Promoting Public-Private Partnerships in China's Space Sector

1. Supportive policies for the development of space projects through public-private partnerships (PPPs) in China

Motivated by strategies to encourage the development of public-private partnerships in infrastructure, at the end of 2016, when China announced its fourth five-year plan regarding the space sector in the form of a government White Paper [1], the policies related to non-governmental space activities contained therein were distinctly improved. Compared to its previous version, the 2016 White Paper singularly indicates that China’s space activities, monopolized for a long time by the government, can be developed in coordination with the private sector. Under this principle, resources should be allocated rationally, and social forces are encouraged to take an orderly part in space exploration. Furthermore, in April 2020, the China National Development and Reform Commission, for the first time, brought satellite internet into the scope of a new type of infrastructure [2], which provided new opportunities for the private sector to participate in space-related affairs and contribute to creating PPPs in space.

2. Challenges for the Growth of the Chinese Non-Governmental Space Sector in the Context of PPPs

Will policies to encourage PPP space programs be beneficial to the growth of the undeveloped private space sector in China? Positive answers could be given if the following challenges could adequately addressed:

(1) None of the policies has clearly addressed the specific scope of the ‘private’ party in conducting space PPP programs. Expressions applied in the 2016 White Paper and other relevant documents include 'nongovernmental investors' and ‘social forces’. This qualifies government-owned enterprises, recognized as 'social forces', to act as ‘private’ parties in PPPs. However, a government-owned corporation is commonly acknowledged to be the ‘public’ party in PPPs [3, 4], therefore, associated government-owned companies are rather advantageous and will replace the role of their private competitors in carrying out these partnerships.

(2) The government’s procurement of products and services from private providers is usually seen as the beginning of PPPs. However, in the space field, Chinese governmental users usually get the allocated space products and services free [5]. Moreover, no valid regulations have been formulated to authorize government users to purchase space products or services from non-governmental providers. Therefore, even if procurement is possible, the primary problems that need to be addressed are how to confirm a proper criterion for determining the price and how to decide the standard for evaluating the quality of products or services from the private providers.

(3) In addition to government procurement, most PPP practices in the field of space can be seen as cooperation between governments (especially local governments) and private enterprises. When acting as a public party in a PPP program, the local government is supposed to provide a friendly legal and political environment in specific cooperation areas to its private partners. Moreover, in many cases, the local government also funds cooperative programs. These are of relevance to the growth of private parties. On the other hand, however, most of the practices of established PPPs in China have shown that local governments prefer to invest in programs for which the companies themselves can get investment loans [6]. Local governments are more concerned about the company’s strength than the potential for cooperation with the private sector using the PPP framework. Government-owned enterprises are more appropriate to respond to local governments’ concerns in the space area than their private competitors in this form. In turn, local governments lack the motivation to shape a sound legal and political environment for nongovernmental corporations to get involved in space activities and create PPPs.

(4) State-owned enterprises are commonly recognized as public parties in PPPs. According to the ‘Notice on Promoting Orderly Development of Commercial Launch Vehicles’ released in 2019 (2019 Notice) [7], state-owned companies have been ordered to open their experimental facilities and workshops and provide services to private companies dedicated to developing commercial launch vehicles on the condition that a confidentiality agreement has been concluded between them. This is a kind of cooperation between the public and private sectors. However, the 2019 Notice does not describe any further rules for addressing the relationship between government-owned and nongovernmental companies in conducting commercial space-related activities. If this is applied to PPPs, it is evident that the special status that ‘private’ parties have on account of state-owned companies will make the creation of partnerships complicated.

3. Legal Approach to Addressing Challenges

Private participation constitutes the very precondition for conducting PPPs in the space field. At present in China, however, the unclear relationship between the military and civilian departments in administrating space-related activities, as well as the regulations that stipulate strict conditions for private entities to become involved in space activities, will harshly impede the growth of nongovernmental space activities. Therefore, only when private space enterprises are gradually established and developed by formulating or improving the existing rules and regulations can further improvements of the PPP rules in the space field be meaningful. Once the private space sector is well developed and capable of getting involved in partnerships, the PPP rules in space are recommended to be improved as follows:

(1) To ensure the application of favorable rules to real private entities in conducting PPP programs. What should be recognized is that the role of qualified ‘private’ parties in these partnerships cannot be changed in a short time. Consequently, PPP rules relevant to space activities should be formulated or improved upon by clearly addressing the supportive measures being implemented for nongovernment entities in PPPs. Additionally, the application of favorable measures should be distinguished between the nongovernmental and government-owned sectors.

(2) Improve the mechanism for government procurement of space products and services according to the policies stipulated by the 2016 White Paper (now the 2021 White Paper) [8]. The improvement could not be made only within the space law framework, the major authority of Chinese private space affairs, i.e., the State Administration of Science, Technology and Industry for National Defense (SASTIND), which has created a series of rules for administrating non-governmental space activities in China, is recommended to release rules under the Government Procurement Law.

(3) Establish regulations concerning cooperation between local governments and nongovernmental space corporations. To ensure smooth cooperation between government (including local governments) and private entities in conducting PPPs, the National Development and Reform Commission, the Ministry of Finance and the Ministry of Justice of China drafted a PPP Ordinance in 2017 (2017 Ordinance) [9]. This ordinance obliges local governments to provide a rational implementation plan as the precondition to initiate a PPP. Specific terms to illustrate risk sharing between local governments and their private partners and other relevant criteria are to be integrated into the plan. However, to date, the 2017 Ordinance is still under discussion. Once adopted, it will be significant to coordinate the relationship between local governments and their nongovernmental partners in PPPs, and relevant rules specialized for the space field can be created based on it.

(4) Form specific rules to guide the relationship between private space corporations and government-owned space companies. State-owned space enterprises benefit from acting as partners and competitors in the private sector at the same time. The 2019 Notice encourages state-owned enterprises to open infrastructure to private corporations when requested and describes the general obligations of state-owned companies when acting as public parties. However, it does not specify the standards that government-owned companies should observe when sharing their infrastructure with private companies. This will, as a result, hinder the access of private participants to infrastructure projects. In the context of pushing PPPs, SASTIND and other relevant ministries are requested to consider an improvement based on the 2019 Notice to address these deficiencies.

4. The 2021 White Paper and the Way Forward

In January 2022, China published its fifth White Paper, that is, 'China's Space Program: A 2021 Perspective’, to set clear guidelines for the further development of space activities in China over the next five years [8]. In this white paper, the policies to support nongovernmental space activities are contained in the section 'modernizing space governance'. Compared to the 2016 version, the new one stipulates more details for administering PPPs in space. It states that China should formulate guidelines on commercializing its space industry, and expand the scope of government procurement of space products and services. Moreover, the 2021 White Paper demands the relevant entities to open and share the major scientific research facilities and equipment to the commercial space enterprises. Another detail that should be observed is that the new version proposes to establish a negative list for market access to space activities, to ensure fair competition and the orderly entry and exit of participating enterprises. The space legislation plan is also mentioned in the new white paper. Similar to the 2016 version, it proposes to speed up the formulation of a national space law and a series of rules concerning specific space affairs to establish a space legal system.

The significance that the growth of nongovernmental space actors holds in the context of promoting PPPs in China has been confirmed by a series of policies. The new white paper proposes to support the commercialization of space by formulating guidelines. Meanwhile, the formulation of a national space law system has also been confirmed. It is expected that rules and measures to address the challenges in establishing PPP programs in space could be gradually created in the next five years.

About the Author

Mingyan Nie is an associate professor at the Law Faculty, Nanjing University of Aeronautics and Astronautics (P.R.C), where he teaches and researches space law and policy. His research interests include legal and political aspects in commercial space activities, regional space cooperation, space security, and safety. He received a Doctor of Law degree from the University of Cologne, Germany.

References