China Making Aggressive Moves to Dominate Commercial Space Sector

China satellite launch

Continuing our look at the U.S.-China Economic and Security Review Commission’s 2019 Report to Congress, we examine China’s growing commercial space industry. [Full Report]

by Douglas Messier
Managing Editor

China is using aggressive state-backed financing to capture increasing shares of the commercial launch and satellite markets, making it more difficult for American companies to compete and threatening to hollow out the U.S. industrial base.

China is also leverage “military-civil” fusion to create a burgeoning commercial space sector by providing substantial state support. Nearly 90 new space companies have been created since 2014, most of which enjoy the support of the Chinese military, defense industrial base, or state-owned research and development institutions.

Those are the conclusions of the U.S.-China Economic and Security Review Commission’s 2019 Report to Congress. The document’s section about China’s military-run space program paints the picture of a nation determined to seize a commanding position in all aspects of space exploration and exploitation.

“Beijing aims to establish a leading position in the future space-based economy and capture important sectors of the global commercial space industry through the use of subsidies to undercut foreign competitors, including promoting its space industry through partnerships under what it has termed the ‘Space Silk Road,'” the report said. “Some of these initiatives are already challenging the U.S. space industry and U.S. leadership on international space cooperation. “

The launch vehicles depicted are representative of China’s launch capabilities. Additional light-, medium-, and heavy-lift vehicles are in development. China uses its light-lift vehicles to place small payloads into LEO and its medium lift to  place larger satellites in MEO and smaller satellites in GEO. The LM-5 heavy-lift SLV supports launching crewed space station components to LEO and heavy payloads to GEO. The developmental LM-9 primarily will support missions to the Moon and Mars. (Visualization: DIA, D3 Design)

The state-owned China Great Wall Industry Corporation (CGWIC) is leading the nation’s effort to dominate the international launch and satellite markets.

“CGWIC offers as much as 70 percent financing for satellite construction to international clients, with funds available immediately upon signing instead of the usual delay of six months to a year. In some cases it has also provided ground control systems, training, and insurance,” the report stated.

“CGWIC has branched out from launching mainly Chinese-made satellites for foreign customers to more recently contracting with foreign entities to provide launch services for their own products,” the document added. “In most cases, China Export-Import (EXIM) Bank has provided funding.”

Figure 2: New Chinese Space Companies Founded per Year
Country
Satellite
Builder
Launch
Bus
Cost
Funding
Nigeria
NigComSat-1
CGWIC
May 2007
DFH-4
$300 million
China EXIM Bank
Venezuela
VeneSat-1 Simon Bolivar
CGWIC
Oct. 2008
DFH-4
$241 million
China
Pakistan
PakSat-1R
CGWIC
Aug. 2011
DFH-4
$222 million
China EXIM Bank
Nigeria
NigCom-Sat-1R
CGWIC
Dec. 2011
DFH-4
$300 million
Algerian Space Agency
Venezuela
VRSS-1
CAST
Sept. 2012
CAST-2000
Unknown
Unknown
Sri Lanka
Supreme Sat-1/China-Sat 12
Thales Alenia Space
Nov. 2012
SB4000
$100 million (leased transponders)
Unknown
Bolivia
Túpac Katari-1
CGWIC
Dec. 2013
DFH-4
$302 million
85% financed by China Development Bank
Laos
Laosat-1
CGWIC
Nov. 2015
DFH-4
$259 million
China EXIM Bank
Belarus
Belintersat-1
CGWIC
Jan. 2016
DFH-4 bus with Thales transponders
$280.9 million
China EXIM Bank
Venezuela
VRSS-2
CAST
Oct. 2017
CAST-2000
Unknown
Unknown
Algeria
Alcomsat-1
CAST
Dec. 2017
DFH-4
$250–300 million
Algerian Space Agency
Pakistan
PRSS-1
DFH Satellite Co. Ltd.
Jul. 2018
CAST-2000
$200 million
70% financed by loan from China
Pakistan
PakTES-1A
Pakistan Space and Upper Atmosphere Research Commission (SUPARCO)
Jul. 2018
Unknown
Unknown
Unknown
France
CFOSAT
CAST and French National Centre for Space Studies
Oct. 2018
CAST-2000
Unknown
Unknown
Saudi Arabia
SaudiSat 5A & SaudiSat 5B
King Abdulaziz City for Science and Technology
Dec. 2018
Unknown
Unknown
Unknown
Thailand
High throughput satellite
CGWIC
Late 2019 (est.)
DFH-4
$208 million
Unknown
Argentina
90 microsats (multiple launch agreement)
Satellogic
Late 2019 (est. first launch, then quarterly)
Unknown
Unknown
Unknown
Indonesia
Palapa-N1/Nusantara Satu-2
CGWIC
2020 (est.)
DFH-4
$220 million
Unknown
Nigeria
NigCom-Sat-2, NigcomSat-3
CGWIC
2021 (est.)
Unknown
$700 million
China EXIM Bank
Indonesia
PSN-7(nonbinding agreement)
CGWIC
2022 (est.)
DFH-4
Unknown
Unknown

China’s export financing system provided $39 billion in official export credits in 2018, making it larger than the next three nations’ official export credit agencies combined, the report said.

The effort, which has been focused on developing nations, has allowed China to make inroads in the satellite market. Maxar Technologies Vice President Mike Gold said his company didn’t even bid on an Indonesian government contract for a high-throughput satellite because it couldn’t compete with CGWIC’s attractive financing.

“This tactic is indicative of what Mr. Gold called China’s broader strategy ‘to capture a majority share of the global communications satellite and launch market,'” the report said.

The document questions whether China is making a profit with such generous terms. However, profits might be less important than gaining market share, driving out foreign competition, and forging links with other countries.

China also seeks to control the supply chain. It already dominates germanium mining, which forms the basis of specialized solar panels used in satellites.

“China now accounts for over 70 percent of global germanium mining, refining, and production, meaning that production of these critical panels is effectively impossible without China’s raw materials,” the document said.

A Growing Commercial Sector

China’s quasi-private space sector has taken off during the past five years since restrictions on private companies were lifted in 2014.

“As of June 2019, according to analyst Jean Deville, the burgeoning Chinese space sector (not counting large state-owned space industry contractors) comprised 87 private space startups, state-sponsored space startups, and large private corporations that had diversified into space in some way, with two thirds founded since 2015,” the report stated.

“Of these companies, roughly one third appear to have private investors, another third are identifiable as having received state funding, and the ownership and financing of the remaining companies is unclear and requires further investigation,” the document added.

A 2019 joint report by the Air Force Research Laboratory and Defense Innovation Unit said China has built up its domestic space industry using “intellectual property theft, direct integration of state-owned entities and their technology with commercial startups, using front companies to invest in U.S. space companies, gaining vertical control of supply chains, and predatory pricing.”

The State Administration for Science, Technology and Industry for National Defense (SASTIND) has played a crucial role in fostering the military-civil fusion by funding new companies and establishing regulations for the commercial industry.

“Under military-civil fusion, so-called ‘guidance funds’ pool state-owned and private capital together for investments, allowing the state to steer ostensibly private capital toward investments in nascent dual-use sectors it deems strategically important—a tool China has consistently applied to the development of its space sector,” the report said.

“In July 2019, Beijing- based iSpace, a new firm that received early-stage funding from SASTIND, achieved the first orbital satellite launch by a Chinese startup, marking a major success of China’s military-civil fusion space drive,” the document added.

Large state-owned contractors have commercialized their operations. The China Aerospace Science and Industry Corporation (CASIC) has created an subsidiary, ExPace, to market and launch the company’s Kuaizhou small satellite boosters.

ExPace “plans to price satellite payloads at less than half market rates, and some Chinese companies have offered free launches, providing these companies a significant advantage over foreign competitors,” the report said.

An excerpt from the report follows.

China Making Inroads to Command
the Global Commercial Space Sector

China is determined to grow its market share in commercial launch and satellite sectors relying in part on aggressive state-backed financing that foreign firms cannot match, seeking in some cases to displace U.S. and other foreign launch and satellite providers.

China seeks to expand its market share in part by catering to developing countries and by building strong relationships both with its traditional partners and with established satellite operators such as U.S.-based Global Eagle or France-based Eutelsat.

At the heart of this program is the PLA contractor China Great Wall Industry Corporation (CGWIC), China’s sole provider of commercial satellite and launch services for international clients. CGWIC offers as much as 70 percent financing for satellite construction to international clients, with funds available immediately upon signing instead of the usual delay of six months to a year. In some cases it has also provided ground control systems, training, and insurance.

CGWIC provided China’s first full in-orbit satellite delivery for a foreign client—comprising financing, construction, launch, testing, ground stations, and personnel training—in its NigComSat-1 deal with Nigeria in 2007.

Due to the generous financing terms China provides, it is unclear whether China can generate a profit at all from these arrangements, indicating profit may not be a driver in these deals.

Mike Gold, a senior U.S. commercial space industry executive, testified to the Commission that due to the aggressive financing offered by CGWIC, the company he represents did not even bother to bid in 2016 for an Indonesian government contract for a high-throughput satellite because it simply could not compete. This tactic is indicative of what Mr. Gold called China’s broader strategy “to capture a majority share of the global communications satellite and launch market.”

Even if Chinese satellites are not as high-quality as those made by the United States, they are in some cases more readily available and their quality is adequate, making them more attractive options, especially at a time when the telecommunications satellite industry is moving to smaller, less expensive constellations in LEO.* Beijing is capitalizing on current market conditions to grow its market share, according to Mr. Gold, threatening to hollow out the U.S. space industrial base.

China’s aggressive and well-coordinated export finance practices are forcing other countries’ export credit agencies to defensively change their policies and practices simply to maintain their access to large global markets, let alone expand their share.

According to a June 2019 report from the U.S. Export-Import Bank, China’s export financing system, which comprised $39 billion in total official export credits in 2018, was larger than the next three countries’ official export credit agencies combined. It has led foreign buyers for large projects to view the availability of government-backed financing as a “core component” of their evaluation of bids.

For example, ExPace, a subsidiary of one of China’s main space contractors, plans to price satellite payloads at less than half market rates, and some Chinese companies have offered free launches, providing these companies a significant advantage over foreign competitors (see table below for a list of recent Chinese satellite launches for foreign customers and the financing source for these deals).

Figure 2: New Chinese Space Companies Founded per Year
Country
Satellite
Builder
Launch
Bus
Cost
Funding
Nigeria
NigComSat-1
CGWIC
May 2007
DFH-4
$300 million
China EXIM Bank
Venezuela
VeneSat-1 Simon Bolivar
CGWIC
Oct. 2008
DFH-4
$241 million
China
Pakistan
PakSat-1R
CGWIC
Aug. 2011
DFH-4
$222 million
China EXIM Bank
Nigeria
NigCom-Sat-1R
CGWIC
Dec. 2011
DFH-4
$300 million
Algerian Space Agency
Venezuela
VRSS-1
CAST
Sept. 2012
CAST-2000
Unknown
Unknown
Sri Lanka
Supreme Sat-1/China-Sat 12
Thales Alenia Space
Nov. 2012
SB4000
$100 million (leased transponders)
Unknown
Bolivia
Túpac Katari-1
CGWIC
Dec. 2013
DFH-4
$302 million
85% financed by China Development Bank
Laos
Laosat-1
CGWIC
Nov. 2015
DFH-4
$259 million
China EXIM Bank
Belarus
Belintersat-1
CGWIC
Jan. 2016
DFH-4 bus with Thales transponders
$280.9 million
China EXIM Bank
Venezuela
VRSS-2
CAST
Oct. 2017
CAST-2000
Unknown
Unknown
Algeria
Alcomsat-1
CAST
Dec. 2017
DFH-4
$250–300 million
Algerian Space Agency
Pakistan
PRSS-1
DFH Satellite Co. Ltd.
Jul. 2018
CAST-2000
$200 million
70% financed by loan from China
Pakistan
PakTES-1A
Pakistan Space and Upper Atmosphere Research Commission (SUPARCO)
Jul. 2018
Unknown
Unknown
Unknown
France
CFOSAT
CAST and French National Centre for Space Studies
Oct. 2018
CAST-2000
Unknown
Unknown
Saudi Arabia
SaudiSat 5A & SaudiSat 5B
King Abdulaziz City for Science and Technology
Dec. 2018
Unknown
Unknown
Unknown
Thailand
High throughput satellite
CGWIC
Late 2019 (est.)
DFH-4
$208 million
Unknown
Argentina
90 microsats (multiple launch agreement)
Satellogic
Late 2019 (est. first launch, then quarterly)
Unknown
Unknown
Unknown
Indonesia
Palapa-N1/Nusantara Satu-2
CGWIC
2020 (est.)
DFH-4
$220 million
Unknown
Nigeria
NigCom-Sat-2, NigcomSat-3
CGWIC
2021 (est.)
Unknown
$700 million
China EXIM Bank
Indonesia
PSN-7(nonbinding agreement)
CGWIC
2022 (est.)
DFH-4
Unknown
Unknown

According to Mr. Gold, this change in market share, and the resulting decreases in orders for U.S.-made satellites, risks causing the long-term loss of U.S. secondary and tertiary space component suppliers and associated critical workforce skills.

CGWIC has branched out from launching mainly Chinese-made satellites for foreign customers to more recently contracting with foreign entities to provide launch services for their own products. In most cases, China Export-Import (EXIM) Bank has provided funding.

Jumpstarting the Space Industry with Military-Civil Fusion

As China seeks to increase its share in the international commercial space market, it has aggressively sought to leverage military-civil fusion to commercialize its existing space technology in part by granting new space companies access to some formerly restricted intellectual property.

Lorand Laskai, visiting researcher at the Georgetown Center for Security and Emerging Technology, testified to the Commission that China’s emerging private space sector has been “a notable priority and early success” in General Secretary Xi’s military-civil fusion campaign (for more on military-civil fusion, see Chapter 3, Section 2, “Emerging Technologies and Military-Civil Fusion: Artificial Intelligence, New Materials, and New Energy”).

China’s strategy to build up its domestic space industry, according to the May 2019 joint report by the Air Force Research Laboratory and Defense Innovation Unit, includes intellectual property theft, direct integration of state-owned entities and their technology with commercial startups, using front companies to invest in U.S. space companies, gaining vertical control of supply chains, and predatory pricing.

For example, according to the report, germanium wafer production, solar cell production, and commercial launch services are especially sensitive markets China seeks to dominate. Refined germanium wafers are the basis for nearly all specialized satellite solar panels, and as a result of aggressive stockpiling of and export taxes on germanium, China now accounts for over 70 percent of global germanium mining, refining, and production, meaning that production of these critical panels is effectively impossible without China’s raw materials.

Unlike rare earth elements, germanium is produced primarily by refining zinc nitrates, but since only three zinc mines and one zinc smelter are in operation in the United States, U.S. capacity to produce germanium domestically is currently limited.**

The goal of military-civil fusion in China’s space sector is not primarily to develop cutting-edge technology but to produce existing technology that meets most customers’ needs at lower cost and at greater commercial scale and efficiency.

In 2014, Beijing opened the space industry to the non-state-owned sector, allowing these companies to build and launch satellites for the first time, although the PLA still retains a monopoly on approving launches.

Most of these new companies are in fact connected in some way to the Chinese military, defense industrial base, or state-owned research and development institutions. As of June 2019, according to analyst Jean Deville, the burgeoning Chinese space sector (not counting large state-owned space industry contractors) comprised 87 private space startups, state-sponsored space startups, and large private corporations that had diversified into space in some way, with two thirds founded since 2015.†

The Chinese government has also begun subsidizing launches by these companies at its Jiuquan launch facility in the Gobi desert. In June 2019, SASTIND [State Administration for Science, Technology and Industry for National Defense] released new regulations outlining guidelines for commercial launch vehicle development under military- civil fusion, mandating among other things that companies obtain official governmental permission before engaging in research and development or testing of launch vehicles.

In July 2019, Beijing- based iSpace, a new firm that received early-stage funding from SASTIND, achieved the first orbital satellite launch by a Chinese startup, marking a major success of China’s military-civil fusion space drive.

_____________

* Cutting-edge satellites designed by CAST currently have a throughput capacity of 20 gigabits per second, compared to those made by U.S. companies Boeing, SSL, and Orbital ATK, which are capable of throughput speeds of 260, 220, and 100 gigabits per second, respectively. Brian Spegele and Kate O’Keeffe, “China Exploits Fleet of U.S. Satellites to Strengthen Police and Military Power,” Wall Street Journal, April 23, 2019.

** A Canadian company, Teck Resources, owns two of the mines, and a Belgian company, Nyrstar, owns the third mine and the smelter. From 2014 to 2017, 58 percent of U.S. germanium stockpiles were imported from China and 26 percent from Belgium. Amy Tolcin, Assistant Chief, Mineral Commodities Section, National Minerals Information Section, U.S. Geological Survey, interview with Commission staff, July 26, 2019; U.S. Geological Survey, “Germanium,” February 2019, 1; U.S. Geological Survey, “Mineral Commodities Survey 2019,” February 2019, 68–69; Nyrstar, “Clarksville Smelter.”

† Of these companies, roughly one third appear to have private investors, another third are identifiable as having received state funding, and the ownership and financing of the remaining companies is unclear and requires further investigation.