Regional airlines in China, long undersubsidized by the Chinese government, may be for a change in fortunes, according to Embraer, which notes a trend toward wider use of smaller aircraft by carriers set up by state and city governments wanting to promote local economies.

While powerful factors remain stacked against regional commercial aviation, the new airlines frequently are flying thin routes that are unprofitable with standard narrowbodies of around 150 seats, notes Guan Dongyuan, president of the Embraer’s local operation. Even if the routes cannot make money with regional jets, at least the trip cost will be lower and the losses smaller, he says.

The same factors augur well for local demand for Bombardier;s CRJ, CSeries and Dash 8 programs, as well as ATR 72 turboprops. The Brazilian and Canadian aircraft may face competition from China’s Comac ARJ21 regional jet and MA60 turboprop, but not the Mitsubishi Aircraft MRJ.

Since 2009, Chinese provinces and large cities have successively subsidized major airlines and national aeronautics group Avic to set up local subsidiaries. The first result of this trend was Tianjin Airlines, which operates 50 Embraer 190s. Since then, more such carriers have been cropping up all over the country, although not always with regional aircraft.

Hebei Airlines, created with backing from the Hebei provincial government, has four E-190LRs in service and three or order, part of a fleet that also includes Boeing 737s, according to the Aviation Week Intelligence Network fleets database. Henan Airlines, backed by the Henan provincial government, operated E-190s before it was grounded after a crash in 2010.

The long-established branch company that China Southern Airlines operates in the sparsely populated Xinjiang region is leasing 20 E-190s that CDB Leasing Co. bought on its behalf. In that case, local government backing is not clear.

When local governments demand and subsidize the operation of uneconomical routes, they overcome several strong obstructions to the growth of Chinese regional commercial aviation. The most obvious is that the high operating cost per seat of small commercial aircraft does not suit China’s level of economic development: passengers with modest incomes will prefer cheaper indirect flights or slow buses or trains.

Guan thinks a much more powerful factor is the national shortage of pilots and technicians. Given a choice, major airlines will employ their scarce skilled personnel in running large aircraft on heavily trafficked routes, often with just one or two flights each way. “In 2011, there were 1,300 air routes in China; 70% had fewer than 300 passengers a day each way,” says Guan.

In other countries, such poorly served routes would offer opportunities for other carriers to move in with high-frequency regional jet services, but in China the routes are regulated by the Civil Aviation Administration of China, which restricts competition.

A further factor militating against widespread use of regional airliners is that the industry is training people mainly for larger aircraft. Yet another is a strong preference among many Chinese people, including pilots and technicians, to live in big cities.

In working their way into the Chinese market, Embraer and Bombardier may encounter some competition from the Comac ARJ21. Comac and supplier Avic will lobby the central government to force airlines to use the type. Yet their performance on that program has been so poor that whatever competitiveness the aircraft had is rapidly fading. Development was launched 11 years ago, but entry into service, repeatedly delayed, is not due until mid-2014.

One competitor that Bombardier and Embraer are unlikely to have to worry about in the Chinese market is Mitsubishi Aircraft, whose MRJ is quite unacceptable to Chinese airlines and their customers—not only because of a current territorial dispute, but also because of long-standing Chinese antipathy toward Japan. But Avic is a competitor in the market, especially since it has shown that it is willing to capitalize airlines that buy its MA60 turboprop.