2020 was a breakthrough year for China’s space program. It completed the BeiDou-3 navigation satellite constellation, launched its first independent unmanned mission to Mars, and executed a lunar surface sample collection and return. In launch services, China successfully completed 35 orbital launches (topping the 33 launches from U.S. soil) and hit key funding and technology milestones across its 10 “independent” launch-focused companies. The Chinese government demonstrated its commitment to expanding space capabilities through significant state-directed capital investment, increasingly ambitious mission profiles, and a whole-of-government and industry approach.

At the strategic level, China is blending civil, defense and commercial segments to advance its access to and capabilities in space. While other countries, including the U.S., talk about blurring these lines, China is already doing so, enabled in part by its command economy.

China made a clear statement on the importance of space as a war-fighting domain in 2015 when it established the People’s Liberation Army Strategic Support Force, complementing the existing Chinese National Space Administration. China has also continued to fund ambitious programs across space access capabilities. Part of that strategy is meaningful private-sector engagement.

Since 2014, China has seeded at least 10 space launch companies with access to previously restricted technology, financing them through state-sponsored and “independent” private investment. These are efforts outside of the core Chinese launch infrastructure powered by the Long March family of vehicles. What differentiates the Chinese approach is the magnitude of government investments in technology — consistently in the hundreds of millions of dollars — compared with that of other nations.

A prime example of this strategy was the Chinese government’s awarding a $225 million program last year to the Chinese space launch company Galactic Energy to build a research, development and production facility for the country’s future liquid rocket engine program.

Additionally, Beijing Financial Street Capital Operation Center, a state-sponsored investment fund, led a $173 million Series B funding round for iSpace, another launch company, to develop a new series of reusable launch vehicles.

This strategy is producing results: China now has three operational space launch companies that have completed an orbital launch outside of the core China Aerospace Science and Technology Corporation, and it is likely to make further progress in building a resilient and diverse space access infrastructure in 2021.

While China’s command economy provides an advantage in accelerating its space capabilities, the U.S. is unmatched in large private investment and associated innovation. Of total global venture capital, 52 percent is in the U.S. alone; and in terms of per capita venture capital, the U.S. has more than twice that of any other large country.

Despite this advantage, the U.S. government has only made incremental progress in engaging with and incentivizing these sources of private capital to meaningfully support key technologies and capabilities that align with national security priorities. This is especially true in the case of long-lead and capital-intense technologies for space and hypersonics.

There are promising moves being made. Current U.S. government funding efforts championed by organizations like AFWERX have had success in attracting an unprecedented number of new, innovative companies into advancing national security through small on-ramp contracts. The key, however, is finding the right mechanism for the U.S. government to bring the most valuable of these new entrants through the so-called valley of death to deliver meaningful new technology.

The U.S. government’s ability to better define and communicate its strategic space priorities to industry, and then back that up with consistent revenue streams, would enable the country to capitalize on its advantages and stay ahead of China. The recent executive order on America’s supply chains is a good first step, but it must be complemented with action-oriented acquisition policy improvements.

To forge a working mechanism for the U.S. government to bring the most valuable of these new, innovative companies through the so-called valley of death to deliver meaningful new technology, we propose two actionable solutions. These solutions are designed to bring these companies into the U.S. government ecosystem while also incentivizing private capital to invest in and support companies working on critical national security technologies:

  • Innovative matching programs: In the near term, the U.S. government should enhance existing contract awards through a fund-matching ratio between a central government funding office, the government customer for the service or product, and the company performing on the contract. The Air Force has demonstrated the success of this approach through the AFWERX STRATFI program. In this case, AFWERX is enhancing Small Business Innovation Research Program’s Phase II contracts with a combination of public and private funds to launch up to $60 million worth of programs. In its first year, the STRATFI program issued $200 million in government funding to 21 companies, attracting an additional $350 million in private matching. Scaling this to even more ambitious program funding levels is a fast and effective way to take advantage of the United States’ unique private capital advantage.
  • Government Debt Programs: In the medium term, the U.S. government should create domestic loan programs that would enable the U.S. to deploy meaningful capital to companies that have demonstrated sufficient commercial traction but are not yet in the position to qualify for a standard private loan. Through this, the U.S. would be able to direct funds to key strategic priorities more quickly and with mitigated risk compared with a traditional contracting vehicle. A robust credit-worthiness evaluation model, explicit government support and a private investment contribution requirement would increase the likelihood of repayment and ensure strategic alignment with national security priorities. This could also generate a positive return for taxpayers through the interest on the loan, while also supporting the capital-intensive requirements of space companies. The structure for this already exists — in part within areas such as the U.S. International Development Finance Corporation — and could be rapidly scaled.

The U.S. government has recognized the need to expand the defense-industrial base and bring new companies and capabilities into its ecosystem, particularly for capital-intensive technologies. The current selection of incentives and tools must be improved to maintain the shrinking capability gap in critical domains, such as space, over near-peer nations, such as China. The loss of these advantages would not only cause significant economic damage, but also pose a threat to U.S. national security in space and across all war-fighting domains that rely on space-enabled capabilities.

To accomplish this, the U.S. government must provide clear demand signals and structural incentives to industry and investors that will focus technology development on key national security priorities. The U.S. does not and should not have a command economy, but the strategic structuring of incentives can leverage our unique wells of private investment to accelerate innovation and capitalize on our market-led ingenuity to preserve our capability gap over adversaries across key emerging technologies.

Blaine Pellicore is the vice president of defense at Ursa Major Technologies, a venture-backed space and hypersonics company. Nicholas Nelson is a nonresident senior fellow with the Transatlantic Defense and Security Program and Defense Tech Initiative at the Center for European Policy Analysis. He is also a technology adviser for the Pentagon’s University Affiliated Research Center.