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LandSpace is among the more than 20 Chinese commercial space companies pursuing launch vehicles, primarily small launchers. (credit: LandSpace)

Assessing China’s commercial space industry

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One of the more remarkable developments in the space industry in the last decade—arguably just in the last several years—has been the rise of a vibrant, well-funded startup economy. A report issued earlier this month by Space Angels estimated that space companies received $5.8 billion in 2019 in 198 separate rounds. While that dollar figure is dominated by a few large companies, like Blue Origin, OneWeb, and SpaceX, the report concludes $686 million went towards early-stage companies, accounting for about three-fourths of the total investment rounds. Since 2009, Space Angels estimates $25.7 billion has been invested in 535 space companies.

Of those 78 companies included in the report, 45 were founded no earlier than 2015, evidence that China’s space economy has only recently blossomed.

That vast majority of that investment has been in American companies, taking advantage of a combination of technology, markets, regulatory environment, and support for entrepreneurial ventures in general, including venture capital funds looking for the next big growth opportunity. Japan and Europe have tried, to varying degrees, to create similar environments to support space startups. Last week, the European Commission and European Investment Bank Group announced they were establishing a €100 million (US$110 million) fund that would be invested in venture capital funds supporting space startups, beginning with Italian fund Primo Space.

The closest competitor to the United States in entrepreneurial space might be China. Dozens of startups have emerged in just the last few years, pursuing everything from launch vehicles to constellations of communications or remote sensing satellites, much like their American counterparts (see “Will LandSpace be China’s SpaceX?”, The Space Review, September 3, 2019; and “A historic day for Chinese NewSpace”, The Space Review, November 19, 2018). The rise of China’s overall economy to one of the largest in the world has prompted questions about whether these Chinese space startups could pose serious competition to American companies.

It’s long been difficult to get a clear picture of what China’s space startup scene looks like because of challenges from a language barrier to a reticence to share information. A report issued in September by the Science and Technology Policy Institute, “Evaluation of China's Commercial Space Sector,” offers one of the best analyses yet of the country’s emerging space ecosystem.

The report, based on a mix of company research and interviews, helps first and foremost define just how big that sector is. It found 78 companies in China that could be considered “commercial” space companies, which it defines as “an enterprise that has a primary goal of pursuing profits, rather than meeting government policy goals.” That definition excludes China’s major state-owned enterprises in the space industry, China Aerospace Science and Technology Corporation and China Aerospace Science & Industry Corporation, that dominate satellite and launch production.

Of those 78 companies included in the report, 45 were founded no earlier than 2015, evidence that the country’s space economy has only recently blossomed. Some have linked that surge to a 2014 policy by the Chinese government, known as “Document 60,” that enabled broader private investment in various parts of the Chinese economy, including civil space infrastructure.

“We wanted to be the Chinese SpaceX, the Chinese Elon Musk,” one founder said.

The report, though, raises questions about just how important Document 60 was to the Chinese space industry. “It only opens up the remote sensing and launch sectors, and does not open up historically more profitable sectors such as satellite communication,” the report says of Document 60. “Many company representatives with whom we spoke said that they were either unaware of or did not pay attention to Document 60 when their companies were established.”

While policies like Document 60 were enabling for the growth of the Chinese space sector, other factors have also played a role. Venture capital funds were interested in space “partly from a sense that there are now fewer opportunities in the IT sector,” the report notes, a belief that can also help explain the growth of VC funding in American space startups. The founders of companies, meanwhile, sought freedom to pursue projects they could not do in larger companies, inspired by the success of American companies like SpaceX: “We wanted to be the Chinese SpaceX, the Chinese Elon Musk,” one founder said.

The Chinese government has supported these startups for several reasons, from general economic development to national pride. One notable factor is that the Chinese government sees startups as accelerating innovation in the space industry, citing what’s happened in the United States. China’s current major state-owned space companies are perceived as “bureaucratic, slow, and, in some instances, falling behind cutting-edge space companies in other nations.”

The one part of the Chinese space industry that has gotten attention is in launch vehicles. The report identified 21 commercial entities pursuing launch vehicles, in two waves: one that emerged around 2015 and includes companies like iSpace, LandSpace, and OneSpace, who have all at least attempted orbital launches; and a second wave that started in 2017. Their focus is predominantly on small launch vehicles, of which many dozens more are in development around the world for a market whose size and sustainability remain uncertain.

Launch, those, is not the biggest sector of the Chinese space industry. The report identified 29 companies that either build satellites or satellite components; there, they found intense competition among smallsat companies. One interviewee said that “the CubeSat market has become so oversaturated and competitive that companies are manufacturing CubeSats at a loss right now.” Moving into larger satellites, though, would bring them into competition with state-owned enterprises.

Others are working on remote sensing and communications satellites, with an emphasis on constellations of low Earth orbit satellites to fill niches left by larger companies. Several, for example, are working on constellations to provide “Internet of Things” connectivity to various devices, despite concern there is not enough spectrum available to support more than a couple such companies.

Chinese space startups, in many respects, resemble American ones, a similarity that may be deliberate. “By emulating first movers in the West, Chinese companies may be able to reduce the overall level of risk they take,” the report argues. “By deliberately choosing to follow rather than lead, these companies may be able to focus on making secondary innovations (e.g., process, production, marketing) that ultimately may make them more successful than their Western counterparts.”

That also explains investment in such companies by Chinese VC firms. “For commercial space, Chinese VCs see that companies like SpaceX has received a lot of VC funding and they feel comfortable with investing in similar things in China,” an employee of one Chinese company told STPI.

That funding, though, still trails investment in American companies. The report estimated that, in 2018, Chinese space companies raised between $336 million and $516 million. By contrast, venture investment in American space companies that year ranged between $900 million and $2.2 billion, depending on the source.

Chinese companies are also concerned that this source of funding could dry up. At a September 2018 conference, many warned of a “winter of capital” that was coming. That may not have materialized, at least not yet, according to some interviewed for the report in early 2019. (It’s worth noting that, early last year, some in the American commercial space industry, including investors, suggested VC funding could soon dry up for space companies, but money continues to flow into such companies.)

It’s possible, the report argues, that “a small number of Chinese commercial space companies could grow to a point where they have critical mass, especially if markets that benefit from the launch and use of small satellites grow rapidly.”

The availability of capital is a clear strength for the Chinese space industry, but it has its downsides as well. An “industry insider” told STPI that Chinese VC firms have relatively short time horizons: as little as three to five years. Foreign VC firms, including those that invest in other Chinese companies, are willing to hold on to their investments for several more years. “Several companies noted that because Chinese VCs operate on a shorter time horizon, the pace that China’s commercial space sector is able to develop is hindered,” the report noted.

There’s also the question of what markets those companies can serve. Export control restrictions mean that Chinese launch companies, for example, can’t do business with American companies, or anyone using a satellite with American components. It is possible to get around that: Satellogic, a commercial imaging company based in Buenos Aires, has built its satellites in South America and launched them on Chinese rockets, including two earlier this month. Nonetheless, the restrictions still greatly reduce the addressable market for Chinese companies.

That could be offset, at least for some, by accessing China’s giant domestic market, particularly for companies that offer consumer services of some kind, like broadband communications. That would, in turn, support Chinese satellite manufacturers and launch service providers, since those satellites would almost certainly be built and launched within China. Additional markets could come through China’s broader “Belt and Road Initiative” in developing countries.

Those companies, though, face other challenges, like uncertainty about regulations for commercial launches and satellites (a comprehensive space law has been promised every year since 2013, but has yet to be enacted) to workforce issues, something familiar to American aerospace companies as well. Chinese startups also have to deal with competition from those larger state-owned enterprises.

The ultimate success of the Chinese commercial space sector, the STPI report concludes, is too premature to assess. It’s possible, it argues, that “a small number of Chinese commercial space companies could grow to a point where they have critical mass, especially if markets that benefit from the launch and use of small satellites grow rapidly.” If those markets grow worldwide, though, there may be room for Chinese, American, and other countries’ startups in an expanding space economy.

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