China satellite launch

Continuing our look at the U.S.-China Economic and Security Review Commission’s 2019 Report to Congress, we examine how China is leveraging foreign technology to improve its space program. [Full Report]

by Douglas Messier

Managing Editor

China has been building up its domestic space industry through partnerships with foreign universities and by exploiting loopholes in U.S. export laws, according to a new report from the U.S.-China Economic and Security Review Commission.

“The pursuit of foreign technology and talent, especially from the United States, continues to be central to military-civil fusion and China’s space development modernization goals,” the report stated. “Under military-civil fusion, so-called ‘guidance funds’ pool state-owned and private capital together for investments, allowing the state to steer ostensibly private capital toward investments in nascent dual-use sectors it deems strategically important—a tool China has consistently applied to the development of its space sector.”

Students enrolled in foreign STEM programs are on the front line of military-civil fusion. They are “treated like employees of China’s defense industrial base. Defense enterprises regularly provide living stipends during their studies in return for service commitments,” the document added.

The Beijing University of Aeronautics and Astronautics, aka, Beihang University, claims to have links with 152 universities in 40 nations. The school describes itself as the “leader and backbone” of China’s aerospace and defense industry.

“Beihang, which conducts research supporting China’s planned lunar research station and space-based solar power, among other things, has collaborated on space-related science and technology with a number of U.S. universities despite being on the Entity List maintained by the U.S. Department of Commerce’s Bureau of Industry and Security—a list comprising persons subject to specific license requirements under U.S. export controls—since 2005,” the document noted.

Other Chinese universities focused on STEM education have established ties with foreign schools, including dual-degree and student exchange programs.

There have been incidents where students were not allowed into the United States to study.

“In August 2019, nine Chinese undergraduate students at Arizona State University were detained by U.S. Customs and Border Protection officials in Los Angeles and then denied permission to re-enter the United States to continue their studies,” the report stated. “Customs and Border Protection deemed them inadmissible and sent them back to China, citing unspecified information discovered during the inspection process.”

Exploiting Loopholes to Access Controlled Satellite Technology

Despite the United States’ “complete embargo” on military, dual-use, and commercial space-related technologies, China is still finding ways to access controlled satellite technology.

One way China does this is by going through Hong Kong, which enjoys special customs status under a U.S. law passed in 1992.

“For instance, the Wall Street Journal reported in December 2018 that a Los Angeles-based startup, Global IP, had received about $200 million in funding originating from a Chinese state-owned financial firm, China Orient Asset Management Co., to buy a Boeing-constructed satellite,” the report stated.

“A Chinese businessman, Charles Yiu Hoi Ying, set up a cut-out company for China Orient in the British Virgin Islands to conceal the money’s connection to the Chinese government,” the document added. “Because he held a Hong Kong passport and was thus able to take advantage of the region’s special export control status, he was then able to invest China Orient’s money in Global IP. The deal ultimately was canceled due to nonpayment.”

Earlier this year, Cloud Constellation Corporation backed out of a $100 million investment from Hong Kong-based HCH Group following a review by the U.S. Committee on Foreign Investment. HCH is a subsidiary of Haier Group, an electronics company with suspected ties to the Chinese government.

“An additional loophole allows Chinese entities barred from investing in or acquiring U.S. satellites to leverage U.S. satellite capabilities by renting their bandwidth—a problem U.S. export controls were not originally designed to address,” the report said.

The 2019 National Defense Authorization Act includes a provision to close the loophole that has not been implemented yet.

The relevant sections of the report are below.

Leveraging Foreign Technology to Achieve Space Goals

The pursuit of foreign technology and talent, especially from the United States, continues to be central to military-civil fusion and China’s space development modernization goals. Under military-civil fusion, so-called “guidance funds” pool state-owned and private capital together for investments, allowing the state to steer ostensibly private capital toward investments in nascent dual-use sectors it deems strategically important—a tool China has consistently applied to the development of its space sector.

Assistant Secretary of State for International Security and Nonproliferation Christopher A. Ford testified to the Commission that universities are the “front line” of military-civil fusion, and students enrolled in foreign science, technology, engineering, and mathematics programs are treated like employees of China’s defense industrial base. Defense enterprises regularly provide living stipends during their studies in return for service commitments.

Chinese universities that contribute to China’s defense modernization goals also aggressively pursue research partnerships with prominent U.S. and other foreign universities, especially in aerospace research, raising concerns about export controls since the research resulting from these partnerships may ultimately contribute to China’s military.

Several notable Chinese universities are especially active in carrying out international academic cooperation to advance China’s space development. For example, Beijing University of Aeronautics and Astronautics, also known as Beihang University, describes itself as the “leader and backbone” of China’s national defense and aerospace industry.

Beihang, which conducts research supporting China’s planned lunar research station and space-based solar power, among other things, has collaborated on space-related science and technology with a number of U.S. universities despite being on the Entity List maintained by the U.S. Department of Commerce’s Bureau of Industry and Security—a list comprising persons subject to specific license requirements under U.S. export controls—since 2005.

In November 2012, Chinese Communist Party mouthpiece People’s Daily praised Beihang for its long contribution to the modernization of China’s national defense and military. People’s Daily cited the 2005 establishment of a joint Beihang engineering institute with the French Central Polytechnic University Group as aiming to “cultivate high-end, world-class, and top-notch innovative talent” by combining international standards with China’s national conditions.

According to China Daily, Beihang has links with 152 universities in 40 countries, including in the United States, and at least some of them—such as with The Ohio State University College of Engineering and Arizona State University *—have been verified. However, not all of Beihang’s claims are accurate. A spokesperson for the University of California, Los Angeles, for example, flatly denied the existence of a joint laboratory that Beihang claimed to have established with the university.

Chongqing University, which claims to have established cooperation with 115 universities in over 20 countries, including the United States, Canada, and other countries with advanced science and technology, is another notable elite Chinese institution active in promoting aerospace cooperation.

China University of Science and Technology, Shanghai Jiaotong University, the Harbin Institute of Technology, and others have also established dual-degree and student exchange programs focusing on science and technology innovation with U.S. universities.†

Beijing Exploits Loopholes to Access Controlled Satellite Technology

Kevin Wolf, former Assistant Secretary of Commerce for Export Administration, testified to the Commission that U.S. export controls of military, dual-use, and commercial space-related technologies concerning China effectively amount to “a complete embargo.”

These controls have been strengthened by the addition to the Department of Commerce’s export controls of a strict rule mandating that any spacecraft or space asset containing a U.S.-origin component, regardless of the component’s value or end use, will always remain subject to U.S. jurisdiction, no matter where it is in the world.

Furthermore, then Assistant Secretary Wolf implemented a rule in January 2017 imposing additional requirements for exports and re-exports to Hong Kong—which enjoys special customs status under the U.S.-Hong Kong Policy Act of 1992—by leveraging the Export Administration Regulations to compel Hong Kong authorities to provide proof of compliance with Hong Kong law.

Despite these strong regulations, Chinese entities have nonetheless been able to acquire stakes in U.S. space companies due to legal loopholes, especially those relating to Hong Kong. For instance, the Wall Street Journal reported in December 2018 that a Los Angeles-based startup, Global IP, had received about $200 million in funding originating from a Chinese state-owned financial firm, China Orient Asset Management Co., to buy a Boeing-constructed satellite.

A Chinese businessman, Charles Yiu Hoi Ying, set up a cut-out company for China Orient in the British Virgin Islands to conceal the money’s connection to the Chinese government. Because he held a Hong Kong passport and was thus able to take advantage of the region’s special export control status, he was then able to invest China Orient’s money in Global IP. The deal ultimately was canceled due to nonpayment.

Other Chinese companies with Hong Kong subsidiaries have pursued similar investments. In December 2018, Cloud Constellation Corporation, a U.S. startup focusing on establishing a network of cloud computing servers based in LEO, received a $100 million funding commitment from HCH Group, a Hong Kong-based subsidiary of Haier Group, a major Chinese electronics and appliance giant with suspected ties to the Chinese government.

An additional loophole allows Chinese entities barred from investing in or acquiring U.S. satellites to leverage U.S. satellite capabilities by renting their bandwidth—a problem U.S. export controls were not originally designed to address.

A notable example is the Hong Kong-based satellite operator AsiaSat, which has Chinese government and military end users despite operating satellites with controlled U.S. technology. According to an April 2019 Wall Street Journal report, the Chinese state-owned firm Citic Group, which co-owns AsiaSat alongside the U.S.-based Carlyle Group, rents satellite bandwidth to Chinese state-owned telecommunications companies, which then parcel out their rented bandwidth to Chinese military and intelligence entities. Four U.S. administrations, most recently in 2017, have approved this arrangement.

AsiaSat does not regulate the content its satellites carry, and the Chinese government has used these satellites, for example, to maintain government communications during police crackdowns in Xinjiang and Tibet in 2008 and 2009 and to provide internet access to China’s military bases in disputed regions of the South China Sea in 2016.

Another Hong Kong-based company, CMMB Vision—which enjoys high-level Chinese government support and whose work the National Development and Reform Commission has designated a “key national development project”—contracted Boeing in 2015 to construct an advanced satellite.

According to the Wall Street Journal, the satellite is being built on behalf of CMMB Vision’s New York-based partner company, which will then lease the satellite’s capacity back to the Hong Kong company for use in promoting the Space Silk Road and improving the accuracy of Beidou.

The National Defense Authorization Act for 2019 contains a provision that would allow the U.S. government to close this bandwidth-leasing loophole, but it has yet to be implemented.

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* In August 2019, nine Chinese undergraduate students at Arizona State University were detained by U.S. Customs and Border Protection officials in Los Angeles and then denied permission to re-enter the United States to continue their studies. Customs and Border Protection deemed them inadmissible and sent them back to China, citing unspecified information discovered during the inspection process. Rachel Leingang, “9 Chinese ASU Students Detained at Los Angeles Airport, Denied Admission to U.S.,” Arizona Republic, August 30, 2019.

† U.S. universities that have established these dual-degree programs with the University of Chongqing include the University of Cincinnati; the University of North Carolina at Wilmington; Tulane University; Michigan Technological University; and University of Arkansas, Fayetteville. The Chinese universities mentioned above signed a cooperation agreement with the Strategic Support Force in 2017 under which the military would, among other things, “[promote] exchanges between experts and scholars.” For more details, see U.S.-China Economic and Security Review Commission, Hearing on China in Space: A Strategic Competition? written testimony of Namrata Goswami, April 25, 2019, 249–251; Xinhua, “Strategic Support Force Cooperates with Nine Local Units to Cultivate High-End Human Talent in New-Type Combat Forces” (战略支援部队与地方9 个单位合作培养新型作战力量高端人才), July 13, 2017. Translation.