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[SSI Brief] Made in China 2.0: State-led Commercialization of China’s Space Industry

April 7, 2016

Author:

Muyang Chen

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Space Security Initiative Brief

International studies perspectives on space policy of major powers

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China’s space industry has launched a new round of commercialization as a combined result of two national strategies—the streamlining of the defense industry and the “Going-Global” of domestic manufacturers. The former aims at increasing the profitability and efficiency of China’s defense enterprises and will allow more private capital to participate in the traditionally state-dominated industry. The latter aims at nurturing first-rate Chinese enterprises and encourages firms of strategic industries to export their products and expertise to the international market.

We thus expect to see a series of market-oriented changes to take place in China’s space industry, hitherto one of the most state-driven industries of the country:

  1. Listing of the subsidiaries of state-owned enterprises (SOE) in stock exchange market;
  2. Privatization of formerly public-owned space-technology research institutes;
  3. Entrance and shareholding of private capital in the market of space industry;
  4. Transfer of military-use space technology into civilian-use;
  5. Exportation of Chinese space products and expertise to international markets.

The trend of privatization and commercialization, however, will not impair state control over the space industry. Rather, upgrading major Chinese enterprises in the space industry will create world-class space manufacturers led by the state.

China’s space industry

China’s space industry has been mostly dominated by state owned enterprises. A prominent player of the industry is the China Aerospace Science and Technology Corporation (CASC), one of the 106 central enterprises under the direct control of the State Council. With 8 large research and development (R&D) and production complexes, 13 specialized companies, and 9 listed companies, the CASC is a gigantic, comprehensive, corporate group that engages in the research, design, manufacture, and launch of satellites, launch vehicles, manned spaceships, and strategic and tactical missiles. Having total assets of 294.02 billion RMB (about $45 billion), the CASC is one of the most profitable central enterprises of China’s defense industry.

The CASC made an initial attempt at marketization in 2001, listing a small-satellite manufacturing subsidiary, the China Spacesat Co., Ltd. on the Shanghai Stock Exchange. Though mostly (51%) held by the CASC, Spacesat is China’s first satellite company that functions in a market-driven manner and produces commercial-use small satellites. In 14 years, Spacesat has launched 53 microsatellites and 6 nanosatellites and picosatellites.

Streamlining the space industry

China’s national development strategies given priority by the Xi-Li administration will further the marketization of China’s space industry. In 2015, Chinese President Xi Jinping announced a plan to streamline China’s defense industry. This will bring a series of changes in China’s space industry.

  1. Securitization, having subsidiaries of SOEs listed in the stock exchange and allowing market actors to hold shares. This means the CASC as well as other SOEs of defense industry will have more subsidiaries functioning in a market-driven manner like the Spacesat.
  2. Partial privatization. Public military research institutes will turn into private entities. This is part of the state’s overarching bureaucratic reform to delink public institutions (shiye danwei) from state ownership. A result of this is that state-owned business groups like CASC will privatize some of their R&D centers.
  3. “Military-civilian integration”. This includes two parts, transferring military-use technology into civilian-use, and allowing more private firms to engage in defense industry. In addition, the state will provide policy favors for domestic firms of promising industries to broaden their international business and export more products and services.

Made in China 2.0

Does this imply a decrease of state control in space industry? Not necessarily. The purpose of streamlining is three-fold: nurturing world-class space manufacturers, creating market for private space-technology enterprises, and enhancing the state’s military capacity and international influence. The result of state-led commercialization, therefore, is not the shrinking of state power, but the emergence of a new version of “made-in-China”: high-tech, high-profit manufacturers backed by the state.

An example of this multi-purpose strategy is the development of China’s BeiDou Navigation Satellite System, the Chinese equivalent of GPS. The system is mostly developed and manufactured by state-owned research institutes and enterprises. In recent years, China has been devoted to commercializing this navigation system, proactively partnering with foreign governments and firms to export BeiDou products and services. This state-led space project also provides opportunities for private enterprises. Alibaba, the US-listed Chinese e-commerce company, for example, has cooperated with China North Industries Group Corporation, a central defense enterprise, to develop the navigation system. Successful commercialization of the Beidou system not only increases the capability of domestic space manufacturers but also enhances China’s global military presence.

*This article is part of the IPI Space Security Initiative Series on Space Policy of Major Powers.

This publication was made possible in part by a grant from Carnegie Corporation of New York. The statements made and views expressed are solely the responsibility of the author.