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China Space Day Conference Summary

by Tianyi Lan in Beijing, Blaine Curcio in Hong Kong 

Two weeks ago was the China Space Day conference in Harbin, which also included the China International Commercial Space Symposium (中国商业航天产业国际论坛). A great conference including much Northern Chinese food, lots of very standardly accented Mandarin, and one very, very large university, the conference had several key takeaways. Providing a blend of Western and Eastern perspectives, Tianyi Lan and Blaine Curcio of Ultimate Blue Nebula and Orbital Gateway Consulting, respectively, break down their key learnings here.  

Key Learning 1: The Chinese Market is Complicated

Space programs in the West tend to be dominated by big, private companies with quite a lot of political clout. The incumbents such as Boeing, Airbus, Lockheed Martin Space Systems, etc., have been dominant since the beginning of the space age. In recent years, however, privately-funded startups—most notably SpaceX—have made highly impressive technology advancements, which have, to a certain extent, put these incumbents on their back foot. Despite some initial issues—for example, SpaceX not being allowed to bid for a “block buy” of 36 national security launches back in 2013-2014 due to Falcon 9 certification problems—these private companies have marched on. This is due to the fact that in the West, for better or worse, market forces tend to dictate winners and losers. That is, the company with the best technology/product/service, in general, tends to win.

China is not like this, especially in industries that involve national security, or are otherwise strategic in nature. In short, in China, the incumbents in these industries are much more powerful in terms of political clout, because the incumbents are often owned by the government. This was clearly on display at the China Space Day Conference. Upon walking into the exhibition hall, the biggest, grandest, most central booths were all the SOEs, and many of these booths were multiple hundred square meters. Around the corner from the SOE-dominated entryway were several rows of <20sq meter booths of private companies, and in the very back corner were several larger private company booths, well away from the limelight. It was pretty clear who was in charge here.

This is important, because it shows a potential limitation of the Chinese space industry. Basically, even if a private company were to pull a SpaceX and hire the best engineers, build a highly efficient rocket from the ground up, and have it be as good as the existing market offerings, this would be politically very, very difficult at best, and impossible at worst. It would be the equivalent of making the Chinese government look bad, because they would be making the incumbents look bad. Therefore, the key takeaway is that as China’s space industry develops, there will need to be a fine line between the government trying to control all innovation, and private companies innovating so much that they make the government incumbents look bad. Thus, the Chinese market is complicated.  

Key Learning 2: Many Core Competencies of the Chinese Economic Model May Apply to Space, But May be Limited by Key Learning 1 

Over the past few decades as China has industrialized, the country has taken the global lead in a number of increasingly complex industries, starting with “very low-end manufacturing due to having very low labor costs” in the 1970s and 1980s, and continuing to areas such as electric bus manufacturing today.  

Whether it’s consumer electronics manufacturing, number of high-rise building developments, or high-speed rail, China is becoming a major global player in various industries, due to a variety of competencies. Many of these competencies would likely extend to the space and satellite industry. They include:

1.      Engineering talent. In short, China has an enormous number of engineers, with various sources claiming well over 1 million per year, and others claiming 8 to 1 ratio compared to the US. While some could correctly say that many of the world’s very best engineers are in places such as Silicon Valley, Singapore, and other non-Chinese places, an increasing number are also calling places such as Beijing or Shenzhen home. In the past week, I have heard from the CEO of one of China’s private space startups, and from the (French) CEO of App Annie (via a podcast) that China is impressive for its combination of relatively low cost of labor for engineering talent, and working pace/dedicated work culture of that engineering talent. The overwhelming majority of people that I met with during the event were also engineers of some kind.

2.      Work ethic. In China, there is a phrase in the startup world known as 996. What does 996 mean? 9am to 9pm, 6 days per week. The typical work schedule of a Chinese startup employee. Wow.

3.      Funding. The Chinese space agency is currently believed to have a lower budget than NASA, however moving forward it is expected to increase, due to the strategic nature of the space industry. As well, private funding has started to come into the industry, with total private investment in the low hundreds of millions of USD, by our estimates. The government has also made several long-term investments into the space industry, such as the recently-opened (2014) Wenchang Launch Facility on Hainan Island. 

These core competencies may be limited by the strength of the incumbents moving forward. For example, if a private Chinese launch startup were to make a rocket superior to the Long March series (a difficult proposition, given the reliability of the Long March, but still plausible), it is difficult to envision Chinese government missions using a private launch company, in the way that, for instance, NASA has used SpaceX. However, if uninhibited, these competencies among others could create a formidable industry, at “China speed”. 

Key Learning 3: The Party’s Representative Offers a Glimpse of the Party’s Mindset, and That Mindset is Positive 

During the conference, the China National Space Agency (CNSA) Chief Engineer, Mr. Yulong Tian (田玉龙) gave a speech outlining official government policy towards space. The speech struck a generally positive and collaborative tone towards private companies, and in the near future, we believe that China will see an increase in the number of private space companies making an impact in the international commercial space market.  

Shortly before the China Space Day Conference, there was the 2018 Space Symposium in Colorado Springs, USA. During his speech in China, Mr. Tian noted that he had attended the Symposium in Colorado weeks before. His key takeaways from this conference were that there was a wave of commercial space innovation coming from the United States and Europe, driven by a combination of human capital and financial capital. Mr. Tian made it clear that he felt this type of market-drive innovation was “worth exploring” in the Chinese space industry. In his opinion, Mr. Tian feels that “commercial space is an important direction to move towards in China”.  

As part of his proposed commercial space push, Mr. Tian outlined three main parameters that commercial space should strive to act within:

1.   Commercial space in China should be a powerful add-on to the traditional (state-owned) space industry in China.

2.   Commercial space should have a stronger tolerance for failure, and can therefore be used as a testing ground for new and emerging technologies.

3.   Commercial space is an important means by which to push the use of space technology into civil applications.

In addition to the three above parameters, Mr. Tian laid out four key strategies and points that the industry should consider. 

1.   Mr. Tian stressed that commercial space companies should have a clear mission, with this mission then made clear by Mr. Tian. Companies need to understand that they are not only a part of the commercial market, but that they should also be a continuation of the “Chinese Space Spirit”. This was, to a certain extent, a reminder that even private Chinese space companies are Chinese and they are companies, in that order. Put another way, they should be striving to achieve progress for both profit and country.

2.   The commercial space industry in China should focus on their core competencies, and they should build long-term plans around those competencies. Without going on to specify on the competencies, Mr. Tian highlighted the importance of long-term planning and patience in this process.

3.   Commercial space should look to some international markets for inspiration. Mr. Tian specifically noted that international markets are developing new space industries and new business cases for space—basically a “new space economy”. China needs to look to some international companies to identify areas where Chinese companies can improve, with Mr. Tian highlighting technical capabilities and high-end talent as particular challenges that the Chinese space industry needs to address. Extending on this, a long-term topic for the industry will be China competing in international markets.

4.   Commercial space companies should be aware of and abide by international rules and regulations. This seemed to mean both formal international law, and also things such as the Belt and Road Initiative, which emphasizes a push by Chinese companies abroad.

Overall, Mr. Tian’s speech was uncontroversial, insofar as his emphasizing partially market-driven technological innovation. His points about the private sector being a good test platform for higher-risk missions could open the door to some interesting private sector opportunities, however the speech also made it clear that much of the private industry activity would still be in support of the incumbents.

Conclusions

The Chinese space and satellite industry is, like many other industries in China, developing a more commercial and international outlook, with this not only being seen on the ground, but also being heard straight from the mouth of the government. Moving forward, a great many factors may help China to develop into a leading space nation. However, this development will need to occur in delicate tandem with the requirements and leanings of the state, which may pose a challenge to innovation by the private sector.