FLYPRO Aerospace Tech Co Ltd, a Shenzhen-based drone maker, made its Consumer Electronics Show debut in Las Vegas this year from Jan 6 to 9, and immediately sparked chatter about the entire Chinese drone industry.

At the CES, FLYPRO launched its latest product XEagle, designed for sports enthusiasts, which can be controlled by voice and linked to a smartwatch. The product received positive reviews.

That’s saying something about FLYPRO because the annual CES attracts more than 3,600 exhibitors from over 150 countries and regions, who showcase their latest inventions and breakthrough technologies. So, to be able to stand out from the crowd is no mean achievement for a Chinese firm.

“The market for drones used in smart sports is huge and untapped,” said Lin Hai, chief executive officer of FLYPRO. “As people become health-conscious and seek physical activity that could also prove entertaining, smart sports like engaging with intelligent drones are expected to see huge opportunities.”

China’s growing prowess in making world-class unmanned aerial vehicles, which are commonly known as drones, was very much in evidence at the CES this year. Chinese companies’ booths were ubiquitous at the venue, and exhibition of innovative products like XEagle garnered widespread attention.

At the CES, Shenzhen-based DJI, the world’s largest maker of consumer-level drones with a 70 percent share of the market, launched Phantom 3－4K, a new drone in its Phantom 3 series. The model enables 4K－that is, ultra high-definition－video shooting.

Guangzhou-based Ehang also made a splash by unveiling the world’s first battery-powered, auto-pilot drone capable of carrying a passenger. After a two-hour charge, the vehicle can fly for 23 minutes with a passenger onboard to its destination, which can be pre-set by linking it to a mobile app.

Nearly 400 companies make drones for civilian purposes in China. The world over, civil drones are being sought to accomplish tasks like fast food delivery, couriers, land surveys, pesticide spraying on farms, traffic management and police surveillance, subject to regulatory approval and local laws.

A June 2015 report by big data analysis and ratings firm Analysys International shows the civil drone market in China is expected to grow 181 percent from 3.95 billion yuan ($600.4 million) this year to 11.09 billion yuan by 2018.

“The expected explosion of the civil drone market would be mainly due to demand for consumer-level drones,” said Jean Xiao, a research manager at market intelligence firm IDC.

Shipment of consumer-level drones rose considerably last year. “But in terms of market value, it is still the industrial drones that take the lead,” Xiao said.

While the expansion has brought huge amount of capital into the industry and attracted more people to join in, some players say the market may see a shakeout within the next two or three years, when a number of manufacturers may be weeded out.

Many drone makers in the country have already entered the stage of B-round financing, and funding has been tightening, Gui Xiaoyan, founder of drone maker Skye Intelligence, said.

“The drone industry has, in general, gone through the starting-up period. If those who entered the industry at an early stage aren’t able to develop advantages in their products, they may soon be weeded out,” Gui told the Securities Daily, adding only those with advantages in specific functional areas would survive in the long term.

Market analysts, however, are not that concerned. “The Chinese civil drone industry is still in its early stage of development. The number of civil drone makers is still very small. It is too early to talk about industry adjustment now,” Xiao said.

Wu Xiuqian, a researcher from the Qianzhan Industry Research Institute, agrees. “I don’t believe a period of adjustment will come in the short term.

“Big differentiation in consumption characteristics has not emerged yet. There will be huge market potential for both industry- and consumer-level drones.”

In this rapidly emerging high-tech industry, there are still a lot of grey areas, blank spaces and impediments that need to be addressed before it could achieve substantial development.

One of the bottlenecks lies in the lack of mass production capability in drone makers, Xiao said. “The supply chain of civil drone industry is currently immature. Factories are still making efforts to boost the rate of production of qualified products.”

Lack of a full-fledged regulatory system is also a concern, Wu said. There are currently no systematic regulations governing the civil drone industry in the country.

On Dec 30, 2015, the Civil Aviation Administration of China introduced a regulation for civil drones operating in the area of general aviation business. The regulation, which was open for public review till Jan. 8 and is expected to take effect on Feb. 1, rules that civil drones need to get operational approval before they can embark on general aviation business.

Some drone makers are not pleased, and argue the civil drone industry cannot be subjected to the same administrative procedures as enterprises in general aviation.

About 150 industry players, scholars and drone enthusiasts reportedly signed a letter of protest against the implementation of the new regulation.

Despite the controversy, Xiao views it from a positive side. “It shows that the government is making efforts to regulate the industry. Under the regulation, disqualified manufacturers or those with low capacity may be expelled from the market.”

As the industry becomes more regulated and mature, market players and analysts believe it is technology that will finally decide the fate of drone companies.

“Adjustment and knock-out are the natural laws in any industry,” said Lin Weidong, president of Shenzhen Art-Tech R/C Hobby Co Ltd. “Only those with core technologies and a precise positioning (of their products) can survive.”

Lin expects the percentage of drone companies with manufacturing and operational capability would decrease to 2 percent, or less, of the current number within five years.

“Only companies with a forward-looking business model and leading technology will stay in the market longer,” said Jason Low, a research analyst from market research firm Canalys.

Low and IDC’s Xiao also believe that a drone ecosystem should be built for long-term development of drone companies.

“Attracting developers to join and to build up a drone ecosystem is a way to differentiate. With help from partners and developers, drone makers are more likely to come up with verticals such as farming, land surveying, so on,” Low said.