Biweekly Brain Droppings: Pirates and Drug Smugglers
Plus remote sensing satellites used in earthquake response, a rare SatNet launch sighting, and a whole bunch of international cooperation
Dear Readers,
Happy Valentine’s Day weekend to those who celebrate, and to all else happy Saturday. Despite the Lunar New Year hangover, February has been quite a month thus far, with a plethora of international cooperation announcements, a SatNet launch, and an earthquake in Sichuan allowing Chinese remote sensing firms to show off their kit. But first, a look at the 11 February launch of the second batch of SatNet satellites. But first, a piece on Hong Kong’s role in China’s space sector.
Pirates and Drug Smugglers
One of my favorite courses during my MBA program in Hong Kong many moons ago was Corporate Strategy in Asia, a course that covered the cultural, economic, and historical nuances of different Asian countries and cities. The professor for that course once told us, in a generally positive and admiring way, that “Hong Kong was originally built as a haven for pirates and drug smugglers. And it hasn’t really changed over 150 years”.
That is to say, Hong Kong is a city that runs on cold, hard commerce, backroom dealings, and colorful characters. It is not a city that runs on excessive red tape, warm fuzzy feelings, or an overbearing government. Unlike its regional rival Singapore, where all T’s must be crossed and I’s dotted, in Hong Kong, there’s usually a bit more wiggle room. And, it is a city that is at once very much Chinese (“one country, two systems”), but also not quite Mainland China (a deteriorating but still fairly transparent legal system based on English Common Law).
In a world where pirates and drug smugglers are having a moment elsewhere, this puts Hong Kong in an interesting spot, especially for industries full of pirates and drug smugglers like space, and especially as more and more Chinese commercial space companies are starting to go abroad.
The role of Hong Kong in China’s commercial space sector has several parts. 1) Hong Kong as a conduit to foreign markets, 2) Hong Kong as an offshore finance center, and 3) Hong Kong as a testing site for services not allowed in China. Let’s dig in.
Hong Kong as a Conduit to Foreign Markets
Space is, to put it mildly, not the first industry that has used Hong Kong as a meeting place between East and West. In the bad old days before Shenzhen was a place to visit, buyers from all parts of the world would flock to one of my favorite places, Chungking Mansions, to buy bulk burner phones and other consumer electronics to be shipped back to Tanzania or Pakistan or elsewhere (NB: my favorite NatGeo article of all time covers this topic beautifully).
In the space sector, Hong Kong is playing a similar role. Nowhere is this more obvious than Tseung Kwan O, in Hong Kong’s northeastern suburbs, where the commercial space company USPACE (formerly known as HKATG, and not to be confused with their partial subsidiary Aspace) built a satellite factory and control center, complete with dozens (possibly as many as 100) of unused desks in front of large control monitors showing satellites on-orbit.
With this satellite factory, USPACE has been inking deals with all manner of foreign customers. This includes a US$675 million contract for 108 satellites from late 2023 with Brazil’s Alya Space (number of employees as per LinkedIn: 2), with the first satellites scheduled to launch in March 2024 (number of satellites launched as of Feb 2025: 0). Surely anything can happen, and maybe those satellites will launch one day, but also see above: pirates and drug smugglers.
USPACE has also been getting involved in the Middle East, with the January 2024 announcement of the Abu Dhabi Space Eco City, with a planned eventual space of 3 million square meters in the Khalifa Economic Zones. With this plan, USPACE is positioning themselves as a conduit between Chinese space companies and the Middle East, and despite some initial momentum that included a handful of Chinese companies (Unicom AirNet, Interstellar, etc.) signing up for the project, we haven’t seen much real progress since then.
Originally USPACE had planned to break ground on the Eco City in mid-2024. We’ve since heard nothing about a ground-breaking from USPACE. One could argue that they’re doing it under-the-radar, but for a company that issues press releases for every man, woman, and child who visits their factory for a tour….this seems unlikely.
All that aside, USPACE is in fact bringing international people to Hong Kong, and possibly, helping make China’s space sector more international. Earlier this month, USPACE announced an agreement with the International Astronautical Federation (IAF), signed by USPACE spinoff Aspace, to co-host a satellite exhibition. The expo would be in celebration of the 100 satellites USPACE plans to build in Q1 2025 (I’ll believe that when I see it), and for their help, IAF will get naming rights for one of the satellites, “free of charge”. While the PR does not explicitly say that the expo will be in Hong Kong, it’s still a step towards international markets for the company, and by extension, the city. And in the long-run, it may be that USPACE’s original business model—using Hong Kong as a place to integrate Mainland Chinese space components into Hong Kong-built satellites to be sold abroad—will end up being a brilliant play. Time will tell, and in the meantime, undoubtedly the company has found the right place to do business, a city built for pirates and drug smugglers.
Other than USPACE, quite a few Mainland companies have made a decent business in Hong Kong for a long time, with the best example being the good folks at APT Satellite. APT is a partial subsidiary of China Satcom (and by extension, CASC), with a mandate of addressing international markets with satellite services. And while a big chunk of their revenues still comes from Mainland China, APT has long done a good business in places like Indonesia, and should serve as an example of a company that maintains its Chinese ownership and characteristics, while also being very global in its outlook (and importantly, unlike USPACE, APT Satellite is doing real business). In that regard, it could find no better HQ than Hong Kong, both for its location and, as it would turn out, its financial markets: APT has long been publicly traded on the Hong Kong Stock Exchange, and they’re about to get some company.
Hong Kong as an Offshore Financial Hub
Even if Hong Kong has struggled as an international conduit for China’s space sector, the city seems to be picking up momentum as an offshore finance hub for space companies. Most recently, this month saw satellite manufacturer/operator ADA Space file for an IPO in the city. The 555-page document provided a treasure trove of information, including basic financials and anonymized information on suppliers and customers (though for discerning eyes, some of them are obvious). The IPO also includes ~662 mentions of “AI”, possibly setting a record. ADA Space reported impressive revenue growth, ramping from ¥177M in 2022 to ¥507M in 2023. Curiously, ~80% of 2023 revenues seems to have come in the final 3 months of the year. This might raise some red flags, but is notably similar to CGSTL, one of the other few Chinese commercial space companies for which we have financial info.
ADA Space is far from the only example of a Chinese space company using Hong Kong as an offshore finance hub. Others, especially those with high capital requirements (e.g. launchers) are going to Hong Kong to raise debt financing, with Mainland financiers typically being more state-owned, and as such, more conservative. That is, the people at the top of state-run banks in Beijing might be too cautious to provide Landspace or iSpace debt financing, at any interest rate. The folks at the top of leading banks in Hong Kong? They are cautious and like to make money, but also pragmatic, and at a certain interest rate, even high-risk loans make sense.
Elsewhere, the above-mentioned people at USPACE leveraged Hong Kong’s financial markets for an IPO as early as 2018, and APT Satellite listed there all the way back in 1996. Moving forward, we are very likely to see more Chinese commercial space companies choose Hong Kong as a place to go public.
The city has far more open capital markets than Mainland China, and arguably a deeper pool of specialized financiers. Hong Kong also has generally simpler listing requirements, and is more plugged into the broader global economy. In addition to having more open capital markets than the Mainland, Hong Kong also benefits from a more open regulatory regime for things like telecommunications licenses, which has also proven attractive for Chinese commercial space companies.
Hong Kong as a Testing Site for Services Not Allowed in China