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China’s Commercial Space Sector Shoots For The Stars – Analysis

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By Brian Waidelich*

The past decade has witnessed explosive growth in the number of domestic companies involved in China’s ‘commercial space’ sector. By November 2020, China was home to over 160 commercial space companies, over half of which were founded in the last seven years. These companies boast a range of offerings from satellite manufacturing to rocket launch.

China’s commercial space proponents see the domestic market as full of potential. FutureAerospace, a state-funded Chinese industry think tank, reports that investment in Chinese commercial space firms totalled 3.57 billion RMB (US$550 million) in 2018, and will exceed 30.6 billion RMB (US$4.7 billion) by 2025.

This upsurge is fuelled by rising domestic demand for commercial launch services, as more Chinese companies design and build their own satellites. One official from the China Aerospace Science and Technology Corporation (CASC), a state-owned space contractor, claimed that in the next five to ten years, the Chinese market will demand the launch of 4000 commercial satellites — a shocking number considering that China currently has just over 400 satellites in orbit.

The promise of commercial space is that new companies will inject vitality into domestic space programs, where traditional contractors are structurally bloated and prone to cost overruns. Chinese industry experts view SpaceX in the United States as the commercial space company par excellence, and investors view it as a ‘benchmark’ for evaluating China’s own commercial launch firms. The Chinese company iSpace promised the first launch of its Hyperbola 2 by the end of 2021, a reusable first-stage rocket whose envisioned vertical landing capability bears a striking resemblance to SpaceX’s Falcon 9.

Despite the hype surrounding Chinese space startups, the prospects for a Chinese SpaceX are not so optimistic.

China’s space startups are hardly commercial, compared to countries like the United States where commercial space ventures are meaningfully supported by private capital. Some of China’s commercial space companies are directly state-owned, such as Expace and China Rocket. Other nominally private companies have received substantial investment from provincial and local governments. The lack of private capital at risk diminishes these companies’ motivation to innovate or lower costs.

‘Private’ Chinese space startups also find themselves facing two massive state-owned enterprises (SOEs) that dominate both the domestic industry and Chinese financing. The state-owned Expace received over one billion RMB (US$154 million) in series A financing, while nominally private Chinese companies like iSpace received around 100 million RMB (US$15 million). This apparent favouritism aligns with Chinese President Xi Jinping’s stated objective of making SOEs ‘stronger, better, and bigger’.

Legislative gaps create further uncertainties for the activities of China’s commercial space companies. China still has no comprehensive space law, despite incorporating the need for one in the National People’s Congress’s legislation plan in 2013. New regulations on commercial launches in 2019 were a step forward, but many ambiguities remain. It is still unclear, for example, whether companies can build their own launch sites, or if they must use one of the four military-controlled sites.

The launch record of China’s commercial space companies has also been rocky. Two of the three ‘private’ companies to conduct orbital launches — OneSpace and LandSpace — have failed in their sole attempts. Several other companies have fared better, but all three of their most recent launches — two by Expace in July and September 2020, and one by iSpace in February 2021 — ended in failure.

These challenges suggest that China’s commercial space industry cannot yet rival its US and European counterparts. Chinese commercial launch companies have shown no signs of explosive innovation; indeed, their current offerings consist almost solely of small, solid-fuel, single-use rockets. Nor have these companies offered prices to challenge global leaders — Expace has announced launches of its Kuaizhou rockets at US$10,000/kg of payload, which will be eventually lowered to US$5000/kg, but this doesn’t even come close to SpaceX’s advertised prices — about US$2720/kg for the Falcon 9, and US$1410/kg for the Falcon Heavy.

In the years ahead, breakthroughs in Chinese space technologies will almost certainly come from traditional state-owned contractors, not nominally private firms. CASC and the China Aerospace Science and Industry Corporation have decades of experience, secure state funding, thousands of personnel, dozens of labs and subsidiaries, and an established suite of high-tech products and services. These contractors’ best products and services will be primarily offered to Chinese military and government organisations, rather than private or international clients.

The addition of ‘private’ commercial space companies provides China’s traditional contractors with some token competition, and eventually new entrants may carve out niche areas for themselves in the domestic market. But Chinese commercial space firms will not lead China’s space program — indeed, these companies describe themselves as ‘supplements’ to China’s broader space activities. They are not positioned to disrupt the domestic or global space ecosystems with low-cost, innovative offerings any time soon.

*About the author: Brian Waidelich is a Research Analyst with the China and Indo-Pacific Security Affairs Division at CNA.

Source: This article was published by East Asia Forum and is drawn from the report China’s Space Narrative, a collaboration between the China Aerospace Studies Institute and CNA’s China and Indo-Pacific Security Affairs Division.

All views expressed in this article are entirely the author’s own and do not necessarily reflect the views of any particular institution or organisation.

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East Asia Forum

East Asia Forum is a platform for analysis and research on politics, economics, business, law, security, international relations and society relevant to public policy, centred on the Asia Pacific region. It consists of an online publication and a quarterly magazine, East Asia Forum Quarterly, which aim to provide clear and original analysis from the leading minds in the region and beyond.

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