Interview from the Center for Innovation, Trade, and Strategy
Developments in China's Commercial Space Sector
Since 2014, China’s space industry has increasingly allowed commercial participation. Policies promoting space exploration and innovation have led to a more active space sector—including Long March rocket launches, a greater number of satellites in orbit, and progress in building the Tiangong space station—and private companies have played a larger role in these activities. NBR’s Alura Winfrey spoke to Blaine Curcio about the development of China’s commercial space sector, the Military-Civil Fusion strategy, the impact of private funding, and the sector’s capacity for success.
What are the main features of China’s commercial space sector, and how big is it?
The first distinction is what is not commercial. The largest part of the space sector is referred to as the national team, which comprises the companies that are purely state owned. The Chinese Aerospace Science and Technology Corporation (CASC) and the China Aerospace Science and Industry Corporation (CASIC)––two large state-owned enterprises (SOEs) that have a lot of subsidiaries––fall under this national team. It was not until 2014 that we started to see the first companies that we could call commercial.
The definition of commercial is fuzzy, but it generally means that a company’s ownership is not entirely state-owned. Almost all the commercial companies have some degree of local government development funding or another kind of state involvement. In general, commercial companies are at least 30%, and in many cases 50%, privately funded.
How big the commercial space sector is depends on how much money it has raised in a given amount of time, since companies in the sector are not yet producing revenue. I author a quarterly China space industry report for Euroconsult, and in 2020 the amount of money raised from Chinese commercial space companies was around 9 billion renminbi ($1.3 billion). That number is up from $0 in 2014 and probably around 4 million renminbi in 2016/2017.
There are around 120–150 commercial space companies in China—depending on how broadly you define space and how broadly you define commercial space—with anywhere from tens to hundreds of employees. Despite the large number of employees and money raised, the commercial space sector is very small, relative to the national team, but it is growing fast.
As China’s space sector expands from being largely government-driven to including more room for private-sector involvement, what impact is this having on innovation and technology development in China? Are new sectors emerging because of the emphasis on space transformation?
Innovation in China’s space sector is largely dictated by the incumbents. There are cases where the government is being somewhat inefficient or otherwise not as good as some companies would be, so companies take the initiative without much government intervention. In China, that is quite difficult to do in the context of space because of the power that comes with the SOEs and their connection with the military, the party, and other interests. The scope for innovation is a bit more specific and a bit smaller. As a result, certain companies are trying to do subsystem-level operations. For example, there are 25 commercial launch companies in China. Most of them are focused on small and medium-sized rockets, while a handful are focusing only on rocket engines and trying to develop engines with new kinds of fuel. There is more small-scale technological innovation happening than large-scale.
In terms of what is driving innovation, the government has issued a handful of high-level policies that are not very specific. For example, in April last year, the National Development and Reform Commission (NDRC) issued a list of new digital infrastructure that it wanted to invest in and build out over the next ten years and beyond. This list included satellite internet, which seemed to have been a response to the rapid acceleration of Starlink (SpaceX’s satellite internet constellation) launching numerous satellites starting in late 2019. Including satellites on the NDRC signaled to provincial governments to start adding satellite internet industry bases to their development policies and to private companies that there is state support for this industry. These actions are leading to money being poured into the specific technologies that the government has marked as important.
In terms of emerging sectors, what has started is a broadening of the space industrial base. Previously, all system-level companies engaging in the sector were SOEs, and a lot of the sub-level companies would have been small subsidiaries of the same SOEs. One example is CASC. Within CASC, there is a subsidiary called the Shanghai Academy of Spaceflight Technology, which has 20,000 employees and around fifteen subsidiaries that build rockets, satellites, and fuel tanks for the rockets. But this narrow, primarily state-owned, supply base is changing and getting broader. I suspect we will see some of the further upstream suppliers—such as precision manufactures—that are currently serving the aerospace and automotive industries become more interested in the space sector.
China has been fairly isolated in its space ambitions, in contrast with the United States and NASA. What are the pros and cons of the lack of foreign investment, and how has this affected the development of China’s space program?
Following the passage of the Wolf Amendment in 2011, which prohibits NASA from cooperating with China, the country was forced to accelerate its domestic space work. Over the last five or ten years China has reached a level of sophistication where it now has plausible alternatives for a lot of the big space initiatives the United States has generally led, and that other countries have been involved with. One example is the International Space Station (ISS). In three to five years, we could be in a world where the ISS is decommissioned, and the Chinese space station—which has the potential to be expanded because of its modular design—continues to grow. This then would become a tool of soft power for China.
European countries cannot justify completing such big space projects themselves. So despite the U.S. government mandate to not do business with China, there is the potential for European allies to look to the country. This increased interest in its space program has given China plausible alternatives.
Some Western venture capital firms, such as Sequoia and Matrix, are invested in Chinese commercial space companies. Although a lot of the Chinese companies with which I have spoken acknowledge that there might be some advantage to getting a strategic investor, the consensus is that the approval process is not worth the trouble, especially given the large amount of Chinese capital ready to be invested into the space sector. There is really not a huge impact from the lack of Western financing in the Chinese sector.
In addition to key organizations like CASC, CASIC, and China’s NewSpace ecosystem, how is China further developing its capacity for success in innovation and exploration?
A big factor is provincial governments. An example is China’s LandSpace, one of the first big launch companies. Founded in 2015, it is almost ready to launch a rocket with two tons of payload capacity to low earth orbit. Initially, the company received 200 million renminbi ($30 million) of funding from the city of Huzhou, as well as a large piece of free land to build a rocket industrial base. In many such cases, a city has decided that it wants to bring in a rocket or satellite company and then offers to give land and money from its development fund to help the company pursue R&D.
The other major factor would be the Chinese Academy of Sciences, and academia more generally, which continues to be a big contributor to the space sector. An example of this contribution is Charming Globe Satellite Technology Limited, which developed out of the academy. Another example is Zhuhai Satellite, a satellite manufacturer that was developed out of the Harbin Institute of Technology. There are also instances where universities provide support to researchers working on satellites or other technology that are becoming commercially viable in China, allowing these researchers to go out and start companies. This strategy often results in the university becoming a shareholder in the company or having a similar relationship. The academic side provides an important support mechanism in terms of both financing and technology.
There is an inherent amount of inefficiency because of the large number of companies, subsidiaries, and places with no industrial base that would be particularly applicable to space. Yet these places continue to have an interest in building space tech bases. If there are ten cities trying to accomplish this, the city with more people but no supporting industrial base will probably end up spending a large amount of money without receiving anything back.
There has been discussion that China and Russia might partner to develop a lunar space station. How is this affecting China-Russia space cooperation as well as China’s commercial space sector?
The Russian and U.S. space industries are the two oldest. They have a lot of space programs, experts, and related intellectual property and have been integrated into the space ecosystem. The Chinese space sector has developed primarily independently from the U.S.-Russia system. There has been some collaboration between China and Europe since the Wolf Amendment, but the absence of any kind of commercial space companies until recently, combined with the sensitivity around the International Traffic in Arms Regulations (a U.S. export-control regime), has forced the Chinese space ecosystem to develop pretty much independently. Russia, though a nation in decline, still likes projects involving space to bolster national pride. As a result, there has been a broader trend over the last five to ten years of a gradual realignment of the Russian space sector toward China in terms of both the government and the industrial base.
More Russian companies are looking to China to buy products. Historically these companies have bought material from Europe, but they have recently turned more to China because of how weak the Russian ruble is, making imports more expensive. At the same time, Chinese companies are looking to Russia as an export market as well as to Russia and former Soviet states as investment opportunities. There is synergy, for example, between a Chinese rocket company that sees a relatively cheap Ukrainian rocket company with specific technology that it wants and a Ukrainian company that has all the technology, intellectual property, and “know-how,” but does not have that much money.
The international lunar research station is beneficial to the commercial space sector to the extent that the national team would be occupied with the space station. As the national team gets bigger and takes on more sophisticated projects, this may help free up the kind of lower-end work companies were doing before and create more room for commercial competition.
Moving forward, if there are massive lunar projects and a large Chinese space station, these developments are all things that will occupy a lot of top engineers and SOEs. There will be a need for a bigger commercial sector to contribute to emerging projects and complete the technological development of the more commercial, as opposed to institutional or national-level, projects in the space sector.
What is the relationship between China’s space industry development and its Military-Civil Fusion strategy, and how is this affecting the commercial space sector?
There are two main types of impact: the technological impact and the broader policy impact. As part of the Military-Civil Fusion strategy, the Chinese government wants to develop specific capabilities and emphasize specific technologies, which produce the technological impact. From that perspective, this strategy dictates what the commercial space sector does in terms of R&D, and the technological direction it takes. Zhuhai satellite is an example of this strategy. Since Zhuhai satellite was a spinoff from the Harbin Institute of Technology, which has a military link, there is a possibility that it is pursuing more space technologies that are related to Military-Civil Fusion.
The second type is the broader policy impact. Because the central government makes Military-Civil Fusion a significant policy objective, there will be industrial bases that are built to support related technologies. More money and resources will be available for a startup that will support China’s strategic and tech ambitions. Because of the money and resources that are available, the development of the space industry will change as companies adapt their activities to what the government is emphasizing and to what kind of support they can get from different stakeholders in order to survive.
China does not currently have a huge commercial space sector. The only real way that these companies can grow is either by selling products to the existing space sector—which is not particularly easy at this stage—or by raising money from existing shareholders and trying to guess where the market is moving.
Blaine Curcio is an Affiliate Senior Consultant for Euroconsult, based in Hong Kong. Since joining Euroconsult in 2018, he has contributed to a wide range of consulting missions and research reports, primarily covering the satcom sector globally and the broader space industry in China.
This interview was conducted by Alura Winfrey, an intern with the Center for Innovation, Trade, and Strategy at NBR.