuck at “a low level” in the coming five years, with no sign of the government cutting back its spending.

“The fiscal difficulties are not only a near-term or short-term issue, but also will be serious in the medium term,” said Lou, who is known for his outspoken views.

Lou’s remarks were contained in a speech delivered in December but only published in February by a magazine affiliated with the Ministry of Finance.

Lou charged that the United States was monetising its budget deficit to transfer its debt burden to the rest of the world, especially to developing countries like China.

To finance its large and growing budget deficit, the US government has had to issue increasingly large amounts of Treasury bonds. In addition, the Federal Reserve had bought large amounts of those bonds to inject liquidity into the market – so-called quantitative easing – with the additional cash rapidly pushing up the prices of stocks and other financial assets to levels far beyond those justified by economic fundamentals, Lou said.

Lou cited the International Monetary Fund projection that the aggregate government debt of advanced economies accounted for 123.9 per cent of their collective gross domestic product in 2020, breaking the previous historical high recorded at the end of World War II.

Lou’s comments were published as the US House of Representatives voted early on Saturday morning to approve the Biden administration’s US$1.9 trillion pandemic relief package, which includes direct aid to small business and US$1,400 cheques to middle-class Americans.

On Thursday, Federal Reserve chairman Jerome Powell reaffirmed that the central bank had no plans to tighten monetary policy until it had seen a sustained improvement in employment.

He expressed no concern at the prospect of rising inflation and rising asset prices.

But Lou warned that the US view was short-sighted.

“Once the pandemic has been brought under control and the [global] economy begins to recover, fiscal and monetary policies will make a turn that will impact on global financial stability and the economic growth of various countries,” Lou said.

“Emerging market countries are facing a double blow to both their economies and finances, with the economic risk transforming into fiscal and financial risks, raising the risk of a debt crisis.”

Lou’s warning comes as China’s National People’s Congress (NPC), the country’s legislature, and the Chinese People’s Political Consultative Conference (CPPCC), the country’s top political advisory body, prepare for the start of their annual gatherings this week.

The meetings, known as the “two sessions”, are the most important annual political gatherings in the world’s second-largest economy, during which Chinese leaders are expected to announce lower targets for the central government’s budget deficit and for the issuance of local government special purpose bonds this year.

Lou, who is director of the CPPCC’s foreign affairs committee, said there were further uncertainties and challenges to China’s fiscal health on the domestic side.

China conducted an expansionary fiscal policy for 11 consecutive years from 2009, resulting in a continuous rise in the fiscal deficit and an explosion in the size of the nation’s debt, he said.

China’s fiscal spending increased 2.8 per cent in 2020 from a year earlier, while its revenue fell 3.9 per cent, the first annual decline since 1976, according to data released by the Ministry of Finance in January. Lou estimated that 15 per cent of state spending last year was used to pay interest on debt, up from the 13 per cent in 2019.

And the debt sustainability of most provinces and cities would become even more worrisome in the 2021-2025 period as the size of local debt continues to rise, Lou warned.

“According to a rough calculation, about a quarter of the provinces will use more than half of their fiscal revenue to repay capital with interest,” he said.

He also argued that China’s ageing population was likely to produce serious challenges to the fiscal sustainability of the world’s most populous nation in the coming years.

“The arrival of the ageing society is speeding up, which will change the size and structure of fiscal spending in China, add to the financial burden of elderly care and put pressure on government finances,” Lou said.

At the end of 2019, more than 176 million Chinese were aged 65 or older, accounting for 12.6 per cent of the population, while the number of people aged 60 and above was about 177.6 million, making up 13.3 per cent of the total population, according to the National Bureau of Statistics.

“We are facing major changes unseen in a century,” Lou said.

“No matter the changes in the domestic economic and social situation, or the global economic downturn, soaring government debt and global trade frictions will all create huge uncertainties and severe challenges for China’s fiscal sustainability.”

The Fed’s creative accounting combined with profligate federal spending won’t end the pain for Americans.

Economists John Greenwood and Steve H. Hanke ably sound the alarm in “The Money Boom Is Already Here” (op-ed, Feb. 22). Too many have looked away as the Federal Reserve prints dollars by another name: quantitative easing. While the authors rightly describe the profound implications of the massive surge in M2 from the money that has already been spent, they neglected to mention the implications for the pending $1.9 trillion in Covid spending that President Biden and many at Treasury and the Fed have requested. Follow their logic and understand the profoundly bad implications of an additional $2 trillion on top of the $4 trillion in prior Covid-rationalized spending.

The Fed’s creative accounting combined with profligate federal spending won’t end the pain for Americans. It will grow the wealth gap, inflate asset prices, accelerate the growing gap between Wall Street and Main Street and imperil the U.S. dollar as the global reserve currency.

Rep. Warren Davidson (R., Ohio)

Troy, Ohio

Our economy has embarked on a self-destructive path to oblivion. We’ve nearly tripled national debt held by the public in 12 years and there is more to come. Future generations will have to repay that debt.

In his 1919 book, “The Economic Consequences of the Peace,” John Maynard Keynes notes: “Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

Lenin, the architect of Russian communism, warned us of this peril over a hundred years ago. Why didn’t we listen? Is it already too late?

Richard Stegemeier

Anaheim, Calif.

Messrs. Greenwood and Hanke worry the Fed’s “massive expansion of money and credit” creates “speculative manias.” They are half right. The money supply has indeed skyrocketed. But inflation hasn’t. All the new money in the world won’t drive up prices if it doesn’t circulate. Right now, it’s sitting in bank vaults. No worries there.

Credit is another story. Previous Fed chairs, such as Ben Bernanke and Janet Yellen, took a firm stance against credit allocation by the central bank. Chairman Jerome Powell embraced it. Now the precedent has been set: The Fed is open for business, provided you have enough political pull. Inflation isn’t our problem—credit allocation is. The more we hunt for the former, the easier it is to miss the latter.

Alexander William Salter

Texas Tech University

Lubbock, Texas

Commission president seeks to mirror US with health ‘authority’ to speed up reaction to medical crises

Europe must prepare its medical sector to cope with an “era of pandemics”, the European Commission president said, as she warned the bloc was still in its most difficult period for Covid-19 vaccine deliveries. 

Ursula von der Leyen told the Financial Times that the EU could not afford to sit still even once Covid-19 has been overcome, as she described her plans for a Europewide fast-reaction system designed to respond more quickly to emerging medical threats. 

“Europe is determined to enlarge its strength in vaccine production,” she said in a telephone interview. “It’s an era of pandemics we are entering. If you look at what has been happening over the past few years, I mean from HIV to Ebola to MERS to SARS, these were all epidemics which could be contained, but we should not think it is all over when we’ve overcome Covid-19. The risk is still there.” 

Von der Leyen last month unveiled plans for a biodefence preparedness plan called the HERA Incubator, which will combine researchers, biotech companies, manufacturers and public authorities to monitor emerging threats and work on adapting vaccines. This will become part of a Health Emergency Preparedness and Response Authority (HERA). 

The concept is an attempt to mirror some of the benefits conferred by America’s Biomedical Advanced Research and Development Authority, which is charged with the job of responding rapidly to new health threats.

“The US has a strong advantage by having BARDA . . . this is an infrastructure Europe did not have,” von der Leyen said. “But Europe has to build up to be prepared for whatever comes, and also for the next possible pandemics. This is the HERA incubator.” 

The EU remains within its “most difficult quarter without any question” for vaccine deliveries, she said, cautioning “many, many problems” could always occur within the production process.

Looking towards the second quarter, she pointed out that a second EU contract with BioNTech/Pfizer for their vaccine would kick in, alongside the new jab from Johnson & Johnson, which is expected to be authorised in March.

In an EU summit on Thursday, von der Leyen addressed vaccine production and the threat of virus mutations after a rocky start to the year, when she was hit by complaints from politicians in member states, including Germany, about supply shortfalls. 

Von der Leyen acknowledged to the European Parliament in early February that mistakes had been made in the EU’s vaccination effort, and the campaign remains behind those of the US and UK. Among the difficulties are continued production problems at AstraZeneca’s European facilities. 

Von der Leyen said she was sticking with the EU’s target for the delivery of 300m doses in the second quarter, saying the challenge will shift from vaccine production to national rollouts. As for AstraZeneca’s shipments, she said: “I need to see the proof of the pudding . . . It’s very good that they also delivered from the rest of the world, but they have to honour their contract and we want our fair share.”

The good news for the EU is its access to mRNA technology, which is used in the BioNTech/Pfizer vaccine and which scientists believe can be used to rapidly adapt to mutations, said von der Leyen. 

But she also supported French president Emmanuel Macron’s proposal to share up to 5 per cent of supplies to permit the vaccination of healthcare workers in developing countries.

“We all suffer from the fact that the scaling up was not and is not as rapid as we thought at the beginning. This has a general effect all over the world,” she said. “With production picking up I think we should never forget that only if everybody has access to vaccines will we overcome this virus.”

Von der Leyen added that the EU needed to be particularly concerned about developments in its immediate area. 

“The mutant story is worrying me the most,” she said. “When the virus is still raging in the neighbourhood, the probability that mutants will occur, that will come back, for example, to Europe, is only rising.”

NEW YORK TIMES

Saturday

• The House passed President Biden’s $1.9T stimulus plan in a nearly party-line vote with unanimous Republican opposition and two opposing Democrats, advancing a pandemic aid package that would provide direct payments to individuals and help schools and businesses.

• Crown Prince Mohammed bin Salman of Saudi Arabia approved the assassination of dissident journalist Jamal Khashoggi in 2018, according to an intelligence report from the Biden administration, which will take no direct action against the prince.

• Federal health officials warned state governors against relaxing pandemic control measures, saying that a recent steep drop in coronavirus cases and deaths in the US may be leveling off at a very high number, and that staving off a fourth surge is crucial.

• “Amid building anger over a sluggish European Union coronavirus vaccine rollout that has left them far behind several other wealthy countries, many EU states are looking beyond the bloc’s joint purchasing strategy, which now seems woefully underwhelming.”

• The global consensus among scientists is that emissions of planet-warming gases must be cut nearly in half by 2030 if the world is to have a good shot at averting the worst climate catastrophes.

• With New York governor Andrew Cuomo under fire on several fronts, political figures are beginning to discuss what it would take to mount a viable challenge against him next year, and who might be best positioned to run against him.

• A Gallup survey found that more adult Americans are identifying as LGBT, a shift pollsters see as driven in part by people in younger generations who are more likely to consider themselves to be something other than heterosexual.

• A report from Otis College of Art and Design found that from February 2020 through December 2020, job loss in California’s “creative economy workforce” reached about 13 percent statewide and 24 percent in Los Angeles country.

• An online database of speech crimes in China links directly to publicly issued verdicts, police notices, and official news reports over the past eight years, and lists nearly 2,000 cases when the government punished people for what they said online and offline.

• The University of Southern California’s Annenberg Inclusion Initiative, which NFLX commissioned to look at its US-based scripted original films and series, showed an improvement in diversity in its films and series in 2018 in 2019.

Sunday

• Led by loyalists who embrace Donald Trump’s claims of a stolen election, Republicans in state legislatures are going to extraordinary lengths to change the rules of voting and representation to gain political advantage.

• The Biden administration and a Democratic Congress hope to alter and expand the Affordable Care Act by changing regulations and spending billions to make the law simpler, more generous, and closer to what its architects originally sought.

• With the US coronavirus vaccine supply set to expand, states and cities are rushing to open mass vaccination sites to give thousands of shots a day, an approach the Biden administration believes is necessary to reach herd immunity.

• The Palestinian Authority on Saturday announced a new set of lockdown restrictions in the West Bank as coronavirus infections surge and Palestinians await the rollout of a significant vaccination program.

• Myanmar’s military regime fired the country’s UN ambassador after he gave a speech to the General Assembly in New York, pleading for international help in restoring democracy to his homeland.

• Amid an ongoing debate among lawmakers, civil liberties advocates, and police chiefs about the use of facial recognition, Massachusetts became one of the first states to create laws for the use of the technology in criminal investigations.

WALL STREET JOURNAL

Weekend

• Household income—the amount Americans received from wages, investments, and government programs—rose 10 percent in January from the previous month, the second largest increase on record, eclipsed only by last April’s gain, when the pandemic-relief payments were sent.

• The Biden administration plans to allow a sweeping Trump-era rule aimed at combating Chinese technology threats to take effect next month, over objections from US businesses, which say the rule could stifle innovation and competitiveness.

• Federal officials are rushing emergency relief to Texas for its power crisis, though longer-term efforts to shore up its electric grid are likely to run into political obstacles and challenges to Washington’s authority.

• Senate Democrats are developing a Plan B for raising the minimum wage at some large companies as part of their coronavirus relief package, after the chamber’s parliamentarian ruled out including it in the stimulus deal.

• The US dropped a Trump administration demand in global corporate-tax negotiations opposed by European nations seeking higher taxes on tech giants, removing one obstacle to an agreement on adapting the tax system to the digital economy.

• Hospitals say cyberattacks are complicating their operations and hurting profits, adding to pressure on a $1.2T sector that is under heavy strain from the coronavirus pandemic.

• The White House announced that nearly half the US population aged 65 and older has received the first coronavirus vaccine dose, and that the Biden administration will ask US companies to offer vaccination incentives to employees.

• WHO investigators are looking for information about a second food market in the Chinese city of Wuhan after the first officially confirmed Covid-19 case, dubbed patient zero, told them his parents had shopped there.

• “As vaccine rollouts gain momentum, governments world-wide are looking at ways for people to prove they are inoculated against the coronavirus, raising logistical and ethical concerns about whether others will be excluded from daily life.”

• + UPS: New chief Carol Tomé, formerly finance head at HD, “is remaking the company in her number-crunching image, in part by adopting the philosophy that delivering less can be more”—and by leveraging the crisis to rapidly change the business model.

• As dozens of electric vehicles come to market, customers who bought anything but a TSLA are discovering that America’s charging infrastructure isn’t ready for prime time, though experts say fast-charging is essential to expanding adoption of EVs.

• H.O.T.S.: Investors have pared back bearish bets after the GME frenzy, showing its lasting effects on funds that make money by shorting; Electricity grids should be more reliable, but agreeing on what price to pay for safety is difficult; “Savings rates have spiked and many American households are sitting on large cash balances”; As the pandemic eases, ABNB may prove a safe bet for investors.

FINANCIAL TIMES

Weekend

• Treasury secretary Janet Yellen told G20 finance ministers that Washington will drop the contentious “safe harbor” part of its global digital tax reform proposal, allowing multilateral negotiations which had stalled under the Trump administration to continue.

• The European Union must consider far-reaching legislative changes to its public borrowing rules in the wake of the pandemic, according to the bloc’s economic commissioner, and adopt radical fiscal reform.

• India’s economy emerged from recession during the final quarter of 2020, growing by 0.4 percent year on year amid a drop in Covid infections that allowed businesses to reopen and consumers to begin spending.

• The UN rebuked 75 nations over climate failures in a report that says they are responsible for a third or global emissions, falling far short of what is needed to meet the goals of the Paris accord on global warming.

• Big Read piece says “The sell-off this week in government bonds reflects concerns that aggressive monetary and fiscal policy will reignite inflationary pressures—which could hamper the economic recovery and unsettle markets.”

• Lex Column: “The ship looks set to sail on Britain’s aversion to dual-class shares” and their weighted voting rights, which critics see as poor corporate governance; “The worst recession in 300 years was little more than a bump in the road for online property portal Rightmove”; Pent-up demand for travel is likely to unleash a bookings bonanza at ABNB.

• Comment: Vaccine passports pose a range of technical and ethical problems, says Melinda Mills—and governments should make them mandatory only economic grounds or to protect the public health.

NEW YORK POST

Saturday

• Billionaire hedge fund manager Bill Ackman of Pershing Square Tontine Holdings said he plans to start announcing market-moving news on TWTR, much as TSLA chief Elon Musk does.

• An analysis by cybersecurity firm PiiQ Media found that bots on major social media platforms have been hyping GME and other so-called meme stocks, suggesting an organized effort to move the shares. Sunday

• White House press secretary Jen Psaki said President Biden backs an “independent review” of sexual harassment claims against New York governor Andrew Cuomo after allegations from two female former staffers.

• Two stillborn babies in Israel from mothers infected with Covid-19 have tested positive for the coronavirus, with at least one of the deaths blamed on the contagion, according to medical officials.

The designer tasked with reenergising the Italian leather house said lockdown had a liberating effect on him. Can he take it further?

Like many people, Walter Chiapponi spent most of the last year at home, alone except for his two weimaraners. He said he’s been getting to know himself better, cooking a lot, moving the art around on his walls. His collection includes work by Wolfgang Tillmans, Corinne Day, Larry Clark and, his favourite, Nan Goldin. “Real life, not much glamour,” he explained. “I love people as they are.”

Maybe an appetite for Goldin grit isn’t quite what you’d expect from a man whose professional life is consumed by the creative directorship of leather goods house Tod’s, quintessence of discreet Italian taste and style. But Chiapponi, tasked with freshening the brand’s image after five years of declining sales, claimed lockdown had a liberating effect on him. His fashion culture may be haut bourgeois, but he finds that boring. Now he’s looking to insinuate his private passions into his work.

Baby steps, though. Find the film Chiapponi made to go with his men’s collection and you’ll see young Italian heartthrob Lorenzo Zurzolo of Netflix’s Baby hanging around in a gorgeous villa in the countryside north of Milan. To these eyes, he was dressed like a well-heeled country gent, but Chiapponi wanted to conjure up John Kennedy Jr, one of his male style icons. “Big leather jacket, velvet trousers, cashmere sweater, classic pieces worn in an eccentric, slightly ’90s, grunge-y way.” If you say so, Walter. One clue was apparently the absence of shirt. Chiapponi acknowledged the extreme subtlety of the “subversion.” “It’s hard to make a revolution in menswear at Tod’s because it’s such a part of the DNA. All you can do is play with codes.”

He said womenswear was always easier for him. I like to think the time Chiapponi spent working with Tomas Maier at Bottega Veneta would have been an education in the way bourgeois dress can be twisted to sublime effect. The hyper-sophistication of the BV woman was often unhinged by a slightly screwy streak, and there has been a certain “nonchalance and wildness”, as Chiapponi calls it, in Tod’s womenswear since he showed his first collection for the brand last March: the proportions, nipped or voluminous, the colours, sober or exuberant, the interplay of perfectly polished and wilfully undone.

He insisted he’d really expanded on those distinctions in the collection he launched on Friday. If it wasn’t immediately obvious, credit consummate Italian craftsmanship, which elevates eccentricity to a point where it looks anything but. Chiapponi said he’d borrowed exaggerated effects from 1950s haute couture: the leather jacket padded so it looked like a classic robe manteau, the oversize coat with the ruffled collar… and those distinctive proportions. In context, the ladylike pussy-bowed blouses did look quite twisted, bourgeois gone bad like Belle de Jour, especially when paired with a black leather skirt.

Chiapponi actually mentioned the Catherine Deneuve classic in passing. He loves movies and has relished the opportunity the pandemic has provided to create a filmic alternative to a physical fashion show. His latest was lensed in gallerist Massimo di Carlo’s new Milan space, originally designed in the 1930s by Piero Portaluppi, the architect responsible for the Villa Necchi, where Tod’s has presented its collections in the past. (Film buffs will know it as the backdrop for Luca Guadagnino’s I Am Love.)

Chiapponi liked his models moving at cross-purposes through di Carlo’s labyrinthine space, some in slim-line skirts and kitten heels, others in slim-line cords and creeper-soled loafers. It was slightly schizy, never more so than in a look that matched chunky houndstooth jacket and culottes with an oversized trapper hat and big, bovver-y boots. How this would have played out in a sequenced show, where a degree of cohesion might be expected, was hard to see. But Chiapponi said he enjoys the storytelling of film. “It’s easier to play like a costume designer on video than a fashion designer. I’m living in that moment of individuality and diversity.”

Watching the film, it was also easier to imagine the women he admires in his clothes: archetypes like Monica Vitti and Penelope Cruz, newer stars like Amy Adams and Emma Stone. That Chiapponi has been attracting that kind of attention to Tod’s surprises him. His modesty is winning. But now that lockdown has flipped his switch, I’d love to see him take it further. “I’m following my emotions more, I’m less analytical,” he claimed. “I’m not telling myself, ‘No, you can’t do that at Tod’s.’”

Placement of DJI on trade blacklist has opened new opportunities for US manufacturers

California-based Skydio has become the first US drone maker to be valued at more than $1bn in a fundraising that signals broader confidence for America’s second act in the drone wars with China.

The new valuation comes from a $171m investment led by Andreessen Horowitz’s growth fund, doubling all fundraising since its founding in 2014. Others in the round included existing investors Linse Capital, Next47, and IVP, plus a new investor in UP. Partners.

This is the first significant fundraising since Washington placed China’s DJI, the world leader in drones, on the Entity List prohibiting US companies from supplying it with components. That move is widely expected to propel growth in America’s drone sector as the products evolve from flying cameras designed for consumers to more sophisticated tools for enterprise and government.

Skydio had been consumer-oriented in its early days, making drones for hobbyists who might want an aerial shot of themselves cycling down a mountain. To avoid trees while maintaining high resolution, it developed obstacle avoidance software that later became critical in its shift towards commercial applications — now the industry’s fastest growing segment.

 “It turns out that developing all the software and hardware to do that has set them up to be best in class at competing in the enterprise markets,” said David Ulevitch, general partner at Andreessen Horowitz.

Until recently, China’s DJI beat its competitors on performance and price. Its estimated market share in the consumer market is north of 70 per cent, an overwhelming dominance that caused the likes of GoPro and 3D Robotics to exit the consumer market years ago.

But as drones are increasingly using software to create real time 3D models of infrastructure like bridges, then uploading them to the cloud for analysis, US companies led by Skydio, American Robotics, Teal and Draganfly believe they will have a second shot in the booming market.

“The potential for drones has really caught people’s imaginations in the consumer world, capturing amazing video — and in the industrial world for inspection, mapping, and monitoring,” said Adam Bry, Skydio’s chief executive officer.

“But the paradigm is still this manually flown world,” he added. “The real shift that’s happening in the market is this transition to fully autonomous operations, where the drone lives in a dock, it’s connected to the internet and it flies itself on demand wherever it’s needed.”

Skydio’s flagship product, the X2, is equipped with seven cameras, 100x zoom, night vision, and promises to turn ordinary users into expert pilots thanks to its self-piloting abilities.

They are “easy to fly and pretty much impossible to crash,” said Benjamin Spain, who runs the North Carolina Department of Transportation’s drone programme, which has 11 Skydio aircraft.

According to September projections from Valuates Reports, a market researcher, the global industry for commercial drones is expected to grow by a third each year from $6.5bn last year to $35bn in 2026.

The commercial sector had become the most lucrative market for drones even before Covid-19, but the pandemic accelerated that growth by underscoring the need for touchless technology.

Big as the opportunity is, DJI cannot be counted out as a competitor. Although the group may find it challenging to build the best drones without thermal cameras or chipsets from US companies, they remain on sale at Best Buy and the Apple Store, and anecdotal data suggests they continue to thrive.

In a survey of more than 2,000 business users by DroneDeploy, a leading software group, 78 per cent said they will continue to use DJI. Skydio was a distant second, at 7 per cent, said DroneDeploy CEO Mike Winn.

DJI’s share “is less than it was before, so it’s definitely enabling American businesses, and that’s really exciting for the industry,” he said. “But it’s not having the impact that some people imagined.”