Dragoman Digest

China’s commercial space sector doubles as strategic infrastructure

Beijing offers partner countries a state-directed alternative to Starlink

China can produce an estimated 4,100 to 5,000 satellites a year in automated factories, up from 500 three years ago. Since 2014, when the sector was opened to private investment, the number of companies has swelled from a few dozen to 600. At least 10 start-ups compete with the state-run Long March rockets that once monopolised domestic launches. China has followed the same formula it used to dominate the EV market: central government direction and subsidies married to local competition and selective market liberalisation. Many of these companies are commercial in structure but work closely with the state, helping develop systems that also serve the People’s Liberation Army, China’s military.

Two operators, Guowang and Thousand Sails, each plan networks of more than 10,000 satellites beaming broadband from low orbit by 2030. Built for both military and civilian use, they are direct rivals to SpaceX’s Starlink. Chinese firms have already supplied Tehran with an imaging satellite, which it used to target US bases during the Iran conflict. They now sell the same capabilities abroad under Beijing’s Belt and Road Initiative, in packages that bundle communications, imaging, and navigation services with financing and training. Thousand Sails holds rural broadband contracts in Brazil and Malaysia and is negotiating with more than 30 countries, concentrating on markets where Starlink has struggled. Deals like these embed Chinese networks into the digital infrastructure of partner countries. Over time, this could lay the groundwork for a parallel internet independent of Western platforms and standards.

In October, Beijing released a paper on space governance proposing that states supervise their commercial space firms to keep them out of conflicts fought by other countries. For governments that have watched Starlink curtail battlefield use by both Ukraine and Russia, that assurance may make the Chinese alternative look more dependable. Nevertheless, China heavily trails the US in commercial launches. Thousand Sails, for instance, planned to put 648 satellites in orbit by the end of last year but had managed about 200 by July. No Chinese rocket yet matches SpaceX’s reusable Falcon 9 on cost or launch rate. China already has the financing, customers, and the political case in place. Its parallel internet now hinges on rockets – solving such industrial problems is one of China’s fortes.

NATO races to rebuild explosives production and munitions stockpiles

Any buildout must overcome regulatory and environmental hurdles that Russian and Chinese companies aren’t beholden to

Since Russia’s invasion of Ukraine in 2022, Western governments have been pouring billions into increasing explosives production at home. The ongoing conflict, in which Russia alone fires up to 15,000 artillery rounds daily, has exposed critical gaps in Western munitions stockpiles and highlighted NATO’s strained ability to replenish them. Across NATO countries, at least 24 new projects are underway for propellants – an essential component for artillery rounds – and explosives, in an urgent bid to close this vulnerability. Before the war, Washington and its allies’ decades-long military doctrine relied on surgical strikes with a limited number of expensive, ultraprecise guided weapons from a handful of suppliers. This left NATO’s most powerful member, the US, with only a single operational propellant factory, and none built since the early 1970s. Estimates suggest that in a conflict with China, the US’ munitions stockpiles could only sustain operations for under a month – a figure that has likely worsened amid the Iran and Ukraine conflicts.

Despite the urgency, prospective projects still face significant hurdles. While Europe’s artillery shell capacity has increased sixfold, Western producers still depend on chokepoint-prone global supply chains. For example, the US sources all of its antimony sulphide, a chemical used in nearly a third of all military ammunition, from abroad. The US’ efforts to expand domestic output of other chemical components in explosives such as RDX and IMX (safer alternatives to TNT) have been delayed by roughly eight years, and production rates have failed to surpass 2017 levels. Western regulatory processes have added further delay. Gaining the necessary building approvals for new and dangerous explosives plants can take years while increasingly rigid environmental requirements disincentivise investment into the plants that are often pollution-heavy. Meanwhile, explosives manufacturers in China and Russia are subject to a fraction of these hurdles. In 2022, the Kremlin even relaxed planning regulations for explosive-makers.

Thailand faces a stagnant economy before reaching developed status

An ageing population, high household debt and sputtering exports are fuelling a slowdown in the country’s economy

Thailand, once hailed as an ‘Asian Tiger’ economy due to fast industrial development, is on the cusp of supplanting Japan as Asia’s symbol of stalling growth and low interest rates. For much of the last decade, Thailand’s economic growth rate has been stuck at around two percent per year and is forecast to come in at a mere 1.6 percent this year. Despite Thailand’s interest rate being just one percent (the second lowest in the world), its monetary stance has done little to stimulate spending. While many central banks are tightening their monetary policies to contain rising inflation driven by the Iran War, Thailand has held rates steady through August as headline inflation fell to 1.95 percent. The deflationary pressures cast serious doubt over Thailand’s ambition to clinch high-income status by 2037.

The causes of Thailand’s economic malaise are largely structural rather than cyclical. Economists broadly compare Thailand’s issues with those seen in developed countries such as Japan and South Korea, which are facing significant demographic shifts. Thailand’s birthrate is at a 75-year low, while the over-65 population is expected to double by 2040 to about 26 percent of the total. The dwindling working-age population – once a dividend that underpinned Thai growth – is expected to contribute to a significant decline in economic participation. Further exacerbating this is high household debt. Thailand maintains the highest levels of household debt-to-GDP among upper middle-income countries at 86 percent. This has left consumers with little capacity or appetite to spend, depriving the economy of a critical source of demand. Thailand’s long-revered export sector is equally inert. Cheaper Chinese goods, emerging manufacturing hubs such as Vietnam, higher US tariffs and a shrinking labour force have all hurt domestic production. Even if targeted central bank measures and government spending stimulate the economy, Bangkok’s fast-approaching debt ceiling of 70 percent of GDP will likely force a wind-down of existing stimulus packages from next year.

Hungary’s new government takes aim at Chinese EV and battery makers

Budapest will have to balance investment streams from China with closer ties to Brussels

Hungary’s newly elected government led by Prime Minister Peter Magyar is reviewing the opaque deals that brought large Chinese investment into the country under former Prime Minister Viktor Orban. Magyar, who took office in May, has made repairing relations with the EU a priority. He has pledged tougher environmental and labour standards alongside greater transparency in subsidy programs, addressing longstanding concerns from Brussels around protecting European manufacturing. These shifts in policy are unfavourable for Chinese companies that have already set up shop in Hungary, such as EV manufacturer BYD, which has its European headquarters in Budapest and plans to begin production this year at its new plant in the southern city of Szeged. BYD’s agreement with the former Orban government was riddled with conflict-of-interest allegations over the awarding of substantial subsidies including US$63.7 million for the company’s Budapest office and R&D centre. Battery manufacturer CATL has been fined for storage of hazardous waste in breach of environmental regulations at its Hungarian plant. CATL was promised almost US$1 billion in grants and tax breaks by the Orban government for a battery plant.

Yet Budapest cannot afford to completely shut Chinese investment out. Although Magyar’s efforts to reform some of the previous government’s antidemocratic policies have secured the release of billions of euros previously withheld by the EU, they alone will not rescue the economy he inherited. Budapest will require significant capital to deal with a surging budget deficit and economic stagnation, and to fund its pledge to increase productivity. As such, Magyar has said his review of Chinese projects is not aimed at shutting them down. Analysts expect China to remain a key partner, though no longer a privileged one. Courting both European and Chinese interests that are increasingly at loggerheads, however, will be a defining challenge for Magyar’s new government.