Lift-off for China’s controversial corporate colossus

Sitting on top of the pyramid with one eye on the stars, this corporate colossus casts a huge shadow in the land of the giants.

But like the majority of state-owned enterprises in the country, the monolithic China Aerospace Science and Technology Corporation is shrouded in an aura of secrecy.

With 170,000 employees and annual revenue hovering around the US$34 billion-mark, CASC is one of the ‘big beasts’ of the SOE sector.

Ranked in the Fortune Global 500 list, its core business revolves around the nation’s space program and missile development. Yet its tentacles extend beyond that through a labyrinth of affiliates, which are at the heart of President Xi Jinping’s “Made in China 2025” policy.

Behind the scenes, the group is involved in an array of projects from devastating ‘wave-riders’ to nuclear-powered space shuttles and micro rockets.

Apart for its heavenly pursuits, China Aerospace is also grounded in strategic and tactical missile systems. Hardly surprising then, that the company is on Washington’s radar as the trade brawl with Beijing enters a distinctly Cold War phase.

“For certain key sectors, such as aerospace, the supporting industries are still SOEs,” Dean Cheng, a senior research fellow at the Asian Studies Center of The Heritage Foundation, told a United States Congressional hearing in Washington earlier this year.

“One example is the China Aerospace Science and Technology Corporation, which is one of the two main conglomerates in [the country’s] space industrial complex,” he added. “CASC is a massive entity with eight subordinate academies. Each of these academies, in turn, has an array of research laboratories and institutes, and some even have their own universities,” he added.

The group has evolved from its humble beginnings in 1956, as part of the Fifth Academy of the Ministry of National Defense, into its present form.

Crucial affiliates

Rebranded in 1999, CASC has extensive “research and development complexes,” including the China Academy of Launch Vehicle Technology, the Academy of Aerospace Solid Propulsion Technology, the China Academy of Space Technology and the Academy of Aerospace Liquid Propulsion Technology.

Other crucial affiliates are the Sichuan Academy of Aerospace Technology, the Shanghai Academy of Spaceflight Technology, China Aerospace Times Electronics Corporation and the China Academy of Aerospace Aerodynamics.

“Specialized companies,” such as the China Great Wall Industry Corporation, are also closely linked to the Beijing-based behemoth.

CGWIC is particularly interesting as it is a major shareholder in ZTE, the telecoms giant, which nearly folded after being singled out by the US government for breaking sanctions to Iran and North Korea.

Back in February, the heads of the Central Intelligence Agency, the Federal Bureau of Investigation and the National Security Agency warned about using ZTE smartphones and equipment.

“We’re deeply concerned about the risks of allowing any company or entity that is beholden to foreign governments that don’t share our values to gain positions of power inside our telecommunications networks,” Christopher Wray, the director of the FBI, told a US Senate Intelligence Committee.

But ZTE is simply a peripheral cog in China Aerospace, which has pioneered the country’s space program, with its Long March rocket series, and developed a range of UAVS, or unmanned aerial vehicles, for the military.

Last month, the CACS subsidiary, the Academy of Aerospace Aerodynamics, announced it had tested the Starry Sky 2, “wave-rider,” a hypersonic aircraft capable of carrying multiple nuclear warheads, from an undisclosed site in Northwest China.

“During the independent flight, the test craft maintained ultrafast speeds above Mach 5.5 for more than 400 seconds and reached Mach 6, around 7,344 kilometers, or 4,563 miles, per hour,” the Academy said in a statement, which was reported by the state-owned China Daily.

Theoretically, Starry Sky 2 would be able to elude existing global anti-missile defense systems.

Indeed, while the US and Russia are also heavily involved in developing “wave-rider” weapons, China’s emergence has come as a wake-up call.

In 2010, the world’s largest economy was one of the first to test a “hypersonic cruise missile,” in the form of the Boeing-made X-51 Waverider.

Since then, a technological arms race has gathered pace. “Hypersonics is the number one priority,” Jim Mattis, the US Secretary of Defense, told a Senate Armed Services Committee in April.

Increased spending by Xi’s government on cutting-edge military technology has been widely reported. But what is different is that senior officials inside the China Aerospace Science and Technology Corporation are now willing to talk about the group’s role in upgrading the country’s armed forces.

Speaking on the sidelines of the 19th National Congress of the Communist Party of China in Beijing last October, CASC Chairman Lei Fanpei outlined the conglomerate’s approach.

By 2045, the country will have caught up with the US in key aerospace projects and become a world space power, he pointed out.

“To help improve the country’s strategic deterrence capabilities and consolidate the cornerstone for the country’s strategic security, CASC will contribute more to building the country into a strong innovation-driven space power,” Lei said.

Yet this sprawling corporate empire has already had a few tentacles clipped by the US Department of Commerce.

Export controls

In a direct challenge to the high-tech “Made in China 2025” policy, CASC affiliates have been included in a list of 44 “companies” subject to export controls.

China Aerospace Science and Industry Corporation Second Academy and the China Electronics Technology Group Corporation, which are part of the company, were mentioned in the Aug. 1 roll call.

“According to US congressional testimony, PLA offices are embedded ‘within CASC and CASIC [China Aerospace Science and Industry Corporation, another major player in the industry,] design departments, research institutes, and factories,’” Christopher Balding, a former associate professor of business and economics at the HSBC Business School in Shenzhen, wrote on the Foreign Policy website in July.

“Step back and the role of other Chinese firms in proliferation becomes clear. CASC’s other holdings have actively facilitated weapons proliferation to rogue regimes around the world and have regularly violated US sanctions. One company under CASC is China Great Wall Industry Corp, active in a wide variety of sectors,” he continued.

“CGWIC has a history of proliferation activities with Iran dating back to the first George W. Bush administration and has been sanctioned for it repeatedly. Daniel Pinkston, a nonproliferation expert, testified in 2005 that CGWIC proliferation activities helped Iran improve its missile program,” Balding, who is the author of Sovereign Wealth Funds: The New Intersection of Money and Power, added.

At the same time, cash continues to pour into China Aerospace. Along with other government-backed companies, it put together a State-Owned Enterprises China Innovation Fund last year, worth 150 billion yuan (US$21.78 billion).

This was the latest round of investment after Aerospace Capital, an arm of CASC, raised 200 billion yuan for 116 unnamed projects.

“We have established various funds previously to invest in technology,” CASC Chairman Lei said.

Whether the money will be spent on China’s space exploration program or R&D for the military complex is unclear. After all, this corporate colossus rarely lets its cloak of secrecy slip.