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Satellites become key vertical within China’s growing space sector

China’s aerospace sector is crowded but ripe with opportunities.

Photo by SpaceX on Unsplash

With the launch of China’s Long March 5B rocket on May 5 in Wenchang, Hainan, the Chinese aerospace sector broke new ground for future manned missions to the Moon and Mars. The launch was critical for China’s ambitions to send the first lander and rover to Mars, the Tianwen-1, to be launched later this year.

While the industry is led by state-owned China Aerospace Science and Technology Corporation (CASC), the private space sector is also developing quickly, boosted by ambitious startups such as iSpace, LandSpace, Galactic Energy, and MinoSpace which are attracting major investment, although also facing limited opportunities to generate revenue.

Due to a lack of monetization opportunities, these companies rely on venture capital investment to augment their R&D capabilities while focusing on commercializing the satellite market. The satellite vertical has the most near-term commercialization potential due to the rising demand for broadband coverage and enhanced internet infrastructure to support Internet of Things (IoT) devices.

The recent COVID-19 outbreak has also accelerated demand for low orbital satellites to boost broadband in the 5G era, igniting a major competition in a crowded market for space startups.

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Image of a satellite in space. Source: Shutterstock

Private sector strength

China’s private space sector has started to amass significant funding from 2019 following a government-led initiative to support innovative firms involved in space technology, especially satellites.

Beijing-based iSpace successfully launched China’s first private satellites in July of 2019, less than three years after its founding in 2016. The company aims to differentiate itself within the sector by providing flexible and customizable value-added solutions. At Satellite 2020, a leading industry conference, flexibility was a key focus for many satellite clients who may have to adapt to emerging markets and changes in demand.

LandSpace, another Beijing-based private space firm, is the most well-funded wholly private space enterprise in China, and recently closed a Series C round worth RMB 500 million (USD 71 million) in December 2019. Despite the failed launch of the Zhuque-1 rocket in October 2018, LandSpace boasts clients including Open Cosmos, Dorbit, and Spacety.

Galactic Energy, a firm focusing on the development of reusable rockets powered by liquid oxygen and kerosene, which has been pioneered in SpaceX’s Falcon 9 rocket, has also secured RMB 300 million (USD 42.4 million) since its founding in 2018, RMB 150 million of which came in a pre-series A at the end of 2019 led by Huaqing Capital and Puhua Capital. The company plans to launch its Ceres-1 rocket in June 2020.

Activity in China’s space sector has persisted into 2020 despite macroeconomic uncertainty caused by the COVID-19 pandemic. Galaxy Space, one of China’s leading private space firms, successfully completed the test of the nation’s first 5G satellite in February.

MinoSpace, a Beijing-based private commercial satellite company that has already launched 4 low orbital crafts in 2019, also raised RMB 100 million(USD 14 million) in a Series A2+ fundraising round in March. The fresh funds that will be directed towards the development of larger satellites weighing over 200kg.

Global endeavors to launch internet satellites are unabating, as American competitor SpaceX launched 60 Starlink satellites in just one day in February to bring the fleets total to 300, while Amazon’s Project Kuiper also announced plans to build a worldwide satellite network of over 3,000 spacecraft.

The Chinese private space sector has amassed significant funding from 2019 following a government-led initiative to support firms involved in space technology, especially satellites.   Photo: One Space

China’s history in space 

When analyzing China’s space sector it is vital to have an understanding of the historical context. While the country’s celestial ambitions date back to the 1950s, the realization of a legitimate presence in space is a modern phenomenon. China created the Ministry of Aerospace Industry to oversee all aspects of space activities in 1988. In 1992, the China Manned Space Agency (CMSA) established a three-step plan for manned space flight.

Yang Liwei took the first step, becoming the first Chinese astronaut to travel into space in 2003 and making his country the third nation to send a person to space and have them return safely.

The second step in China’s manned space flight program was the country’s first space station, the Tiangong-1, which was launched in 2011 and orbited until 2018, while its successor the Taingong-2 orbited from 2016 to 2019. However, these space stations were tiny, with just around 500 cubic feet of habitable area.

The successful launch of China’s Long March 5B rocket completed the third and final step which will clear the way for further launches critical to realizing China’s ambitions in space. Later this summer, China is scheduled to launch its first rover and lander on Mars, the Tianwen-1, set to launch on the Long March 5 rocket.

Looking ahead to future projects, China’s Tianhe station is seen to be a self-built alternative to the International Space Station, albeit with just over one-third the living area. The Tianhe station will support three astronauts at full capacity and could be launched as early as 2021. Among the innovations, the Tianhe was developed to create a renewable life support system able to recycle and purify water from exhalation and urine, instead of bringing water from Earth.

COVID-19 impact and outlook

While COVID-19 slowed venture capital activity and caused uncertainty in the sector, with greater demand for digital connectivity in a post-virus world, the aerospace sector and communication satellite companies stand to benefit.

Galactic Energy CEO and founder Liu Baiqi has spoken about the massive implications of the space sector going forward, emphasizing that the future space economy will be a trillion-dollar industry. Liu cited that about 20,000 satellites will be launched globally between 2018 and 2025.

As China’s national space program is preoccupied with initiatives like the Tianhe space station and the Chang’e 5 moon mission, low orbital satellite technology is a vertical where Chinese aerospace firms may find opportunities. The establishment of 5G infrastructure across China has not been largely disrupted by the COVID-19 pandemic, potentially minimizing the impact of the virus on China’s commercial satellite market.

However, the local aerospace industry is overcrowded, mirroring a similar rush into the electric vehicles sector following government support. There were a total of 141 commercial aerospace companies registered in China as of the end of 2018. Given the macroeconomic slowdown caused by the global pandemic, the venture capital community is likely to avoid high-risk plays in early state aerospace startups, resulting in a thinning market and intensifying competition among industry leaders.

In the short-term, low orbital satellites capable of increasing broadband connectivity are in the most immediate demand, in a global satellite market that is expected to reach USD 298 billion by 2028 according to Euroconsult’s report. The same report estimates that the entire aerospace value chain will be worth USD 485 billion by 2028.

As for long-term goals in outer space, Chinese firms have lofty ambitions, such as industrializing extraterrestrial resources including lunar mining, along with an orbiting solar power plant able to generate enhanced solar energy yields. Regardless of the short-term macroeconomic consequences from the COVID-19 pandemic, entrepreneurs in China’s private space sector are poised to capitalize on a national strategy.