China's Future Investment Watch series
Antitrust, reform in education, real estate and medical care policies, Common Prosperity... all of these show that China is undergoing earth-shaking change. These changes have brought large uncertainty, making many investors afraid to invest in Chinese projects and companies. However, over the next decade, China sure will become the world's largest economy. How to better understand the opportunities and risks of the Chinese market and deal with certainty and uncertainty is a crucial problem. EqualOcean launched a series of research, China's Future Investment Watch, hoping to provide clues for global investors.
"To Infinity and Beyond" is the famous catchphrase of Buzz Lightyear in the movie Toy Story (1995). It inspires us to leave all our worldly things behind, going where to previously unthinkable and unimaginable places. Elon Musk is an out-and-out practitioner of this spirit.
Chinese people have also dreamed of exploring space ever since ancient times. Wan Hu, a legendary official who tried to become the world's first 'astronaut' by lifting himself into the heavens with rockets, is symbolic of the yearning. Since the founding of New China, the country has made a lot of efforts in its space race, most of which is supported by government funding. Since the start of the second decade of the 21st Century, the Chinese government has been encouraging private companies to develop commercial space interests. Several policies have been published to promote the development of China's commercial space industry, such as the National Medium- and Long-Term Development Plan for Civil Space Infrastructure 2015 to 2025 (Chinese: 国家民用空间基础设施中长期发展规划). In 2020, the whole market's revenue reached CNY 102 billion (close to EqualOcean's projection in 2020). Using the adjusted average growth rate of 22.1%, we expect China's commercial space market size to exceed CNY 300 billion by 2025.
The industrial chain of commercial aerospace is complex. The upstream is mainly made up of satellite manufacturing companies, while the midstream is divided into launching devices (including rocket manufacturing) and ground devices, and the downstream includes three different sub-sectors, which are satellite operations, satellite applications, and aerospace services.
As for the upstream, in the field of satellite manufacturing and supporting manufacturing, large differences exist in customer demand with high technical barriers, which is similar to some traditional manufacturing industries (rocket manufacturing is the opposite). Satellite manufacturing accounts for about 7% of the market by revenue. In recent years, the research and manufacturing of small satellites (lighter than one ton) with the characteristics of high-cost performance, short research cycles, and wide application ranges began to become the most popular direction of development. According to USC data, the number of global small satellite launches has increased 22 times in the past decade. This also determines that more companies with non-state-owned backgrounds can participate in this production link. Before 2018, Shenzhen Aerospace Dongfanghong and Changguang Satellite with state-owned assets background dominated the market. In recent years, private companies such as Smart Satellite Technology, ZEROG Lab, Spacetrek Technology, and Commsat have gradually emerged in mass customization services and on-orbit delivery of high-performance small satellites.
As for the midstream, as mentioned earlier, the midstream includes rocket manufacturing (satellite launch) and ground devices. Rocket manufacturing (satellite launch) belongs to a small field, accounting for only 3% of the industrial chain, while ground device accounts for 45% of the market share of the industrial chain. First of all, rocket manufacturing and satellite launches are characterized by high investment, high risk, and low-cost performance. At present, the mainstream launch vehicles in China's commercial aerospace industry are mainly solid-fuel rockets, but almost all companies are trying to develop liquid-fuel rockets because liquid-fuel rockets are more stable and lower cost. In the field of rockets launch, Aerospace Science and Technology with state-owned assets background are outstanding. In recent years, private rocket manufacturing companies have gradually emerged. As for ground devices, which are more important on the chain, mainly include network devices (gateway stations, NOCs, SNG) and consumer devices (satellite TV, satellite radio equipment, DARS, GNSS). Ground equipment is one of the most important links in the construction of a satellite network, which is as important as the downstream communication system. Companies in this field have high bargaining power, mainly for navigation, communication, remote sensing, and other application terminals. The representative companies include Seven Star Communication Technology, Corpro Tech, and Satpro.
The downstream of the commercial aerospace industry chain is composed of satellite operations, satellite applications, and aerospace services. Satellite applications are the main business model, accounting for about 35% to 45% of the market share of the whole industry chain. Satellite applications are mainly reflected in navigation, communication, and remote sensing. Satellite navigation mainly includes hardware manufacturing and location services. In this field, China's independently developed BeiDou navigation system is improving networking and gradually replacing GPS. Remote sensing is the most interesting field in recent years, and new application scenarios are constantly developed. Nowadays, remote sensing technology has been widely used in the fields of environmental monitoring, urban and rural planning, and disaster prevention. Satellite communication belongs to traditional aerospace applications, and there are many domestic-related companies. However, these companies still focus on high orbit large communication satellites, and it is an industry consensus to develop low orbit small satellites that can be better integrated with ground devices in the future. The downstream representative companies of commercial aerospace include GalaxySpace, Tianyi Space, and BD Star Navigation.
Although we believe that China has made many achievements in commercial aerospace, there is still a big gap from the U.S. commercial aerospace represented by SpaceX. However, we believe that China will surpass the United States as a leader in commercial aerospace in 14 years.
Gap: 12 to 14 years
SpaceX, by many means the leading company in the global commercial space area, is constructing Starlink with a network of 42,000 LEO satellites. The 100th flight of a Falcon 9 rocket delivered 51 satellites to orbit for SpaceX's Starlink network on 14 September 2021. The total number of satellites reached 1,791 (Orbit altitude 550 km/340 mi, 560 km/350 mi, and 570 km/350 mi) and 16 rockets were launched in the past 12 months. Meanwhile, SpaceX is developing Starship, an under-development rocket that will launch 400 Starlink satellites at a time.
When analyzing the development mode of SpaceX, the primary development stage of the company involved researching reusable rocket technology. Then, when equipped with low-cost reusable rocket launching technology, the commercial space company began to develop satellites and started its Starlink plan. In just one year (2019), beginning with no satellites, SpaceX became the world's largest commercial space company and orbiting satellites operator. Finally, receiving a large number of orders from commercial companies and governments helped the company turn a profit and consolidate its monopoly position. The development path of SpaceX offers a reference development strategy to Chinese commercial space companies.
By contrast, China's commercial space development is relatively late...
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