Blockade on China or the United States?
U.S. Regulatory Policies
on Space Technology Exports to China

Guo Xiaobing

There are two puzzles surrounding U.S. regulatory policies on space technology exports to China. First, among the major space faring nations, China is the only country that the United States has excluded from its space cooperation strategy. Europe and Japan have benefited greatly from their space cooperation with the United States. The former director of the Centre National d’Etudes Spatiales (CNES), even referred to CNES as a little baby of NASA. In the former Eastern Bloc, the United States has adopted an engagement policy and allowed for the establishment of a joint launcher with Russia and Ukraine to canvass business worldwide. This policy kills two birds with one stone. Not only does it reap the business benefits intrinsic in the advanced rockets of the former Soviet Union, but also highlights the security benefits of preventing space technology proliferation. The Iron Curtain is gone and the East and West have been cooperating, with the International Space Station (ISS) acting as an important symbol. However, there is no trace of Chinese participation in this international project.

The second puzzle is that despite this blockade by the United States, China’s space capabilities have improved tremendously with regards to manned space missions and satellite exportation. Conversely, the United States, though it is the implementer of sanctions, finds its own share of the commercial satellite market falling continuously. The ISS, advocated by the United States, has been in dire straits, mainly due to the breakup of the Columbia Shuttle.

In the face of these conundrums, the Chinese people cannot help but inquire: Why is the United States isolating only China? And why has this policy of isolation produced precisely the opposite of its intended result? Is the United States blocking China or has it put shackles on itself? Should the current policy be continued? This paper will make a brief review of these issues.

The “Continental System” in an Era of Globalization

The United States began imposing restrictions on space exports to China during the Cold War era. At the time, satellite and other space materials fell under the Coordinating Committee for Multilateral Export Controls (COCOM)1 industrial product list. To launch U.S.-made satellites or purchase relevant satellite materials made by COCOM members, China needed to secure COCOM approval. The legal basis for current U.S. regulations of satellite exports to China is the Foreign Relations Authorization Act of FY 1990 and 1991. This act forbids the use of Chinese rockets to launch U.S.-made commercial satellites. Consequently, an agreement was reached between the United States and China whereby an exemption must be obtained from the U.S. president for any U.S. commercial satellite to be launched by China. Moreover, the agreement stipulated that Chinese Customs cannot perform security inspections on U.S.-made satellites when they enter Chinese territory.2 While the satellites are inside China, the United States should implement 24-hour monitoring on the security of such satellites. During the administrations of George H.W. Bush and Bill Clinton, the mainstream view held by the U.S. government was that utilizing China’s low-cost space launch capacity would help strengthen U.S. business competitiveness and expand the market share of U.S. satellite markets. As a result, the United States adopted a fairly liberal approach to the issue of satellite exports to China. The dispensing power was exercised several times to allow the use of Chinese rockets to launch U.S.-made satellites.

In 1996, the Clinton administration transferred oversight of the export of satellites and other space materials from the State Department to the Department of Commerce. This decision further reduced obstacles to commercial satellite exports. Although it did not remove the ban of 1989, it did facilitate satellite export to China. Furthermore, it was a peak moment in the U.S. relaxation of its space export restrictions and promotion of free trade following the end of the Cold War.

The National Defense Authorization Act for Fiscal Year 1999 adopted by Congress in 1998 was a turning point in U.S. regulatory policies on space exports to China. Under this act, commercial satellites and other space materials were defined as munitions. Thus, oversight of such materials was returned from the Export Administration Bureau of the Department of Commerce to the Office of Defense Trade Controls of the State Department.

The cause of the above developments go back to the 1990s when a series of accidents occurred, especially the February 1996 explosion during a launch that resulted in the destruction of both the Chinese Long March 3B launch vehicle and its payload of U.S.-made Intelsat 708 satellites (produced by Space Systems/Loral). At the request of insurance companies, U.S. companies Hughes and Loral took measures to review the Chinese side’s investigation results. However, during the process they made a procedural error by sending their review report to the Chinese side without first submitting an application to the relevant U.S. authorities. Afterwards, the companies concerned took the initiative to report the situation to the U.S. Department of Commerce. The matter was itself purely a procedural error and the two companies transferred no technology of any kind to the Chinese side. However, some in Washington seized the opportunity to stir controversy, which evolved into a countercurrent against U.S.-Chinese commercial cooperation. Some congressmen exaggerated the significance of the incident, claiming that each time the United States exports satellites to China and makes payments to the Chinese government; it actually helps China, directly or indirectly, to improve its missile launch capabilities.

In March 1999, as noted above, the jurisdiction for licensing commercial satellite export was transferred to the State Department and commercial satellites were once again labeled as munitions, as they were prior to the 1996 reform. The legal basis for the State Department’s oversight of commercial satellite export thus became the ITAR (International Traffic in Arms Regulations) regime. The export procedures under ITAR are much stricter and more complicated than the Department of Commerce’s EAR (Export Administration Regulations) regime. Separate permits are required for the export of each article or technology falling under ITAR jurisdiction; several permits may therefore be required for the export of one satellite. Technical data require a permit, as does application and actual hardware export. A permit is further required when final shipment is executed. Satellite technology exports valued at $50 million or more, which includes nearly all satellite-related sales, require congressional approval prior to the State Department’s issuing a license. When articles under ITAR regulations are to be transferred, exported or re-sold by the initial recipient country, approval must first be obtained from the State Department. In addition, any commodity made in a foreign country is seen as a U.S.-made commodity so long as it contains parts or subsystems under ITAR regulations, regardless of quantity. The sale and export of these commodities also require permits from the State Department. In other words, following the regulatory changes, in order for a U.S. company (or a non-U.S. company using U.S.-made parts) to sell commercial satellites to China, a license (or series of licenses) from the State Department is required. Otherwise, companies (and nations) face the threat of sanctions.

After the export license jurisdiction was transferred, the U.S. Department of Commerce maintained oversight over non-sensitive space articles, such as space-qualified tape recorders. Unfortunately, the Commerce Department is not friendly either, as Chinese space-related end-users are on the top of the department’s black list.3 The Department of Commerce recently listed a total of 57 foreign entities that may not receive U.S. exports. Of those, 19 were Chinese, putting China at the top of the list of nations with blacklisted entities. Further, 11 of the 19 end-users were engaged in space research; the list included institutions of higher learning such as Beijing University of Aeronautics and Astronautics and Northwestern Polytechnic University of China.

Since 2000, the United States has, time and again, failed to approve any export license for a satellite sale to China on the grounds of missile technology proliferation. Despite their desire to cooperate, Chinese launch companies and U.S. satellite makers can do nothing about it.

In history, it is not uncommon for countries to use export control to weaken competitors. Generally, there are two means of regulation. The first is so-called target regulation. For instance, to prevent another nation from developing weapons of mass destruction, strict regulations on exports of specific nuclear, biological and chemical materials can be employed. To prevent another nation from developing its conventional forces, restriction of the sale of certain advanced weapons and military technology can be used. The second regulatory means is comprehensive regulation, which weakens another nation’s economic foundation through blanket restrictions on all types of civilian and military trade, thus reducing resources for use in military development. France’s “Continental System” policy serves as an apt example. Some 200 years ago, Napoleon strictly forbade countries on the European continent to trade with Britain in an effort to destroy the British economy. Those breaching the order would be executed, while those leaders instigating trade would be deposed. U.S. regulations on space exports to China belong to this category. Not only are military space items and technology regulated but so too are satellites used strictly for commercial purposes. Therefore, it is no exaggeration to refer to U.S. policy as a “Continental System” in the modern space field.

Both China and the United States Pay a Price

Has China paid a price for the U.S. policy of isolating China in space? The answer is partially affirmative. The U.S. regulations on space exports have indeed caused certain difficulties for the development of China’s space industry.

China is at a low point in terms of commercial satellite launches. It has been excluded from this market for six years. During the 1990s, China’s commercial satellite launch services flourished. Between 1990 and 1998, it sent 29 foreign satellites into space on behalf of more than 10 countries and regions. This accounted for seven-to-nine percent of the market and made China the third largest rocket supplier in the world. American satellite makers were the main partners of the China Great Wall Industry Corporation (CGWIC). After the U.S. government banned satellite exports to China, however, Chinese launch companies’ supplies were cut off and CGWIC suddenly had no satellites to launch. From that point through 2005, CGWIC has not launched a single foreign satellite. Europe and Japan have largely stepped in to capture the market share made available after China’s withdrawal.

The business activities of Chinese satellite operators were also affected. There are two important cases which illustrate the gravity of these losses. The first is that of China Satellite Communications Corporation (China Satcom), which signed a satellite purchase contract with Loral in 1997 for the ChinaSat 8 satellite. Under the contract, Loral was to build the satellite, while CGWIC was to use its Long March rocket to put it into orbit. However, the U.S. government was unwilling to issue a launch permit, with the result that ChinaSat 8 has been in storage ever since. China Satcom has suffered heavy losses as a consequence. Apart from the $130 million spent to purchase the satellite, it has also lost service revenue of over $300 million.

A second example is the case of the Apstar 5 satellite, acquired by the Hong Kong-headquartered APT Satellite Holdings Limited (APT). For identical reasons, the launch date for Apstar 5 has been postponed time and again. The direct result of this has been a decline in orders and the loss of customers for APT. For example, SingTel, an important customer of APT, has reduced the number of leased transponders from 15 to six. Apstar-1A, which is to be replaced by Apstar 5, has also seen its lease rate fall. Furthermore, as supplementary facilities have long been left idle, operating costs have increased. APT has built a completely new 50,000-square-foot satellite testing and control center along with a 125,000-square-foot telecommunication port, but because Apstar 5 cannot be put into space, the time taken to return the investment on these infrastructure facilities has been greatly extended.

Finally, China has been excluded from international space cooperation projects, such as the ISS, in part because of the difficulties relating to ITAR. As a result, the cost of its space research is higher, as there are fewer opportunities for China to learn from scientific exchange and the advanced management experience of developed nations through multilateral cooperation.

For U.S. Industry, Numbers Speak Volumes

As a result of the above state of affairs, Chinese launch companies and satellite operators have been hit hard, but are their American counterparts faring better? In fact, their situation is equally adverse, which is reflected in reports issued within industry circles, the government and independent research institutions. Data from the Aerospace Industries Association, which represents U.S. aerospace firms, show that the value of U.S. civilian satellite and satellite component exports dropped to $410 million in 1999 from its peak of $670 million in 1998, representing a sharp decrease in revenues of 39 percent. In 2000, it fell further to $170 million, down by 59 percent. As for communications satellites, U.S. companies were winning 76 percent of the total orders for geosynchronous orbit communications satellites in 1997. In 1998, they still maintained a 73 percent stake in the global market. Following the introduction of the U.S. policy of isolating Chinese space endeavors in 1999, this figure plummeted to 52 percent.4

Figures released by the U.S. Department of Commerce support the industry analysis. William Reinsch, undersecretary of commerce under President Bill Clinton, noted in his testimony to Congress in 2000 that U.S. satellite exports had already fallen by 40 percent just nine months after satellite export licensing was transferred from the Department of Commerce to the State Department.5

U.S. think tanks have also expressed deep concern over this loss of market share. In its 2002 report, Preserving America’s Strength in Satellite Technology, the Center for Strategic and International Studies (CSIS) noted that in 1995, U.S. satellite parts suppliers held 90 percent of the international market.6 By the year 2000, this figure had fallen to 56 percent. By contrast, European suppliers saw their market share grow to 34 percent in 2000 from less than 10 percent in 1995. If this trend is not reversed, CSIS warned that small and medium-sized U.S. satellite component suppliers would disappear from the market.7

Root of the Problem

Industry circles, the government and the think tank community all believe that the root of the problem lies in the transfer of satellite export licensing to the State Department in 1999. In other words, the transfer has brought five distinctly negative effects upon U.S. commercial space activities:8

● Prolonged delivery time. The State Department’s ITAR regulation procedure is complicated, requiring a fairly long examination and approval time. For international users, the length of satellite export permit examination and approval is a decisive factor. Intelsat and Eutelsat, both long-time customers of U.S. satellites, have all publicly stated their desire to procure European satellites rather than deal with the trouble of applying for U.S. export permits.

● Increased cost. The policy has made it impossible for U.S. satellite manufacturers to take advantage of China’s cheap and reliable space launch services, thus depriving them of having a price advantage in the international market.

● Obstacles in space launch insurance. European companies have captured the majority of the international space insurance market. The restrictive U.S. regulatory policy on satellite export adds a cost burden and technological hurdles in completing their risk assessment and other relevant work.

● Transit trade obstacles. The overseas jurisdiction right as stipulated in ITAR weakens the attraction of U.S. satellite components. In order to avoid U.S. export restrictions, French-based Alcatel is now making satellites without U.S. parts. It has spent millions of dollars to build a supplier base outside the United States.

● Missed business opportunities in China. Satellite business has been growing rapidly in China. There is a very large market demand for communications, weather and navigation satellites. To avoid the risks posed by U.S. regulatory policies, Chinese satellite service vendors have begun shifting their sights to other countries. APT Satellite Holdings Limited once bought four satellites from the United States: Apstar-1, Apstar-1A, Apstar-2R and Apstar-5. Due to the negative influence of the Apstar-5 fiasco, it recently chose Alcatel for purchasing its Apstar-6 satellite. France promised to issue an export permit unconditionally and the satellite will be launched by China’s Long March rocket. China Satellite Communication Corp. has bought no satellite from the United States since ChinaSat 8. Sino Satellite Communications Company Ltd. also did not consider the United States in the purchase of its new Sinosat 2, choosing instead the China Academy of Space Technology.

● Damage to U.S. companies’ reputation as reliable suppliers. This is the last aspect, but not the least in terms of significant long-term implications.



In the highly competitive space industry, any obstacles are sufficient to cause international customers to seek alternative means. Cooperating with China is an attractive option.

An International Club without ITAR

While the United States has distanced itself from China in space activities, other countries are growing closer, including Russia, several in Europe, Brazil, and a number in the Asia-Pacific region. There exists a wide range of cooperation in space between Russia and China. In the period of 2004 to 2006, 29 new cooperation projects have been initiated. China and Russia will launch a joint deep space exploration program in 2007 and join forces to explore the Sun and Mars.9 Deep space exploration is not China’s strength and cooperation with Russia will help China to speed the development of relevant technologies in this field.

With regard to the European Union, China was the first non-EU member state to take part in the Galileo project and has agreed to contribute 200 million euros. Throughout the first phase, it will invest 70 million euros in research. In addition, space cooperation projects between China and Europe include the “Double Star Program” and the “Dragon Program” between the European Space Agency and China’s National Remote Sensing Center. The “Double Star Program”10 has already achieved initial results, while the “Dragon Program”11 has played an active role in flood control and relief work in China. Drawing upon the high definition pictures provided by the satellite, the Chinese government is capable of making rapid disaster evaluation and initiating quick response. Sino-European cooperation will continue to expand, on Nov. 28, 2005, the China National Space Administration and the European Space Agency signed a space cooperation agreement, covering areas such as space science, Earth observation, communications, navigation and microgravity research.

The Earth resources satellite cooperation between China and Brazil can be heralded as a model of mutually beneficial cooperation. It not only improves China’s satellite R&D ability but also allows Brazil to acquire independent remote sensing imaging through launching CBERS-2.12 Brazil no longer needs to rely on U.S. Earth resources satellites to provide ground pictures. China and Brazil have also explored the possibility of jointly researching and developing weather and communications satellites, signing a cooperative agreement in 2003.

China has had success in multinational cooperation in Asia as well. It has promoted the establishment of the Asia-Pacific Space Cooperation Organization. Headquartered in Beijing, APSCO is an organization that aims to foster multilateral cooperation in the application of space technology amongst its members which include Bangladesh, China, Indonesia, Iran, Mongolia, Pakistan, Peru, Thailand, Argentina, Malaysia, Russia and Ukraine.

China is a strong partner as its reliable and low cost space hardware and services offer an attractive option for these countries. China has fairly mature space launch capabilities and a burgeoning satellite industry. Cooperating with China allows partner countries to reduce their burden and lower risks. At the same time, it allows them to skirt U.S. regulatory obstacles. With the exception of the United States, no country classifies commercial satellites as munitions. Furthermore, only the United States views foreign satellites that contain American made components as its own product and therefore subject to stringent U.S. export controls. Many of the countries partnering with China are fed up with the U.S. practice of imposing its own standards on others.

In March 2004, the British newspaper The Observer pointed out in a discussion on the reasons for developing the Galileo system that U.S. policies do not sufficiently consider others’ interests.13 It noted that (Europe) should not trust the United States in developing its satellite positioning system. Jacques Blamont, former CNES director, who acknowledged the close association between his center and NASA, said that an international network to avoid ITAR regulations has gradually formed due to the increasing frustration with U.S. regulatory policies. Countries including Russia, China, India, Japan and Europe, as well as other organizations, have collaborated to circumvent the use of U.S. satellite components. Though he says this trend is likely to increasingly define the international satellite export market, it does not mean these countries will formally organize against the United States. Rather, such moves will likely be decided based on the needs and interests of individual companies and nations.

China has gradually shrugged off its depressed position in the international commercial satellite market. On April 12, 2005, China successfully launched the Apstar-6 satellite for APT, signaling a formal return to the international commercial launch market. In the development of its space industry, China has also overcome the handicap of being ‘strong in one leg and weak in the other;’ that is, having strong launch capabilities but weak satellite manufacturing capacity. Now, its satellites have also begun to enter the world market. In 2004, China made a breakthrough with the export of a satellite to Nigeria and another one to Venezuela in 2005. Both these satellites were launched by Chinese rockets.

Getting Back on Track

Based on the above analysis, the following conclusions can be discerned regarding U.S. regulation of space exports to China:

● The U.S. restrictions on commercial satellite exports to China, in place since 1999, are an overreaction based on groundless suspicions. The purpose of these restrictions is to obstruct China’s development of space and missile capability by denying China access to advanced American space technology and the international commercial satellite launch market.

● From the end of 1990s to 2003, the policy put China’s commercial space activities in a difficult situation. However, with the rise of its overall economic strength, independent innovation, and the forging of wide-ranging space cooperation relationships with countries, China has made breakthroughs in crucial space technology development. As a result, the U.S. policy has lost its relevance in isolating China.

● U.S. satellite makers are the biggest victims of the U.S. policy. Since 1999, they have lost their advantageous position in the international market. U.S. space security interests will also be harmed.



It is in the long-term interests of the United States to correct the wrong decision made in 1999 and return to the policies of free trade pursued by the administrations of George H.W. Bush and Bill Clinton. Nurturing China’s growing space activities through contact and cooperation will be beneficial for both China and the United States.

After Shenzhou V successfully carried China’s first taikonaut into space, Sun Laiyan, director of the China National Space Administration, expressed China’s sincere desire to cooperate with America during his U.S. visit. However, this idea was met with skepticism; the United States insists that since China lags behind by more than 20 years in terms of space capabilities, it is not in a position to cooperate with the United States.14 The truth of the matter is that while China still has some weak points in space development, it also has many areas of strength and thus the two countries can, at the very least, engage in fruitful cooperation in two main respects.

First, the U.S.-led ISS has found itself in a difficult position following the U.S. space shuttle accidents. As a result, projects undertaken by the United States have been delayed from time to time. Currently, transportation of personnel between Earth and the station rely completely on Russian spacecraft. Much uncertainty has therefore been added to the construction of the space station and there have been instances of astronauts unable to return to the Earth on time. As China’s manned space flight technology gradually matures, adopting Chinese spacecraft as a backup transport would provide for a more stable and secure operation of the space station. The cost of building the station will also decline significantly following China’s participation. Presently, each launch of a shuttle costs the United States approximately $1 billion, while Russia spends even more per launch. China’s manned space flight program has been proven to be safe and reliable. China has now used the Long March rocket series for 42 consecutive successful launches from 1996 to 2005 without incident, effectively ending the incident-prone period in the mid-1990s. More importantly, China’s participation in the building of the ISS could further highlight the symbolic meaning of Eastern and Western integration.

Second, the United States should take advantage of China’s low-cost space launch capability and jointly develop the international commercial satellite market. Some industry experts believe that if the United States made full use of China’s launch capacity in the next five years, it would be possible to bring $8 billion worth of benefits and 16,000 job opportunities to the U.S. space industry.15

The United States harbors two major concerns about using Chinese space firms. The first is that Chinese rockets will take business away from U.S. space launch companies. In fact, China’s Long March (LM) rocket series is not yet in a position to compete on the international market with the U.S. Delta or Hercules rockets, Europe’s Ariane or Russia’s Proton. The LM series is only a competitor to Japan’s H-2A and India’s GSLV. Also, the orders that China can acquire have a thin profit margin and will not cause an impact on U.S. space launch companies’ client base.

The second concern is that China will use trade in the space sector to obtain U.S. ‘technology secrets.’ However, several factors have made this increasingly irrelevant. A guiding principle of China’s space program development is self-reliance and attaining independent intellectual property rights for space technology. China’s achievements in manned space flight and satellite research and development have amply demonstrated its independent R&D prowess. China does not need to rely on U.S. technology to make progress. Furthermore, it would be difficult to integrate outside technology with China’s own, as China has developed its own standards for rockets and satellites.

Finally, the satellite launch agreements signed by China and the United States during the late 1990s contained strict regulations regarding technology safeguards. If these regulations are adhered to, the chances of unsanctioned technology transfer can be minimized. Those companies that made a procedural error in 1996 have already learned their lessons and strengthened their internal compliance system. Thus, chances for repeat mistakes are very slim.

The overall Sino-U.S. relationship is improving. The two nations have been cooperating closely in the global war against terror, the nuclear issue in the Korean peninsula, and on global security. Bilateral economic ties are closer than ever. Currently, 80 percent of Wal-Mart’s supplies come from China.16 U.S. Deputy Secretary of State Robert Zoellick’s characterization of China as a stake-holder instead of strategic competitor is accurate. U.S. insistence on isolating China in space is incongruous with the larger scheme of developing bilateral ties. Such a policy is an insult to the Chinese and has harmed the United States. It is high time the United States charts a new course and disposes of a policy that has not only failed in its goal of preventing China’s development in space, but has alienated China and fueled an adversarial relationship between the two countries.



Endnotes
1.The Coordinating Committee for Multilateral Export Controls was a non-treaty organization that cooperatively restricted strategic exports to communist blocs during the Cold War.
2. China and United States signed Memorandum of Agreement on Satellite Technology Security on Feb. 11, 1993, in Beijing.
3. The official name for this is the “Entity List.” It lists end-users to which the export of space-related, dual-use items is banned.
4. Lin Feng, “Telecommunication Satellites of Europe and the United States: A Brief Introduction of History and Current Market Competition,” The Journal of Aerospace China, Issue 9, 2001.
5. William A. Reinsch, Testimony of the Under Secretary Before the Senate Foreign Relations Subcommittee on International Economic Policy, Export and Trade Promotion, June 7, 2000.
6. Center for Strategic and International Studies, “Preserving America’s Strength in Satellite Technology: A Report of the CSIS Satellite Commission,” CSIS Press, April 2002.
7. James Lewis, “Preserving America’s Strength in Satellite Technology: A Report of the CSIS Satellite Commission,” CSIS 2002.
8. “Five-Year Period of Tribulation in Sino-US Satellite Trade,” 21st Century Business Herald, Nov. 30, 2003.
9. “Russia and China will Cooperate on Moon Landing and Mars Project as Exploration Goal,” Global Times, Nov. 4, 2005.
10. The mission of Double Star Project is to monitor the interaction between the solar wind and the Earth’s magnetic field. See: http://www.cnsa.gov.cn/jdhg/show.asp?id=7735.
11. The Dragon Program features the satellite remote sensing for monitoring in the areas of agriculture, flooding, forestry mapping, forest fires, as well as oceanography research. See: http://www.cnsa.gov.cn/jdhg/show.asp?id=1851.
12. Sino-Brazilian Earth Resources Satellite 02 consists of Payload Bay and Service Platform, with a designed life span of two years. It can cover the entire surface of the Earth in 26 days. The box-shaped satellite, with a mass of 1,540 kilograms, is powered by a single-wing solar array.
13. Jacques Blamont, “International space exploration: Cooperative or competitive?” Space Policy, 21(2005) pp. 89-92.
14. Tariq Malik, “U.S. Snubbed China’s Offer for Space Cooperation: ‘Technology Not Mature’,” Space.com, April 28, 2004.
15. “U.S. Government Erects Barriers: Five Years of Hardships in Sino-U.S. Satellite Trade,” Jinrongjie, Dec. 2, 2003. See: http://www.p5w.net/p5w/home/domestic/200312022088.html.
16. “Chinese Workers Pay for Wal-Mart's Low Prices,” Washington Post, Feb. 8, 2004.