People’s Liberation Army (PLA) Air Force officers Qiao Liang and Wang Xiangsui Wang argued in their 1999 book, “Unrestricted Warfare,” that to win a war with the United States, China must mass its intelligence, economic, and political resources where U.S. defenses were weakest: its private sector. The book today reads like a plan for the past two decades of non-military warfare waged against the Western private sector by Beijing and its business surrogates.
The U.S. government and its allies have recently shown increasing concern about the broad scope of the China’s intellectual property (IP) theft and critical infrastructure attacks. However, Western businesses remain vulnerable, and even largely unaware of the threats they face. Moreover, democratic governments seem incapable of mounting an effective response. The following case study from the Low Earth Orbit (LEO) satellite industry illustrates both the problem and the difficulty of finding solutions.
Our analysis begins with a summary of LEO satellites’ value and a review of the PRC interest. The study then illustrates the methods that the PRC employs to achieve its stated goals: deception, predatory investment, intimidation, and lawfare. We conclude with recommendations for how democratic governments can help deter and mitigate these kinds of attacks.
Why LEO Satellites?
Commercially, LEO satellites offer affordable, global access to high-capacity internet. Militarily, such satellite provide improved abilities in intelligence, tracking, and warning; communications; navigation; ground support, and command and control. Until recently, the cost and technical constraints required to launch the thousands of small satellites needed for a LEO “mega-constellation” prohibited any serious effort. However, advances in onboard computing and the commoditization of hardware components allow manufacturers to build and launch LEO satellites much more quickly and cheaply, and to operate them more easily than higher orbiting satellites. A LEO mega-constellation is therefore also much more resilient than a higher orbiting, more expensive, more capable, single satellite. Such groupings render current anti-satellite weaponry cost ineffective, because destroying even multiple LEO satellites does not degrade the function of the system.
PLA interest in the military application of LEO satellites has grown significantly. PLA analysts believe Starlink helped Ukrainian forces maintain communications and direct operations when Russian artillery and rocket attacks destroyed traditional digital infrastructure. The PLA also fears that Taiwan will learn from Ukraine. Moreover, the PLA now believes that it must dominate LEO in order to defeat the United States in any potential future conflict. These conclusions motivated China both to build its own LEO military capability, and to find an effective way to degrade its adversaries’ capabilities.
As a result, China is deploying every resource to catch up and surpass the West.
China’s Playbook: Predatory Investment and a Hostile Takeover
One Chinese effort involves jumping the queue with the U.N.’s International Telecommunications Union (ITU). The ITU is key because it manages and deconflicts spectrum priority and flight paths to prevent satellite interference. Companies and governments could ignore the ITU, but the consequences would be like ignoring air traffic control.
The ITU awards priority of orbital slots and transmission frequencies to the first to file. Because China started its LEO effort later than the West, its filings with the ITU are lower on the priority table. For signatories to the Convention and Constitution of the ITU, which includes China, companies lower in priority are responsible for ensuring that their launches do not interfere with those higher in priority. If all parties involved cooperate, co-existence need not be a huge impediment to those lower on the list. However, an uncooperative operator could tie up other constellation operators in dispute-resolution procedures or force them to turn off their data stream. This appears to be part of the China’s plan.
The center of this effort is in Shanghai. Two of the main players are Shanghai Spacecom Satellite Technologies (SSST) and Shanghai Engineering Center for Microsatellites (SECM). The SSST is a military-connected, majority government-owned company specifically set up to invest in Western satellite projects (the PLA oversees all space activities in China). The SECM is a satellite manufacturer.
The SSST and SECM set their sights on a German/Liechtensteinian company called KLEO AG, which owned three of the highest priority ITU filings. KLEO AG acquired these coveted filings when KLEO, a German telecom company, bought a stake in Trion Space, a small Liechtenstein company that originally acquired the Liechtenstein rights to ITU filings in 2017. They in turn founded KLEO Connect GmbH to exploit those filings. (Hereafter, for simplicity, “KLEO” will refer to “KLEO Connect GmbH”).
KLEO was early to see the value of high priority filings, but not all the technology KLEO needed to reach the LEO constellation’s full potential was fully developed or cost effective. KLEO was small and dependent on outside investors who were uncertain whether KLEO could achieve the projected scale and cost efficiencies. KLEO needed more investment.
China’s government created the SSST to make this kind of investment. Given China’s broad effort in the LEO space, it is easy to see that KLEO’s place in the priority for orbital slots would be of interest. Trion’s ITU filing was one of the highest-priority in the world – higher than that of Starlink, and much higher priority than any Chinese filing. With KLEO in the market for financial backers, China saw an opportunity.
In 2017, the SSST’s representative, Zhou Ji, told KLEO’s founders he was looking for satellite filings to invest in, especially filings with access to the vital Ka frequency band. KLEO’s founders agreed, and so Zhou both helped arrange and took part in an investment by the SSST in KLEO, initially amounting to a 10 percent stake.
In the resulting venture, Matthias Spott, one of KLEO’s original co-founders, was CEO and was to run the technical side of the business, while Chinese executive Shawn Shey was to manage commercial operations. This arrangement never worked. According to subsequent court filings, the European founders claimed that the SSST wanted not simply an investment, but rather control of the company and KLEO’s ITU filing. By October 2019, the SSST had acquired a majority voting interest and the company split into two warring factions.
Then in November 2019, the SSST side unilaterally awarded a contract for the manufacture of satellites to the Shanghai-based SECM. The Europeans in KLEO saw this as an effort to turn KLEO and its orbital priority over to the Chinese military, which the ITU prohibits. Zhou and Shey claimed the contract was purely commercial, and that the Chinese military did not need anything from KLEO because the PLA already possessed satellites.
The founders were not buying it. Zhou and Shey had selected the SECM without considering other options. Moreover, while China obviously has military satellites, it remains far behind the West in LEO constellation development.
The founders did not even know at the time that the SSST was listed as a key partner in the efforts laid out in China’s Five-Year Plan for 2021-2025, which includes the directive to acquire the orbital and frequency spectrum. The plan charged Shanghai with unifying all Chinese national efforts to develop LEO satellite constellations.
At the same time, and without coordinating with the Europeans, the SSST contracted with the Chinese government to launch two small Bringing-Into Use (BIU) satellites under the auspices of KLEO. Then in 2020, the SSST, supposedly still only an investor with no involvement in KLEO’s operations, began hiring operational personnel and purchasing equipment for building and launching satellites in China. The SSST also started advertising in China for Chinese engineers to work on LEO launches and operations, an obvious effort to replace or replicate KLEO’s technical team. The Europeans concluded that the SSST was building a shadow KLEO in Shanghai while KLEO helped avoid any complications over the European-regulated filings.
In summer 2021, the SECM launched two more BIU satellites in the KLEO-owned orbital slot and frequency range. These launches reinforced the Germans’ conclusions. SECM representatives claimed that their launches were unrelated to the joint venture; the Germans countered that the SECM had used information the firm had acquired from KLEO to hijack the ITU filing. KLEO claimed that the SECM was even coopting KLEO’s personnel in this effort: Zhu Ye, KLEO’s deputy technical director, was photographed at the purportedly unrelated 2021 SECM launch.
KLEO’s German founders were at this point enmeshed in some 60 lawsuits and arbitration proceedings launched by the SSST. Out of patience, the founders triggered a provision of the investment agreement allowing them to redeem investors’ shares and bring in a new partner, Rivada Networks, an American company led by an Irish entrepreneur, Declan Ganley. The Chinese investors refused to accept the redemption offer and launched new lawsuits in Liechtenstein, Germany, Luxembourg, and the United States to try to gain control of KLEO’s spectrum rights.
While these suits proceeded, the SSST proceeded with plans to build and launch satellites from China using the Liechtenstein filings. However, in March 2022, the regulator in Liechtenstein rejected the SSST’s plan and claim to ownership of the Liechtenstein ITU rights. He further awarded the spectrum rights to Rivada, and Liechtenstein courts backed the regulator. Yet, the lawfare continued. According to debt filings in China, the SSST listed some 100 million in Euro-denominated expenses, which appear dedicated to the legal battle for control of the ITU filings.
This sum of money makes little sense if the purpose was commercial control over one 600-satellite constellation. It makes more sense if the purpose is to achieve a military advantage for China.
In 2021, China launched a hypersonic missile that allegedly circled the globe before hitting a test target in China. However, a problem with missiles that fast is effective communication; Chinese researchers have noted that the Ka band (26.5-40 GHz) might be uniquely suited to communication with hypersonics because of higher data speeds and lower latency. The KLEO/Rivada constellation was planned as a high-speed, low-latency, global Ka-Band network. If built to Chinese military specifications, such a network could provide command-and-control to hypersonics in flight.
The SSST keeps losing in court, but those defeats will be irrelevant if in the meantime China can either bleed its antagonists dry or clog up their orbital planes with illicit equipment. If China were to wrest back control of the Rivada constellation, Beijing would have 43 LEO satellites over U.S. territory at any given moment. This is a version of what China did in the South China Sea, except instead of filling the sea with islands, it is filling space with satellites. In both cases Beijing is mocking the law to achieve strategic advantage.
This case is only one example of many. No one knows how many because China and its surrogates employ deception so effectively, and not every targeted company recognizes, resists, or publicizes these kinds of attacks. The unfavorable mathematics of China’s advantage is more clear, and overwhelmingly favors Beijing, which marshals whatever resources it requires to achieve its goals. China-sponsored companies not only have the advantage of resources, but also the intelligence assets and legal protections of a powerful sovereign state. Meanwhile, companies in democracies fight their battles alone.
This situation need not continue. Democratic governments have some tools to protect their companies and countries. They need to provide their firms with legal advice, funding, training and primary and secondary sanctions to better resist and deter the kind of attack described here.