After a few years of being cold, China's commercial aerospace industry is heating up again.

In 2023, several commercial companies successfully launched medium and large liquid rockets, achieving breakthrough progress and proving the feasibility of reusable rocket launch schemes in China.

As commercial space development advances, it is accompanied by friction and competition both within and outside the system. At the peak of this competition, commercial companies faced significant resistance and impact.

Officials from multiple provincial investment promotion bureaus have shown interest in commercial spaceflight. Many satellite and rocket manufacturing companies are in talks with local governments to establish production bases and supporting facilities in their respective regions.

In the coming years, Chinese commercial satellite companies not only need to research how to mass-produce, but also need to explore more market demands and end users.

On the morning of March 14, 2024, at 8:25 am local time, propelled by 33 Falcon engines, the Starship, a colossal 9-meter diameter and 121-meter long entity, took off from a self-built launch site in Boca Chica, Texas, USA, with a deafening roar, trailing a long flame as it soared into the sky.

This was the third test flight of the Starship. This rocket, the largest in volume and with the strongest thrust in human history, attracted global attention—finally, people were interested in something other than war. In China's internet sphere, the launch of the Starship had also trended multiple times.

Riding on this trend, some people suddenly realized that in 2023, SpaceX, an American aerospace manufacturer, launched rockets 98 times, accounting for 44.34% of the global rocket launches. SpaceX's launched mass reached 1195 tons, accounting for 80% globally. More importantly, in 2023, the company began to turn a profit, indicating that the path of commercial spaceflight had been established.

As SpaceX continued its Starship test flights, China's commercial spaceflight also entered its 10th year of openness.

In 2024, Mi Lei, founding partner of China Aerospace Science and Technology Innovation, discovered that commercial spaceflight had attracted a new group of investors, mostly state-owned funds and local government industrial funds. Mi Lei has been committed to this field for 10 years, having invested in over 20 companies covering the entire satellite and rocket industry chain, including satellite overall, rocket overall, satellite network operation, and satellite applications.

Before this, the industry had been in a slump for several years.

In 2014, China's commercial spaceflight market opened. Around 2016, the novel stories of China's commercial spaceflight attracted the attention of capital and the market. However, with the ebbing of capital and frequent friction between commercial spaceflight and traditional aerospace systems, the market entered a downturn.

But recently, changes have begun to emerge: commercial spaceflight companies have made key strides in rocket launches, local government industrial funds have replaced US dollar funds, and large-scale plans like China's version of "Starlink" have brought potential market space for commercial spaceflight.

Lan Tianyi, founder of Qianyu Aerospace Consulting Co., said, "At this stage, China's commercial satellites and commercial rockets have already solved the problem from zero to one, and are now working on overcoming the challenges from one to one hundred." He believes that the industry has entered a new stage, and in the future, Chinese commercial spaceflight enterprises will strive to overcome the three major bottlenecks of mass production, supply chain restructuring, and cost reduction to achieve economic benefits.

According to the "China Aerospace Technology Activity Blue Book (2023)" released by the China Aerospace Science and Technology Group, China is expected to have 100 launch missions in 2024. In the eyes of many aerospace industry professionals, this year will be the most intensive year for China's launch plans. In 2023, several commercial companies successfully launched medium and large liquid rockets, achieving breakthrough progress and proving the feasibility of reusable rocket launch schemes in China.

In July 2023, Blue Arrow Aerospace Technology Co., Ltd. successfully launched the world's first liquid oxygen methane carrier rocket, which used the company's independently developed high-thrust liquid oxygen methane engine with a liftoff thrust of 268 tons.

Liquid rocket engines typically include liquid hydrogen and liquid oxygen, hydrazine/nitrogen tetroxide, liquid oxygen kerosene, and liquid oxygen methane. Currently, China's traditional aerospace systems mainly use hydrazine/nitrogen tetroxide and liquid oxygen kerosene rocket engines. In comparison, Blue Arrow Aerospace's choice of liquid oxygen methane rocket engine represents a new technological route.

The liquid oxygen methane engine developed by Blue Arrow Aerospace over nearly 7 years has a liftoff thrust of 268 tons. In contrast, the BE-4 liquid oxygen methane engine developed by the American commercial aerospace company Blue Origin over more than 20 years has a liftoff thrust of 250 tons.

In November 2023, Beijing Interstellar Glory Space Technology Co., Ltd. successfully developed and verified a reusable liquid oxygen methane rocket engine. Prior to this, in April 2023, Beijing Sky Warrior Technology Co., Ltd.'s first liquid engine carrier rocket successfully entered orbit.

Reusable rockets have broad commercial prospects, as they can freely fly between the Earth's surface and space, and even stay in orbit for extended periods, making them crucial for manned spaceflight and cargo spaceflight. However, these rockets face significant challenges in terms of their engines. They typically use solid rocket engines and liquid rocket engines, with the former being relatively mature in technology and widely used in China, while the latter represents newer technology with higher research and development thresholds and longer cycles.

The advantage of liquid rocket engines is that they can be used to develop reusable, low-cost launch vehicles, which are economically and environmentally friendly, aligning with the overall direction of commercial rocket development.

According to Blue Sky Wing, there are two main technical routes for enterprises: some choose to directly develop liquid rockets, which is a high-risk, high-reward approach; others choose to simultaneously develop solid rockets and liquid rockets, which is a dual-drive mode. Blue Arrow Aerospace and Space Pioneer Technology belong to the former, while Beijing Galaxy Power Aerospace Technology Co., Ltd. (referred to as "Galaxy Power") and Eastern Space (Shandong) Technology Co., Ltd. belong to the latter.

Blue Sky Wing stated that the early goal of commercial rockets is to achieve orbital capability. The next step is to pursue economic benefits, including further reducing the cost of rockets and improving launch efficiency.

Yang Feng, founder and CEO of Tianyi Research Institute, said that once the Starship successfully launches, it will further reduce the cost of rocket launches to $900 per kg and increase the launch capacity to 100 tons. This level will make large-scale networking possible.

Yang Feng also mentioned that, apart from SpaceX's leading position, the progress of Chinese rocket companies and other American rocket companies is comparable. Since its establishment in 2018, Galaxy Power has launched rockets 11 times with a success rate of 91%. In comparison, RocketLab, the second-ranked commercial rocket company in the United States, has launched 44 rockets since its establishment in 2006, with a success rate also at 91%. The cost of a single rocket launch for RocketLab is $7.5 million, while Galaxy Power's cost is $4.5 million.

Currently, the average global launch cost for space missions is between $10,000/kg and $20,000/kg, while the launch cost of Chinese commercial rockets is controlled at below $14,000/kg. Data from 2020 shows that the launch cost of SpaceX's Falcon 9 rocket is approximately $2,720/kg.

Challenges and Friction

China's commercial space industry originated in 2014 when the "Guiding Opinions of the State Council on Encouraging Social Investment in Key Areas of Innovation" (Guo Fa [2014] No. 60) was released, encouraging private capital to participate in the construction of national civil space infrastructure.

Since 2015, a group of private enterprises have entered the aerospace field, starting to develop and launch small commercial rockets and microsatellites. The technical expertise and talent of these enterprises mostly originated from the two major aerospace groups. At the same time, aerospace technology groups within the state-owned sector also established departments for commercial rockets.

The newly established commercial aerospace companies are mainly responsible for overall design, and then the production is outsourced to state-owned institutions, with most components also purchased from within the state-owned sector. Ultimately, they need to go to traditional Chinese launch sites for launch, which are also part of the national team.

Due to their limited responsibility for overall design, the output value of these commercial companies is much lower than that of state-owned units, and to some extent, they also inevitably compete with the state-owned overall design units. Therefore, the aerospace field is still dominated by state-owned capital, with private capital playing a supporting role.

With each step forward in the development of commercial aerospace, there is friction and competition between the state-owned and private sectors. At the peak of this competition, state-owned groups once posed significant obstacles and challenges to commercial companies.

The founder of a leading private aerospace company once told Economic Observer that in 2017, a state-owned group suddenly refused his request to purchase rocket engines, which led to the company being unable to complete its planned maiden flight, causing a significant impact on the company.

In December 2019, the "Opinions of the Central Committee of the Communist Party of China and the State Council on Creating a Better Development Environment to Support the Reform and Development of Private Enterprises" was released, but it did not mention policies for further opening up the aerospace sector to private enterprises.

Influenced by various factors, in recent years, some investment institutions in commercial aerospace, especially those with US dollar funds, have withdrawn, leading to personnel losses in some companies, with some personnel returning to the state-owned sector. The entire industry has slowed down and retreated from the spotlight. A group of commercial companies experienced difficult times. Under pressure, some companies decided to seek new paths.

Blue Arrow Aerospace began independently researching and developing liquid rocket engines that are independent of traditional aerospace systems and suitable for the commercial market, achieving full independent control of all key components. Today, this rocket has successfully launched in July 2023 and carried the company's independently developed liquid oxygen methane rocket engine. Blue Arrow Aerospace's offices and manufacturing bases are located in Beijing, Xi'an, Shanghai, and Huzhou.

After experiencing three launch failures, Interstellar Glory finally achieved success in November 2023. The Hyperbolic II verification rocket conducted a vertical recovery test at the Jiuquan Satellite Launch Center. This rocket uses vertical recovery technology, representing China's commercial aerospace obtaining the entry ticket for reusable rockets, further narrowing the gap with the United States.

Several industry insiders told Economic Observer that China's commercial aerospace industry experienced a downturn from 2019 to 2022, but since 2023, the industry has basically emerged from the trough.

According to a research report by Huatai Securities, from 2015 to 2021, the total number of commercial launches of domestic launch vehicles was 84, with state-owned teams undertaking 77 launch missions, while private enterprises accounted for less than 10% of launch missions. The "China Aerospace Science and Technology Blue Book (2023)" shows that in 2023, a total of 67 space launch missions were carried out throughout the year, ranking second in the world in terms of quantity, with 26 of them being commercial launches.

New Players: Local Governments and Guiding Funds

The enthusiasm of policies for commercial aerospace is increasing, especially from local governments.

The government work report for 2024 mentioned "commercial aerospace" for the first time. On January 25, 2024, the Beijing Municipal Government Office officially released the "Action Plan for Accelerating the Innovative Development of Commercial Aerospace in Beijing (2024-2028)", aiming to promote the construction of local commercial satellites and rockets from various aspects, overcome key technical difficulties such as reusable rockets, and accelerate the construction of satellite constellations.

In October 2023, the Shanghai Municipal Government Office also issued the "Action Plan for Promoting the Development of Commercial Aerospace and Building a High Ground for Space Information Industry in Shanghai (2023-2025)".

Prior to this, Anhui Province, Hunan Province, Hubei Province, Hainan Province, Guangdong Province, Inner Mongolia Autonomous Region, Shandong Province, and other places have successively released relevant documents to support the rapid development of the commercial aerospace industry, strengthen the attraction of investment for related enterprises, and fully deploy the local aerospace industry chain.

Several aerospace industry insiders told Economic Observer that officials from various provinces' investment promotion bureaus have shown interest in commercial aerospace. Many companies producing satellites and rockets are in talks with local governments to establish production bases and supporting facilities in the respective areas.

Since 2015, a group of social capital has supported commercial aerospace companies, such as Sequoia Capital, Hillhouse Capital, and IDG Capital. Subsequently, local technology-oriented early-stage capital has also entered this field, such as Zhongke Chuangxing and Harbin Institute of Technology Investment Group.

Mi Lei said that in the early stages, the capital supporting commercial aerospace was mainly venture capital funds. Now, the new wave of capital entering this industry mainly comes from local government industrial funds, which are more inclined to mid-to-late stage investment. The conditions for these funds mostly involve setting up factories or office addresses locally.

Mi Lei said that local governments should choose whether to introduce commercial aerospace based on their own resource endowments. Firstly, the local area should have the ability to attract talent, preferably with relevant aerospace research institutes. Secondly, the geographical location should be close to domestic launch sites to save transportation costs for enterprises.

Mi Lei stated that aerospace investment is unique. Compared to industries such as artificial intelligence and cloud computing, its assets are heavier, and the listing cycle is longer, with significant financing needs in each round. From an objective perspective, multiple launch failures in the early stages of rocket companies are an inevitable process, requiring society to have a high degree of tolerance and patience for innovation and failure, rather than shying away after a launch failure. A fundamental change in mindset is the most essential requirement.

China's "Starlink" ignites market demand

"Starlink" is an important part of the commercial logic of SpaceX, providing commercial demand and funding for rocket launches. As of April 2024, a total of 6,000 satellites have been launched out of the planned 42,000 for "Starlink". According to SpaceX's plan, it will have a network of 12,000 satellites by the end of 2024.

The rapid progress of China's commercial aerospace industry also calls for the development of satellite internet. Blue Sky Wing told Economic Observer that the structure of China's commercial satellite market is fundamentally similar to that of foreign countries. It is driven by the network needs and orders of satellite operators, with market-oriented satellite and rocket companies participating in bidding and completing the network, and then satellite operators providing commercial services to users in the form of bandwidth, traffic, images, etc., to generate revenue.

Now, China's version of "Starlink" is accelerating.

In April 2021, a new central enterprise, China Satellite Network Group Co., Ltd. (referred to as "China Star Network"), was established in Xiong'an New Area, Hebei Province. China Star Network once planned a "GW Constellation" project, aiming to network approximately 12,900 satellites by 2035.

A source close to the company told Economic Observer that the personnel of the Star Network come from multiple central enterprises, mainly from telecommunications operators. The company's positioning is as the general contractor and operator in the satellite internet supply chain, targeting state-owned and private commercial satellite and rocket companies, as well as supporting companies in the industry chain for bidding. Enterprises included in the supplier list will participate in the project and provide batch production and related services for satellites, commercial transportation services for rockets, ground measurement and control, etc., for a certain period.

Shanghai Yuanxin Satellite Technology Co., Ltd. (referred to as "Yuanxin Satellite"), established in March 2018, with Shanghai United as the major shareholder, has been deeply involved in the planning of the "G60 Constellation", aiming to network over 12,000 satellites. Tianyancha data shows that Yuanxin Satellite completed a Series A financing of 6.7 billion yuan in 2024.

Galaxy Aerospace (Beijing) Technology Co., Ltd. (referred to as "Galaxy Aerospace") already has the capacity to mass-produce hundreds of satellites. Currently, there are over ten satellites in orbit, including 8 low-orbit broadband communication satellites. Lin Guangrong, the system architect of Galaxy Aerospace's constellation communication system, told Economic Observer that the company has two main goals: to promote the opening of the commercial aerospace supply chain and to reduce satellite costs by an order of magnitude, from millions to millions of yuan, approaching the cost level of Starlink.

Changsha Tianyi Space Technology Research Institute Co., Ltd. (referred to as "Tianyi Research Institute") has over 30 satellites in orbit and has signed commercial contracts with over 200 users. Currently, Tianyi Research Institute has the capacity to produce hundreds of satellites annually and is building an intelligent satellite factory. The company has launched China's first batch of commercial SAR remote sensing satellites, capable of monitoring subsidence and hazard inspection of roads, bridges, reservoirs, subways, landslides, mining deformations, glacier activities, etc. In addition, Tianyi Research Institute also focuses on the operational capabilities of the constellation in orbit, and has built an independent operation management platform for the integrated network of space and ground, enabling users to independently monitor, plan tasks, and manage tests for satellites in orbit.

Currently, companies such as Changguang Satellite, Tianyi Research Institute, and Galaxy Aerospace all have the capacity for mass production of hundreds of satellites. Yang Feng told reporters that if Didi only operated a hundred online cars, it would not be able to form a scalable industry. Similarly, if only tens or hundreds of satellites were in orbit, it would be difficult to form a scalable industry. At the current stage, more satellites in orbit are needed to significantly improve ground service capabilities.

Mi Lei said that currently, the main applications of China's commercial satellites are still concentrated in the fields of communication, navigation, and remote sensing, and the demand has not reached the mass production stage. In the future, Chinese commercial satellite companies not only need to research how to mass-produce, but also need to explore more market demands and end users. In fact, unlike rockets as transportation tools, the difficulty with satellites lies in how to achieve a commercial closed loop as quickly as possible.