China’s drive to compete against Starlink for the future of orbital internet

The country is heavily investing in its own low-Earth orbit satellite constellations

There has been a wave of businesses over the past several years hoping to offer broadband internet delivered from thousands of satellites in low-Earth orbit (LEO), providing coverage of most of the earth’s surface.

This isn’t the first time we’ve seen excitement in the category. Companies and people that you have heard of — Bill Gates and Motorola, to name a few — invested billions of dollars into this business model two decades ago in an adventure that ended in many bankruptcies and very few people connected to the internet from low-Earth orbit. Yet, here we are 20 years later, witnessing billionaires from Elon Musk to Jeff Bezos and entities from SoftBank to the United Kingdom investing billions into broadband from space in a gold rush that began around 2015 and has only accelerated since the beginning of 2020.

During that same period, we have seen a parallel ascendance of China’s space capabilities. In tandem with the accelerated deployment of SpaceX’s Starlink constellation in 2020, China has rapidly responded in terms of policy, financing and technology, including most notably the creation of a “Chinese answer to Starlink,” namely constellation operating company China SatNet, and the associated GuoWang (国网, or National Net(work)) constellation.

While still in early development, SatNet and GuoWang are likely to compete in certain markets with Starlink and others, while also fulfilling what may be a similar strategic purpose from a government perspective. With considerable backing from very high-level actors, we are likely to see the rollout of a Red Star(link) over China (and the rest of the world) over the coming several years.

The rapid rise of Starlink

China’s LEO constellation plans cannot be understood in a vacuum. Like many other areas of high-tech investment, China’s actions here are partially reactive to developments in the West. The acceleration and expansion of Western LEO constellations in recent years — most notably Starlink — has been an accelerant to China’s own plans.

As recently as mid-2019, there were only a handful of LEO broadband satellites in orbit, most of them being early OneWeb satellite launches or the handful of Starlink test satellites. Plans had been announced for constellations of thousands or tens of thousands of satellites, but no company was capable of manufacturing or launching so many satellites.

The past 18 months have seen a dramatic transformation. Starlink has launched more than 1,700 satellites as of late May, making the organization the largest satellite operator in the world by number of satellites in orbit. That rapid rollout has also allowed the company to begin testing its communication capabilities with entities such as the U.S. Air Force and the Defense Department’s Space Development Agency (SDA). Meanwhile in July 2020, Amazon pledged an investment of $10 billion into its Kuiper constellation of more than 3,000 satellites.

In short, we have seen a rapid acceleration of the LEO constellation business model since late 2019/early 2020, with several very well-funded companies doubling down on their LEO plans. The business model still remains highly uncertain — and remember, all first-generation LEO constellations declared bankruptcy or otherwise failed to launch — but we have undeniably seen major progress. All the while, China has been conducting the delicate balancing act of building its own constellation.

LEO broadband with Chinese characteristics

Building a LEO broadband constellation is a complicated proposition in China, a country where the space and telecommunications industries are both heavily regulated and dominated by massive state-owned enterprises (SOEs) with significant monopoly (or at best, oligopoly) power.

In short then, no fewer than five major satellite factories have been commissioned or completed in China over the past 18 months.

Despite the complications, the Chinese government has moved decisively, passing regulations that have accelerated the buildout of an industrial base. This has included regulations in regard to satellite internet, satellite manufacturing and launch services, with most of these regulations having been passed since the beginning of 2020.

Prior to the recent acceleration, China’s LEO broadband constellation plans were more modest. The first major LEO broadband constellation project to be announced was the Hongyan (鸿雁) constellation of some 320 satellites, to be manufactured and launched by Chinese space industry goliath China Aerospace Science and Technology Corporation (CASC). The Hongyan constellation plan was soon followed by the similarly named Hongyun (虹云), a broadband constellation to be deployed by CASC’s longtime rival, the China Aerospace Science and Industry Corporation (CASIC). 

Both constellations were announced around 2017, and both had received significant funding commitments from their parent companies. However, as 2018 and 2019 passed, the two companies launched only a few satellites between the two of them and offered limited updates.

Accelerating at China speed

As SpaceX began routinely lofting clusters of 60 Starlink satellites into orbit every two weeks around late 2019, we began to see more activity in the Chinese LEO broadband space.

Arguably the first major sign was the April 2020 announcement by the National Development and Reform Commission (NDRC) that it had added “satellite internet” to a list of “New Infrastructures” (新基建). The New Infrastructures list refers to a handful of digital technologies that are being prioritized for development in China over the coming years, with buzz phrases such as 5G and IoT appearing on the list alongside satellite internet. The New Infrastructures list is a pretty big deal — for example, Chinese tech giant Tencent pledged in early 2020 to invest ¥500 billion (roughly $70 billion) into New Infrastructures.

Zhao Chenxin, secretary general of the National Development and Reform Commission, speaks at a State Council Information Office press conference about issues on fully implementing the new development philosophy and ensuring a good start of the 14th Five-Year Plan (2021-2025) on March 8, 2021 in Beijing, China. Image Credits: VCG/VCG / Getty Images

About two weeks after the commission’s announcement, China Unicom, one of the big three mobile network operators, revealed plans to develop satellite internet services for maritime, in-flight connectivity, and other verticals, while explicitly mentioning the NDRC announcement. 

Then in May 2020, Chinese commercial satellite manufacturer Commsat announced a ¥270 million (about $40 million) round of funding, with the money earmarked toward building a factory in Tangshan, Hebei Province, that would have an annual capacity of 100 small satellites per year, highlighting the NDRC ruling in the funding round announcement. Later in November, commercial satellite manufacturer Galaxy Space raised a new round of funding (amount undisclosed) at a valuation of ¥8 billion ($1.25 billion), making the company the first “unicorn” in Chinese commercial space. If the trend is not clear by now, the funding was earmarked for building the company’s “satellite superfactory” in Nantong, Jiangsu Province, with the factory aiming for an eventual production capacity of 300-500 satellites per year. Unsurprisingly, Galaxy Space also referred to the NDRC ruling in its funding round.

At the same time, CASIC designed and built a satellite factory in Wuhan, a process that apparently took 429 days, with around 60 of those days taking place during the very tight lockdown that was placed on the city during the early days of the COVID-19 pandemic. With an eventual manufacturing capacity of 240 satellites per year, the factory was completed in January 2021, and produced its first satellite in May. 

Not to be outdone, CASC has also been improving its mass-manufacturing capabilities via new factories in Tianjin and Chongqing, albeit in a far less public way than CASIC or any of the commercial players. The space industry incumbent will allegedly have production capacity of more than 100 satellites per year in Tianjin, with the Chongqing facilities not yet specified.

In short then, no fewer than five major satellite factories have been commissioned or completed in China over the past 18 months.

The dawn of GuoWang and SatNet

Discerning readers may have done some back-of-the-envelope math with the above numbers and thought, “huh.” Hongyan and Hongyun have plans for a few hundred satellites, and by the sound of it, China is developing capacity for potentially more than 1,000 satellites per year. There seems to be a supply-demand mismatch — what is the country going to do with all that spare capacity?

The answer came to us in two parts. First, throughout 2020, whispers began appearing in Chinese circles about a “GuoWang,” or “National Net(work)” that represented a larger, more comprehensive LEO broadband constellation. The rumors of GuoWang began to dovetail very nicely with filings made by China in 2019 and 2020 with a prefix “GW” to the International Telecommunication Union for constellations of many hundreds to more than 1,000 satellites. The total number of satellites specified by these filings was just under 13,000 — indicating a much bigger plan than Hongyan or Hongyun individually.

Second, in April 2021, we saw the creation of China Satellite Network Group Limited (中国卫星网络集团有限公司), a state-owned enterprise that will act as the operating company for China’s GuoWang constellation.

This seems to represent a major change in thinking by the Chinese government about constellations. Prior to the creation of SatNet, China’s constellation plans were small and disparate. Hongyan was a CASC project, meaning that all else being equal, it was very likely that when buying satellites and launch services, Hongyan would buy satellites and rockets from CASC or its subsidiaries. Similarly, Hongyun would have likely preferred to buy from CASIC. Following the announcement of SatNet, we saw the President of China Satcom — the state-owned satellite operator and CASC subsidiary — tell state media that Hongyan and Hongyun would be “undergoing major changes,” implying that they would be rolled into SatNet.

By making SatNet a centrally controlled SOE — directly under the state-owned Assets Supervision and Administration Commission (SASAC) — the powers that be have effectively allowed SatNet to source from anyone and to compete with anyone. SatNet has been brought into the world at the same level of the SOE hierarchy as not only CASC and CASIC, but also China Telecom, China Unicom and China Mobile.

It is hard to overstate the importance of this development, because essentially, the Chinese government has elected to draft from scratch an all-star team of leaders from many different backgrounds to head up a broadband network from space. This is likely preferable to the old way of doing things, namely trying to get state-owned enterprises like CASC and CASIC to compete with one another. Now, the government will let CASC and CASIC compete to supply an independent, equally ranked operating company with satellites, rockets and the like, and in theory that operating company can also buy products from commercial companies too (great news for Commsat). SatNet is an experiment in disruptive innovation in a startup environment with Chinese SOE characteristics, and its structure certainly took this correspondent by surprise.

In the month or so since the establishment of SatNet, we have seen several leadership appointments, including a chairman from the China Electronics and Technology Corp (CETC) with a background in electronic equipment, a general director from CASC with a background in satellite manufacturing, and board members from CASIC, CNSA and other established players. The CFO was recruited from the CNSA, an organization known in China for its financial honesty. The leaders of SatNet have already met with the city government of Chongqing to discuss developing satellite manufacturing, applications and related capabilities in the city and appear to have significant political clout to build out the network as they see fit.

More recently, the State Administration for Science, Technology and Industry for the National Defense (SASTIND) published regulations in mid-May on the “orderly development of the small-sat manufacturing industry.” While still quite vague, the document provides some guidelines for companies aiming to manufacture satellites that are less than 1,000 kg (effectively all LEO broadband satellites would be within this mass range).

So what now?

China’s efforts to roll out its own satellite broadband constellation remain far behind Starlink, OneWeb and other Western constellations. However, much of the required infrastructure on the ground has been built, with multiple satellite factories, significant launch capabilities and a plethora of companies developing different applications and related technologies. 

Moving forward, we may see SatNet start to award contracts for batches of satellites to different manufacturers, in an attempt to gauge competencies and test different technologies. At the same time, we may start to see state media discuss SatNet in the context of the Belt and Road Spatial Information Corridor, a space-based infrastructure project that aims to roll out, among other things, a global constellation of communications satellites.

From a more high-level perspective, we may start to see GuoWang integrated with other elements of the Chinese tech stack. For instance, Huawei builds a 4G or 5G network in a rural country? Connect the most hard-to-reach places via satellite. Baidu tries to roll out its Apollo autonomous vehicle on roads in far-off places? It’s conceivable that it would be connected via GuoWang. Dozens and dozens of Chinese state-owned enterprises engaged in activities such as mining, road-building and other projects in remote parts of the world? One could imagine they would be connected to GuoWang too.

Ultimately, we remain in the early days of the LEO broadband race. With multiple Western companies having raised money from some of the world’s wealthiest investors, we are almost certain to see the deployment of multiple LEO broadband constellations with more or less global coverage over the coming several years. For its part, China is unlikely to take the lead in this race anytime soon, but if recent developments are any indication, the People’s Republic has certainly picked up significant speed and may be coming to connect a remote area near you before too long.