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To cite this article: Kevin Pollpeter (2011): Upward and Onward: Technological Innovation and Organizational Change in China's Space Industry, Journal of Strategic Studies, 34:3, 405-423 To link to this article: http://dx.doi.org/10.1080/01402390.2011.574983

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Upward and Onward: Technological Innovation and Organizational Change in China’s Space Industry

KEVIN POLLPETER

China Program Manager, Defense Group Inc., Vienna, Virginia, USA

ABSTRACT China’s space industry has made remarkable technological advances in the variety and sophistication of its satellites, human space ﬂight program, and lunar exploration program. China appears to be taking an integrative innovation approach in which foreign technologies are built upon and improved rather than adopted wholesale. China’s space industry is also undergoing major organizational change in which it plans to enter the commercial space sector and leverage its expertise in space technology to manufacture civilian products. This two- pronged strategy is designed to make China into a strong space power on par with the United States, Russia, and Europe. However, the space industry risks overreach and losing focus as it takes on multiple large projects.

KEY WORDS: China, Space Industry, Innovation

China’s space industry is referred to as a strategic industry that ‘constitutes an important force in safeguarding national security, driving scientiﬁc and technological advancement, enhancing national 1

Downloaded by [University of Sydney] at 19:41 12 July 2011 comprehensive power, and boosting international competitiveness’. China’s space industry is in the midst of what it calls a period of ‘historic opportunity’ in which a peaceful international situation and favorable economic growth rates will allow China, and its space industry, to develop. Indeed, since 2000 China has made impressive gains in space power. It expanded its human spaceﬂight program, launched its ﬁrst lunar orbiter, and launched an increasingly diverse number of satellites. These successes have poised it for even more complicated missions before 2020.

1CASC Party Group, ‘Raise the Scientiﬁc Development Level of China’s Aerospace Enterprise ( )’, Qiushi ( ), 16 July 2009.

ISSN 0140-2390 Print/ISSN 1743-937X Online/11/030405-19 Ó 2011 Taylor & Francis DOI: 10.1080/01402390.2011.574983 406 Kevin Pollpeter

This paper examines China’s space industry by focusing on a two- pronged strategy of technological innovation and civil–military integration carried out by China’s leading space industrial organization, the China Aerospace Science and Technology Corporation (CASC). It ﬁnds that China’s space industry has embarked on an ambitious program of technological innovation and civil–military integration designed to transform CASC into a large world-class aerospace corporation. This includes establishing a remote sensing constellation and a global satellite navigation system, and orbiting a manned space station as well as establishing a series of ‘space bases’. Such projects are designed to strengthen regional economies through the development of space technologies and space technology-derived civilian products. Ultimately, the objective of the new system is to transform China from a major space power to a strong space power on par with the United States and Russia.2 CASC’s new system, however, appears to pose challenges for technological innovation. China’s space industry is now in the midst of developing more numerous, more sophisticated technologies than at any other time in its history while at the same time undergoing its most rapid organizational expansion. These organizational changes designed to foster civil–military integration also appear to be a reversal of defense industry reforms of the 1990s and 2000s wherein defense industry corporations were downsized to make them more proﬁtable and more responsive to the needs of the military. CASC is now asked to establish many subsidiaries that are tangentially related to its core mission of building satellites and launchers. China’s space industry thus faces the two risks of being (1) overloaded with too many responsibilities and (2) distracted by ancillary product lines. How this new system will eventually play out, of course, remains to be seen. But saddling the space industry with multiple large programs suggests that CASC’s managers will face severe challenges in balancing the requirement to make China into a strong space power with the requirements of economic development. Downloaded by [University of Sydney] at 19:41 12 July 2011

Technological Innovation Since 2000, the Chinese space program has made great strides in becoming technologically advanced. China has become just the third country to send humans into space, has begun a lunar exploration program, has introduced new series of remote sensing satellites, and is

2‘Liaowang: An Interview with CASC President Ma Xingrui ( ),’ 5www.spacechina.com/xwzx_mtjj_ Details.shtml?recno¼614204. Change in China’s Space Industry 407

beginning to establish a global satellite navigation system. Because of these efforts, China now ranks as a major power in the most risky of high technology areas. The technological development of China’s space industry is in large part governed by the 15-year ‘Medium- to Long-Term Science and Technology Development Plan’ (MLP). The MLP is designed to foster indigenous innovation ( ) capabilities and to enable Chinese industry to leapfrog in high technology areas.3 The meaning of indigenous innovation is ambiguous but appears to have three components: ‘original innovation; integrated innovation, the fusing together of existing technologies in new ways; and ‘reinnovation,’ which involves the assimilation and improvement of imported technologies.’4 The MLP governs 16 major science and technology project areas, of which at least two involve space technologies: human spaceflight and lunar exploration, and high resolution Earth surveying.5 Each of these project areas has their own sub-projects. The human spaceflight program, for example, encompasses the development of a short-term, smaller space station and the development of a larger, more permanent space station as well as the development of a new family of launchers. Lunar exploration involves sending satellites to orbit the Moon, landing a lunar rover to explore the Moon’s surface, and sending a spacecraft to collect lunar surface samples that will then be returned to Earth. The high-resolution Earth surveying project area includes remote sensing, meteorological, and navigation satellites. Assessing the exact nature of the innovation that has propelled China’s progress to date is difficult, however. Unlike other types of military equipment, which can be examined up close or even purchased and dismantled, satellite manufacturing processes and the secrecy surrounding space technology prevent a more informative discussion of what drives Chinese innovation in space technologies. Anecdotal information indicates that China has benefited from its relationship with foreign partners and that the People’s Republic has used foreign technology as a baseline that is then improved upon by Downloaded by [University of Sydney] at 19:41 12 July 2011 Chinese engineers. Extensive cooperation exists with Ukraine, for example. China and Ukraine signed a space cooperation plan for 2006– 10 covering 29 long-term projects on the joint development of space rocketry, earthquake monitoring and remote sensing satellites, and satellites to monitor and study space weather. The two sides also

3Cao Cong, Richard P. Suttmeier and Denis Fred Simon, ‘China’s 15-year Science and Technology Plan’, Physics Today, Dec. 2006, 38. 4Cao, Suttmeier and Simon, ‘China’s 15-year Science and Technology Plan’ 40. 5Only 14 of the 16 large projects have been publicly identiﬁed. The other two are presumably classiﬁed military projects. 408 Kevin Pollpeter

discussed adding 15 new programs, including projects for the exploration of the Moon and Mars, engine manufacture, welding in space, and use of solar energy.6 External assistance has been most transparent in China’s development of its space capsule, Shenzhou. China–Russia cooperation on human spaceflight was described in 2002 as of ‘important significance to China’.7 The similarity in appearance of the Shenzhou space capsule to the Soyuz-TM has led to accusations that the Chinese space capsule is a copy of the Russian spacecraft. Chinese sources acknowledge that Russia did provide assistance. In 1995, for example, China purchased a complete spacecraft life support system, an Energiya docking module, and a Kurs rendezvous system, which were used to dock supply craft with the Mir space station.8 But sources also state that 90 percent of the Shenzhou capsule was designed and built by China.9 The similarity in appearance between the Shenzhou and the Soyuz is not a coincidence, however. Before designing the Shenzhou, Chinese engineers looked at both the Soyuz and Apollo spacecraft designs and chose the Soyuz because of its long safety record. The engineers then set out to surpass the design of the Soyuz-TM.10 But there are important differences between the Shenzhou and the Soyuz. The Shenzhou is the largest spacecraft of its kind. The entire spacecraft weighs 7,790 kilograms and is 8.86 meters long11 compared to the 7,250 kg, 7.48- meter long Soyuz. The Shenzhou has two sets of solar panels compared to just one set on the Soyuz. In addition, the Shenzhou orbital module is outfitted with scientific equipment and optical imagers and remains in orbit for six months after the return of the descent module. The Soyuz orbital module does not have such equipment nor does it remain in operational orbit. China’s development of a global satellite navigation and positioning system may also be instructive. The Compass satellite system, also called Beidou, is China’s attempt to develop a global navigation satellite service equivalent to the US global positioning system (GPS). Downloaded by [University of Sydney] at 19:41 12 July 2011 6‘China’s CPMIEC To Expand Space Cooperation With Ukraine’, Russia & CIS Military Weekly, 7 Aug. 2009. 7Yi Yao, ‘China Emphatically Sketches Great Space Plan’, Liaowang, 21 Oct. 2002, 19. 8Brian Harvey, The Chinese Space Programme: From Conception to Future Capabilities (Chichester, UK: Wiley-Praxis 1998), 147. 9Deng Ningfeng (ed.), Dream About the Milky Way Fulfilled ( ) (Beijing: China Astronautics Press 2004), 367. 10Zhu Zengquan, ‘China’s Space Capsule: An Interview With China Human Space Flight Project Chief Engineer Wang Yongzhi ( )’, People’s Daily, 17 Oct. 2003. 11‘Facts and Figures: China’s First Manned Spaceship’, People’s Daily (online), 16 Oct. 2003. Change in China’s Space Industry 409

China’s first satellite navigation system, Beidou-1, is an experimental Radio Determination Satellite Service (RDSS) involving three satellites in geostationary orbit, at least one ground station, and customer receiver/transmitters. This system is fundamentally different from GPS in that it uses different technologies, only covers part of the Asian region, and achieves accuracies of around 50 meters. China’s new satellite navigation system, Beidou-2, however, is a significant departure from Beidou-1 and will use technologies similar to those used by GPS. The Beidou-2 constellation will provide global coverage with a constellation of 35 satellites made up of five geostationary satellites and 30 satellites in medium Earth orbit.12 Unlike Beidou-1,which did not contain atomic frequency standards, Beidou-2 satellites rely on atomic clocks to achieve precise navigation signals. US GPS satellites use cesium atomic clock technology. China’s Beidou-2 satellites, on the other hand, use a less capable type of rubidium atomic clock. China purchased 18–20 rubidium atomic clocks from the Swiss company Temex. The number of atomic clocks purchased from Temex, however, is less than the number of clocks needed for 35 satellites, each of which may need three to four clocks.13 The Chinese purchase of these atomic clocks suggests that Chinese engineers reverse engineered and then built upon the Swiss technology in developing the Compass system. These less capable atomic clocks, however, will only provide an accuracy of 10 meters, in comparison to the several meter accuracy of GPS.14 China’s development of a new family of space launch vehicles also suggests foreign assistance, albeit unintended. The new launchers will provide China with capabilities essential to its human spaceflight and lunar exploration plans, including launching a space station into Earth orbit and sending lunar rovers and return vehicles to the Moon. The new family is composed of three boosters that have been given the designations Long March 5, 6, and 7. Each of the launchers will carry a different payload, with the Long March 6 being the smallest and the Long March 7 being the largest. Downloaded by [University of Sydney] at 19:41 12 July 2011 The new family of Long March vehicles is a complete redesign of the first generation and represents a significant advancement in rocket

12Chen Quanyu, ‘The Second Beidou Navigation Satellite Successfully Launched ( )’, Aerospace China ( ), May 2009; and Liu Yueshan, ‘Beidou II Distributed Network Begun Positioning Accuracy Within Centimeters ( )’, China Space News ( ), 6 Jan. 2009. 13Ryan Caron, ‘Compass-SatNav or Galileo Bluff’, DefenseTech.org, 3 Aug. 2006. 14‘Expert: China To Offer Free Global Navigation by 2020’, People’s Daily (online), 18 April 2009. 410 Kevin Pollpeter

technology. The launchers will use liquid hydrogen, liquid oxygen, and liquid oxygen kerosene engines instead of the hydrazine engines used on the current generation of boosters.15 Hydrazine has been used because it ignites and is stored more easily than kerosene. The fuel used in kerosene engines packs more energy per pound and is non-toxic, but it requires liquid oxygen, which needs cryogenic storage.16 The new fuels are used on most Russian launch vehicles and the main engines on the space shuttle. China’s efforts to build liquid hydrogen launchers appear to have been aided by the illicit transfer of technology. In 2008, US business- man Shu Quan-Sheng pleaded guilty to illegally exporting cryogenic refueling technologies in 2003. This was followed by the conviction of Boeing employee Dongfan ‘Greg’ Chung in 2010 for illegally exporting Boeing technical manuals on the umbilical cord system that feeds liquid nitrogen fuel and liquid oxygen to the US Delta IV rocket. These cases, plus China’s relationship with Ukraine, provide strong evidence that China’s successful development of space technology has been, at least in part, the result of foreign assistance rather than original innovation. China may be following the same model with its other programs that it followed with the development of the Shenzhou space capsule, if Chinese statements that 90 percent of the Shenzhou space capsule is of Chinese design and manufacture are true. This suggests that China is following an integrative innovation approach to space technology where it may purchase foreign subsystems or components and then improve and adapt them to the overall Chinese system. This would be a logical approach, bypassing the need to ‘recreate the wheel’ yet giving Chinese engineers opportunities to hone their own skills in developing sophisticated technologies. Such an approach would also improve the ability of the space industry to meet its ambitious technology goals. Yet, simply attributing China’s progress in space technology mainly to foreign assistance does not fully explain its success. In fact, a combination of factors are necessary for successful space programs, and Downloaded by [University of Sydney] at 19:41 12 July 2011 these factors can challenge even the most seasoned veterans. First, space technologies are sophisticated. The Space Shuttle Main Engine (SSME), for example, was developed by Rocketdyne, a company with substantial experience from developing rocket engines for the Jupiter, Thor, and Atlas missiles. Rocketdyne received the contract for the SSME in 1970 but did not complete it until 11 years later due to its

15Guo Kun, ‘The Long March 5 Carrier Launch Vehicle Will Be Launched in 2014 ( ),’ People’s net ( ), 24 Jan. 2009. 16Bradley Perret, ‘Longer Marches’, Aviation Week and Space Technology, 15 March 2010, 22. Change in China’s Space Industry 411

complexity.17 Even the shuttle’s solid rocket boosters, intended to maximize use of existing technology, took five years to complete. Consequently, even if China has received foreign assistance, these technologies may need to be modified to work properly with Chinese components. Second, space technologies must be reliable. Failures tend to be catastrophic, with the complete loss of expensive launch vehicles and satellites, and in the case of human space flight missions, loss of life. Malfunctioning satellites cannot be repaired in orbit, although extensive measures can be taken by ground stations to resolve or work around problems. Aside from their technological complexity, making space technologies reliable is complicated by the extreme environments in which they operate. Launch vehicles, for example, will reach speeds in excess of Mach 20 in just minutes. When in orbit, satellites operate in the vacuum of space and can be subjected to large temperature extremes as they transition from darkness into sunlight. As a result, space manufacturers must institute a strict quality control system to ensure the reliability of components and systems. This is made more difficult by the relatively small numbers of components required by each system. When the program involves sending humans into space, these technologies must be even more reliable. This can include an extensive regime of vibration testing, wind tunnel tests, test firings, and thermal vacuum tests to identify weaknesses and verify performance parameters, which are repeated until no deficiencies are identified. Even so, reliability can be difficult to attain, especially when compared to other types of technology. The international average success rate for launch vehicles is around 95 percent, much lower than would be acceptable for aircraft, for example. Spacecraft and launch vehicles are also created by huge bureaucracies involving multiple systems and multiple entities. Systems engineering is key. Components must be installed in subsystems and then integrated with other subsystems, often built by other companies, to form a complete system. This involves knowledge not just of individual technologies, but also systems integration and organizational manage- Downloaded by [University of Sydney] at 19:41 12 July 2011 ment. The Shenzhou program, for example, involved 300 organizations and thousands of engineers working on 13 subsystems that then had to be integrated. This work was done by a relatively young engineering force with no prior experience in developing human-rated spacecraft. Organizational management is also key when considering the sheer number of new programs China is developing. In addition to the programs mentioned above, China has developed a new remote sensing platform, the Yaogan series, with improved optical sensors and

17T.A. Heppenheimer, Development of the Space Shuttle 1972–1981: History of the Space Shuttle (Washington DC: Smithsonian Books 2002), 125–72. 412 Kevin Pollpeter

completely new synthetic-aperture radar sensors. It has launched a new meteorological satellite, the Fengyun-3, with 11 different sensors, more than any other Chinese satellite.18 Each program involves its own design, R&D, and manufacturing team, its own technology, and its own set of testing and evaluation regimes. Any one program is a complicated system; taken together as a whole, China’s space program presents an impressive capability to mass and direct resources effectively. Lastly, the operation of spacecraft can also necessitate breakthroughs in new techniques and supporting infrastructure. China’s second lunar orbiter, Chang’e-2, for example, is said to have achieved breakthroughs in Earth–Moon orbit transfer launch, X-band monitoring, near-moon capture, moon orbiting control, and deep space tracking and control communications.19

Civil–Military Integration The second strategy for transforming China’s space industry into a large world-class aerospace corporation is organizational change intended to facilitate civil–military integration (CMI). The establishment of what is called a ‘new system’ for CASC was introduced at CASC’s Fourth Working Meeting on 25 July 2008. The new system involves a transition from concentrating on the three main industries of missile systems, astronautic technologies and products, and the civil space sector to concentrating on the four main industries of astronautic systems, missile systems, space technology application systems, and space services.20 Ultimately, CASC’s goal is to achieve a revenue of 250 billion yuan by 2015. In making this transition, CASC must transform from being a defense-oriented company to one that offers both military and civilian products. This new strategy builds upon CASC’s legacy as China’s primary manufacturer of satellites and launchers by requiring it to develop and market satellite application technologies and their associated services.21 CASC’s plan to expand more aggressively into Downloaded by [University of Sydney] at 19:41 12 July 2011

18Yun Feng, ‘Taking Aim at the Cutting Edge Building an Innovative Satellite ( )’, China Space News ( ), 16 Jan. 2009, 3. 19Chen Yuming, ‘Chang’e-2 Undergoing Comprehensive Testing, Will Head Towards the Moon Next Year ( )’, China Space News ( ), 28 Dec. 2008. 20Huang Quanquan, ‘CASC: Four Main Businesses Including Astronautic and Missile System Rapidly Advancing ( )’, Xinhua, 10 April 2009. 21CASC Party Group, ‘Raise the Scientiﬁc Development Level of China’s Aerospace Enterprise’. Change in China’s Space Industry 413

space commercial services and products is partially based on garnering an increased percentage of a steadily growing global space market. Revenue from the global space industry increased 7 percent to $261.61 billion in 2009. This is a 40 percent increase from $186.64 billion in 2005. Of this amount, 33 percent, or $86.7 billion, is made up of government space budgets. The largest portion of the space economy is commercial satellite services, which include telecommunications, Earth observation, and positioning services, and accounts for 35 percent of global space activity at $90.58 billion.22 CASC must offer products and services of sufﬁcient sophistication to compete internationally.23 CASC’s new system is also intended to leverage its high technology capabilities to manufacture and market civilian products. These include information services and technology, new materials, alternative energy products, special space technologies, special vehicles and vehicle parts, and space biological products.24 CASC will also offer ﬁnancial services and real estate. CASC’s decision to leverage its expertise in space technologies to manufacture civilian products is most apparent in industrial parks it calls ‘aerospace bases’. CASC has established a series of these bases in Beijing, Shanghai, Xi’an, Chengdu, Tianjin, Inner Mongolia, Hong Kong (Shenzhen), and Hainan. While each of these aerospace industry bases will have a direct space technology component, each also has an extensive civilian component. The main function of these bases is not to leverage the dynamic nature of the private economy to bring about more rapid innovation in aerospace technologies, however. Instead, their purpose is to leverage CASC’s expertise and technology to manufacture civilian-use products such as solar panels, integrated circuits, and agricultural products. For example, the Xi’an Base is the largest space industrial base and concentrates on satellite applications, civil space technology applications, and public services platforms, but it also is the core of Shaanxi’s efforts to develop an advanced semiconductor and solar cell industry.25 The most important space-related activity of the Tianjin Base will be Downloaded by [University of Sydney] at 19:41 12 July 2011 the manufacture of the new Long March family of launchers, but it will

22Space Foundation, The Space Report 2010 (Space Foundation 2010), 30. 23CASC Party Group, ‘Raise the Scientiﬁc Development Level of China’s Aerospace Enterprise’. 24‘CASC Will Concentrate on Building 8 Space Industrial Bases’ ( ), 5http://mil.news.sina.com.cn/s/2009-06-22/ 1033556173.html4; CASC Party Group, ‘Raise the Scientiﬁc Development Level of China’s Aerospace Enterprise’. 25Xi’an Space Base website, 5www.xahtjd.com.cn4. 414 Kevin Pollpeter

also be a base for unmanned aerial vehicle and Aerodynamic Flue Gas Desulfurization (AFGD) equipment R&D and manufacturing.26 The CMI aspects of the Hainan base are unique. The Hainan base will be China’s fourth launch center and offers three advantages over China’s other three launch centers, all related to geography. First, Hainan is closer to the equator than any other part of China. Because of this, launch payloads can be increased 10–15 percent and satellite life extended by two to three years, a factor important for developing the commercial launch market. Second, transportation issues will be eased by transporting rockets by sea from Tianjin rather than by rail. Third, launches will be directed over the ocean, which will permit launch debris to land in the ocean. The main civilian use of the Hainan base will be a space-themed amusement park and its associated hospitality services. In this regard, Hainan is positioning itself as the Chinese equivalent of Florida, which supports a large space launch center but also extensive entertainment activities for vacationers. The Inner Mongolia Base, on the other hand, is solely devoted to civilian products such as solar cells and biological products. In the case of the latter, the Inner Mongolia Base is involved in developing biological products that were genetically modified through exposure to space radiation while on Chinese spacecraft.27 The Hong Kong (Shenzhen) Base is also solely devoted to civilian uses. It will leverage Hong Kong’s importance as an international financial center to support aerospace corporations listed on the Hong Kong stock exchange. Perhaps in response to China’s real estate boom, this base also manages real estate matters for space corporations. It may also facilitate the growth of CASC as it establishes new corporations, which require new locations and financing before they can begin operations. The location of these bases in different regions of China demon- strates the space industry’s new role as an engine of regional growth. With this new system, CASC’s overriding mission is now explicitly to Downloaded by [University of Sydney] at 19:41 12 July 2011 meet the needs of the country’s economic interests, in addition to serving the needs of national security. In this regard, CASC’s efforts at CMI are more about economic development than technological innovation. Indeed, speeches by the CASC leadership suggest that this

26Suo Ahdi and Li Xingjuan, ‘Four Newly Added Bases to Foster Industrial Cluster ( )’, China Space News ( ); Chen Quanyu and Yang Jian, ‘Space Industry Bases Construction in Full Swing ( ),’ China Space News ( ), 30 Dec. 2008, 1. 27Suo and Li, ‘Four Newly Added Bases to Foster Industrial Cluster’. Change in China’s Space Industry 415

new system was developed in answer to Communist Party efforts to respond to the economic crisis that was brewing in 2008 as well as to President Hu Jintao’s ‘Scientific Development Concept,’ which, in part, is intended to ameliorate regional economic inequality. Such reorganization will dramatically increase the size of CASC and has necessitated changing CASC’s goal from becoming a world-class aerospace corporation to becoming a large world-class aerospace corporation. Indeed, the downsizing and rationalization of the 1990s and 2000s that was seen as imperative to the health of the defense industry appears to have been reversed. While it is not evident that the aerospace industry has had to fill its ranks with redundant personnel, the horizontal expansion forced upon CASC suggests that it is taking on many new organizations it will be forced to retain, regardless of performance. In fact, CASC may be challenged by mandates that may be at cross purposes to each other, namely, how to remain innovative and profitable while serving the Party requirements of job creation and retention. On one hand, CASC must respond to government directives to expand its business in ways that it might not have done otherwise. On the other hand, CASC is still required to function as a viable business. This is not to say that CASC’s new business plan is inherently flawed. Aerospace giants Lockheed Martin, Northrop Grumman, and Boeing have all expanded beyond their core functions into other defense- related technologies and services such as command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR), information systems, systems integration, and shipbuilding. But unlike CASC, these companies have stayed with their core defense and commercial aviation clientele and have not moved into other markets. Moreover, these companies expanded into new sectors only after being well-established aerospace corporations. CASC must undergo this expansion at the same time it is having difficulties manufacturing internationally competitive products. CASC’s move into non-defense sectors may also be based on limited opportunities for expansion into defense sectors beyond aerospace. Downloaded by [University of Sydney] at 19:41 12 July 2011 Whereas its US counterparts have been able to develop or acquire product lines to expand their defense business, CASC appears to be blocked from doing so since it would involve merging with another defense industrial group. To become more like a US aerospace company, for example, CASC would have to merge with the Aviation Industry Corporation (AVIC) so that the new company could offer both aviation and space technologies. A merger with its sister aerospace corporation the China Aerospace Science and Industry Corporation (CASIC), however, would appear to make more sense. CASC already is responsible for the bulk of the aerospace sector and there appears to be little competition between the 416 Kevin Pollpeter

two corporations since CASIC mainly focuses on missiles. Such a move would also not be unprecedented, since AVIC I and AVIC II were merged in 2008.

Commercial Launch and Satellite Markets Another aspect of CMI is China’s push into the commercial launch and satellite markets. CASC places great emphasis on commercial activities and listed international competitiveness as a major goal for the year 2009. Indeed, Yin Liming, president of the China Great Wall Corporation, has stated that China aims to capture 20 percent of the global space launch business by 2015.28 While the number of Chinese commercial launches is increasing, China is still some way from meeting its goal. The People’s Republic had just two percent of the 115 commercial launches worldwide from 2005 to 2009.29 Moreover, no Chinese commercial launches occurred in 2010, and only three commercial launches are planned for 2011, one for 2012, and two for 2013. To meet its goal, China would have to double or triple the number of contracts it now has. If China is successful in the commercial launch market, its reemerging presence portends more difficult times for established launch providers. The launch market is now effectively made up of the French company Arianespace and the Russian government. US companies Lockheed Martin and Boeing, cooperating in the joint venture United Launch Alliance, are priced out of the commercial launch market with launch costs 10 to 20 percent higher than their competitors.30 Arianespace, with an average of five launches per year, has the most to lose from Chinese competition, especially since China offers prices well below the competition. According to Arianespace chairman Jean- Yves Le Gall, ‘China offers prices which do not reflect economic reality’,31 and are ‘probably about three-quarters the cost’.32 In fact, the threat of Chinese competition to Arianespace is so serious that Downloaded by [University of Sydney] at 19:41 12 July 2011 Le Gall appeared to appeal to the US government for assistance in preventing Eutelsat from launching an ‘ITAR-free’ satellite on

28‘China Eyes 20 Percent Slice Of Global Space Market By 2015’, Space Daily, 12 April 2010. 29Space Foundation, The Space Report 2010, 31. 30Peter B. de Selding, ‘Satellite Firms Tap Warner in Bid for Wider Access to Launchers’, Space News, 16 September 2009. 31‘China to Build, Launch Satellite for Laos,’ AFP, 26 Sept. 2009. 32Doug Young, ‘China Trades Goods, Inﬂuence for Satellite Launches’, Reuters, 9 Nov. 2009. Change in China’s Space Industry 417

a Chinese launcher. Le Gall contends that the satellite ‘ﬂouts the spirit of the ITAR [International Trafﬁc in Arms Regulations] rule’ since ‘it does contain equally sensitive European-made components.’ Le Gall concluded that ‘Eutelsat’s decision to let China launch its satellite could be interpreted as being ‘‘hostile to the United States’’.’33 China has also steadily increased satellite exports following its launch of the Nigerian satellite Nigcomsat in 2007 and the Venezuelan satellite Venesat-1 in 2008. These include contracts to build satellites for Bolivia, Laos, and Pakistan as well as to launch a satellite for Nigeria to replace one that failed in 2007. There is also speculation that China is in talks with Bangladesh, Ecuador, Myanmar, Vietnam, and several African countries for the export of satellites.34 China’s entrance into the commercial satellite sector so far has had little effect on established satellite manufacturers. The satellites sold to Pakistan, Nigeria, Bolivia, and Laos were part of a package deal offered at bargain basement prices. Indeed, China’s approach to satellite exports has been to target countries unable to afford satellites from more established, higher-priced satellite manufacturers. China’s approach to these price-sensitive customers is to bundle satellite manufacturing, launch services, operations, and training into one package backed up by low-interest loans from China’s Export-Import Bank. Even so, China has so far avoided open competition with its competitors, preferring instead to sign contracts through one-on-one negotiations. Given this scenario, China has had only a minor effect on the international launch market since many of its customers would not have been able to afford non-Chinese satellites.

Conclusions China’s space program is undergoing profound changes in both technology and organization that aim to make CASC into a large world-class aerospace organization. In doing so it must successfully complete its major science and technology projects under the Medium- Downloaded by [University of Sydney] at 19:41 12 July 2011 and Long-term Science and Technology Development Plan while at the same time adhering to the political guidance given to it to support economic development through the establishment of space bases. The perceived ability of its space program to act as a driver of China’s development has led to impressive gains in space power since 2000.

33Daphne Benoit, ‘Ariane Chief Decries Pick of China For Satellite Launch’, AFP, 25 March 2009. 34Peter Brown, ‘China’s Satellite Diplomacy Shifts a Gear’, Asia Times, 6 Oct. 2009; and Sajjadur Rahman, ‘Bangladesh Plans To Launch Satellite: Negotiates With Leading Countries for Tech Support,’ The Daily Star Online, 27 Nov. 2009. 418 Kevin Pollpeter

China has expanded its human spaceflight program and launched its first lunar orbiter and an increasingly diverse number of satellites. But China’s space program is poised to make even more dramatic progress by 2020. Indeed, the first 20 years of the twenty-first century are described as a period of ‘historic opportunity’ for China’s space program. In reality, it is a period of historic challenges. More than at any other time in its history, the Chinese space program is taking on a growing number of increasingly sophisticated programs. And each of these have sub-programs involving new, highly complex technologies, most of them unprecedented in China’s technological history. At the same time that the Chinese space program is taking on critical technology development, it is also undergoing the largest organizational expansion in its history. Under this expansion, CASC will leverage its expertise in space technologies to offer commercial space products and services, alternative energy products such as solar cells, and services unrelated to space technologies such as real estate and financial services. With this unprecedented technological and organizational expansion, CASC’s goal has changed from becoming a world-class aerospace company to becoming a large world-class aerospace company by 2015. This is no small task. CASC’s president, Ma Xingrui, has admitted that CASC is a management and administrative system that is transforming into a defense industry corporation. In effect, CASC is not a true corporation, despite 12 years of market reform. It remains a government entity that is not properly organized to make a profit, develop innovative products, or respond to client needs, especially when compared to aerospace giants Boeing, Lockheed Martin, and European Aeronautic Defence and Space (EADS). It will require the space program to have strong indigenous innovation capabilities, and be technologically advanced, have a high degree of civil–military integration, and be internationally competitive. This new system even more stresses the market and the use of market measures to resolve problems.35 Downloaded by [University of Sydney] at 19:41 12 July 2011 Consequently, while China has made important advances in space technology, assessments must be tempered not only by what China has accomplished, but also by its level of technology in relation to other space powers. In fact, Chinese technology still lags behind the major space powers in most areas. For example:

. Chinese launchers have only recently achieved international reliability standards. China’s launch industry is now only beginning

35‘Liaowang: An Interview with CASC President Ma Xingrui’. Change in China’s Space Industry 419

to reestablish itself in the commercial launch market since its string of failures in 1995 and 1996. . The resolution of CASC’s satellite imagery is behind that of even commercial providers, if reports that the resolution of Yaogan imagery is 0.6–1.0 meters are true. Commercial imagery provider Geoeye, for example, advertises satellite imagery with a resolution of 0.5 meters. . The Compass global satellite navigation system will only provide 10-meter accuracy. In contrast, GPS provides accuracies of several meters. . China’s entrance into the satellite export market has been with customers who could not afford satellites from other major space powers. . China has an ambitious robotic lunar exploration program that plans to eventually land a spacecraft on the Moon and then return it to Earth. The United States, on the other hand, landed men on the Moon in 1969 and has successfully conducted a series of more complex robotic explorations of Mars. . Although China has improved its launch tempo since 2000 and in many years has managed to meet or exceed its European competitor, Arianespace, it has not surpassed Russia or the United States. However, for the ﬁrst time, China managed to equal the number of US launches in 2010 (see Table 1).

The Risks of CASC’s New System CASC’s new system poses risk for the corporation. One possible risk is doing too much too soon. As China’s leading space industrial

Table 1. Total Space Launches of Major Space Powers, 2001–2010

Year Russia United States Europe China

2010 31 15 6 15 Downloaded by [University of Sydney] at 19:41 12 July 2011 2009 29 24 7 6 2008 24 13 5 11 2007 22 16 5 10 2006 20 15 4 6 2005 26 12 5 5 2004 22 16 3 8 2003 21 23 4 6 2002 25 17 12 6 2001 23 22 8 1 Totals 243 173 59 74

Source: Information compiled from multiple years of the Futron Launch Report. 420 Kevin Pollpeter

organization, CASC is concurrently working on human spaceflight, lunar exploration, and precision Earth surveying programs. And each of these have sub-programs involving new, highly complex technologies, most of them unprecedented in China’s technological history. The human spaceflight program, for example, involves the development of a space station, docking technologies, simultaneous production of Shenzhou capsules, a new Long March series of launch vehicles (China’s largest rocket to date), and a human-rated launch vehicle. The lunar program involves a lunar orbiter, lander, and return vehicle. The precision Earth surveying program involves the development of global navigation technologies, including critical atomic clock technologies, and a diverse range of optical, radar, and microwave sensors. Under this scenario, CASC may experience the same types of problems that other companies, most recently Toyota, have experienced in which quick expansion led to quality problems. A second risk is distraction. CASC’s new role as a major player in China’s political economy with its emphasis on developing regional economies may divert CASC from its core functions of building satellites and launchers. Diversification carries risk and even companies that have diversified their core competencies, such as automobile manufacturer General Motors, have discovered that more is not always better. Indeed, it may not be a coincidence that the first year of CASC’s reorganization was also a year of setbacks for China’s space program. The year 2009 was described by CASC President Ma Xingrui as one ‘out of the ordinary’ in which CASC faced many ‘strenuous, complex, and formidable difficulties in research and development, production, testing, and flight’.36 CASC executed less than half the number of planned satellite launches, experienced its first launch failure since 1996, delayed the launch of the Tiangong-1 space station from 2010 to 2011, and lost two Beidou satellites due to control problems. Ma attributes these difficulties to typical problems encountered in leapfrog development. Nevertheless, Ma also states that even though these are new problems to CASC, they indicate that CASC’s knowledge Downloaded by [University of Sydney] at 19:41 12 July 2011 management system still needs strengthening.37 While CASC has established a solid technological basis for its satellites and launchers, each successive generation of technology brings with it new challenges that may require more know-how than its relatively young technicians and scientists can muster. In effect, as China’s space technology gets

36Ma Xingrui, ‘Successfully Complete All of 2010’s R&D, Production, Flight, and Testing Missions ( )’, China Space News ( ), 1 Jan. 2010, 2. 37Ma, ‘Successfully Complete All of 2010’s R&D, Production, Flight, and Testing Missions’ Change in China’s Space Industry 421

closer to international levels, there is a disproportionate increase in technological difficulty and a concomitant steepening of the learning curve. This poses the risk of additional technical setbacks before it reaches international technology levels. The space program’s performance in 2010, however, with its record-setting number of launches and no satellite failures suggests that CASC has taken successful corrective action. Despite the risks inherent in CASC’s new strategy, the central government has given high-level attention to China’s space program in the past and this attention will likely continue. CASC’s goal of making China into a strong space power is also a goal of the Communist Party and it is likely that failure to show progress in this area will result in corrective action being taken by the Party at the highest levels. Ultimately, CASC’s efforts are to transform China from being a major space power to a strong space power on a par with the United States and Russia.38 Even though China is now a major space power, Chinese space officials acknowledge that their space program still lags far behind the US and Russian programs. In this regard, China’s space program must take into account the national security and economic interests of the country.39 These include meeting the requirements of winning future wars, strengthening and expanding the economy, innovating, and being internationally competitive.40 China’s desire to be a strong space power also reflects its intention to compete with other space powers. While China has repeatedly stated that it is not in a space race, its actions demonstrate that it does regard the realm of space activities as an area of competition. China’s reemergence into the commercial launch market, for example, and its goal to develop a competitor to GPS indicates that the country’s rise as a space power will have military and economic ramifications for the United States and perhaps for Europe. What is also apparent is that China’s space industry has entered a new era of demanding technological development and organizational Downloaded by [University of Sydney] at 19:41 12 July 2011 change. It is unclear at this point whether the space industry can successfully balance its requirement to promote job creation with its

38‘Liaowang: An Interview with CASC President Ma Xingrui’. 39Zhang Guodong, ‘CASC Deepens Structural Reform To Build a New System for the Aerospace Science and Technology Industry ( )’, 5www.spacechina.com/zt_ggkf30/fzlc_details.shtml?recno¼ 581994. 40Ma Xingrui, ‘Diligently Strive to Build a Large World-class Aerospace Enterprise Group ( ),’ Aerospace China ( )’, Aug. 2008, 4–5. 422 Kevin Pollpeter

requirement to serve national security interests. Certainly risks to innovation in the ﬁeld of space technology and to China’s goal to be a strong space power are inherent in this approach.

Note on Contributor Kevin Pollpeter is China Program Manager at Defense Group Inc. (DGI). Before working at DGI, he was an analyst at RAND. Pollpeter has authored or coauthored numerous publications on the Chinese military and national security issues. His space-related publications include the monograph Building for the Future: China’s Progress in Space Technology During the Tenth Five-year Plan and the US Response and a book chapter entitled ‘The Chinese Vision of Space Military Operations’. He has also written frequently for China Brief. Pollpeter has also coauthored many works, including Dangerous Thresholds: Managing Escalation in the 21st Century and Entering the Dragon’s Lair: Chinese Anti-access Strategies and Their Implica- tions for the United States. Pollpeter received his master’s degree in international policy studies from the Monterey Institute of Interna- tional Studies and his bachelor’s degree in China studies from Grinnell College.

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