China, Europe and the U.S. Struggle for Satellite Supremacy, The Wire China, Oct. 8, 2023.
The saga over who owns a German satellite operator demonstrates how quickly Western attitudes to Chinese investment have changed.
The battle for control over vital communications satellites orbiting space has sparked a long-running corporate drama back on Earth which — though centered around the tiny European country of Liechtenstein — demonstrates the intense rivalry and mutual distrust between China and the U.S. and Europe.
Last month, the German government blocked a Chinese consortium’s efforts to gain full control of Kleo Connect, a local firm which had plans to launch this decade the sort of low earth orbit (LEO) satellites that could greatly enhance global communications, but which also have important potential military uses.
In its 47-page decision, reviewed by The Wire, Germany’s ministry for economic affairs declared that the move by the Chinese investors to fully acquire a strategically important technology posed a risk to the country’s national security.
There is increasing skepticism, if not suspicion, in the way the Chinese are investing in Europe — to what end, and what is it they’re after?
Kleo’s satellite constellation could, the ministry said, eventually “be used for military purposes to the detriment of the defense capability of the Federal Republic of Germany and its allies as well as the international security of non-allied third countries.”
Berlin’s intervention comes as both Germany, and Europe more broadly, are looking to adjust their relationships with China to ensure security concerns are taken into account as much as economic benefits — an approach European Commission president Ursula von der Leyen has termed ‘de-risking’.
On October 3, the Commission identified ten areas of critical technology, including LEO satellites and other space technologies, as priorities for economic security risk assessments among EU member states. Without naming China, the Commission’s announcement stressed the need to adapt to “new geopolitical realities.”
“There is increasing skepticism, if not suspicion, in the way the Chinese are investing in Europe — to what end, and what is it they’re after?” says Maria Demertzis, senior fellow at Bruegel, a European think tank. “I think there is an overwhelming feeling that they’ve gone too far and therefore, we’re not going to give them any more.”
The new environment of mistrust contrasts with the mood when the Chinese consortium first invested 93.5 million euros ($110 million) in Kleo in 2018. The company, formed in May 2017, needed the capital injection to help build out its planned network of 576 LEO satellites, which will orbit between 400 and 2,000 kilometers above the Earth according to the economic affairs ministry document.
Such satellites can provide communication services to remote areas that lack ground-based terrestrial networks. Their nimbleness has also proven valuable in conflict zones such as Ukraine, which has often relied on Elon Musk-led SpaceX’s Starlink system in places where its communications infrastructure has broken down.
The deal meanwhile eventually gave a 53 percent stake in Kleo to the Chinese consortium, a group including investors such as Shanghai Spacecom Satellite Technology (SSST). Its largest shareholder is state-owned Shanghai Alliance Investment Ltd (SAIL), according to WireScreen — a firm once run by Jiang Mianheng, the son of the late Chinese president Jiang Zemin.
Source: The Wire China
For Kleo and its Chinese backers, a vital task was to secure the ability to launch their satellites into space. The company turned to Liechtenstein, a tiny nation between Switzerland and Austria. In 2014, it had been among the first countries to receive its allocation of the frequency bands needed to enable satellite communication from the International Telecommunications Union (ITU), a United Nations body which assigns those rights to member states.
Kleo partnered in late 2017 with a Liechtenstein-based company, Trion Space AG, that was granted the country’s frequency band rights in January 2018.
“That real estate at low earth orbit is really going to be fought after,” says Nicholas Eftimiades, a retired senior intelligence official and senior fellow at the Atlantic Council. “China’s several years behind, and they want to catch up. There’s some competition for slots, hence them wanting to buy into and take over a European firm that already has established slots.”
A period of extensive in-fighting had meanwhile begun at Kleo, as the German economic affairs ministry describes. Although the Chinese group had a controlling interest in Kleo on paper, the shareholder agreement gave its German minority investor — Munich-based company eightyLEO, which specializes in space business development — some protections, including the right to name the company’s chief executive. It duly appointed former aerospace engineer Matthias Spott to the role.
Spott and Kleo’s other German-appointed executives soon complained about the Chinese investors’ behavior, alleging that they denied office access and documents to directors appointed by eightyLEO, according to the economic affairs ministry document. The internal tensions have to date led to more than 70 legal disputes coming before German state courts, arbitration tribunals and Liechtenstein’s telecommunications regulator.
It’s not very often that you, as a regulator, see the parties fighting in front of you and not presenting a unified front.
In 2021, Spott and his German colleagues reached out to Rivada Networks, a U.S. telecommunications company headed by Irish entrepreneur Declan Ganley, to join the satellite project. Rivada’s board of directors include former Secretary of State Mike Pompeo, former Chairman of the Joint Chiefs of Staff Richard B. Myers and Michèle Flournoy, the Obama administration’s under secretary of defense for policy.
In early 2022, Rivada acquired 85 percent of Trion Space AG, the Liechtenstein company that controlled the frequency bands and had partnered with Kleo — a move since hotly contested by Kleo’s Chinese investors.
“The changes in the consortium announced by Rivada Networks in the media are completely without any basis and constitute the attempt of a so-called “hostile takeover” engineered by eightyLEO at the expense of the majority shareholders of the company,” said Kleo’s Chinese investors in a 2022 statement on their website.
The German investors “had been subjected to lawfare on a corporate and personal basis to drive them out of their own company, the company that they had founded, and to capture for the PRC the spectrum and orbital rights associated with them,” Ganley told The Wire in an interview.
The head of Liechtenstein’s telecommunications regulator, Rainer Schnepfleitner, says the joint venture’s dysfunction was already foreseeable in his first meeting with Kleo executives in May 2019.
“It’s not very often that you, as a regulator, see the parties fighting in front of you and not presenting a unified front,” Schnepfleitner said in an interview with The Wire.
In February 2023, Schnepfleitner’s office rescinded the frequencies from Trion Space and approved a new agreement for a Rivada subsidiary to use Liechtenstein’s satellite frequency bands, concluding that the Kleo joint venture was “no longer capable of acting due to serious disputes at their shareholder level.”
Schnepfleitner dismisses any suggestion that the German or U.S. governments pressured his office to decide cases in a certain way. Instead, he criticizes the Chinese consortium’s actions.
“Here in Liechtenstein, I’m pretty sure that they thought: it’s a small country and an even smaller authority, they can railroad us,” Schnepfleitner says. “As we are a very small nation, we are very often belittled, but as often we prove them wrong.”
Meanwhile Kleo, still majority owned by the Chinese consortium, released a statement describing the consortium’s attempt to fully acquire the company as a “defensive measure” against the decision of its former partners to transfer the satellite project to Rivada.
“It is shocking to witness how Rivada takes advantage of the geopolitical considerations that are at the core of the government decision to hide its illegal actions,” the statement says.
China’s making a lot of moves in what’s called its military-civil fusion program… Having access to LEO for space communications is critical now for all nations.
Rivada in turn says the German government’s decision to block Chinese investors from acquiring all of Kleo “makes clear the stakes involved for both China and the West in the battle over this satellite constellation, and the importance of keeping it in trustworthy hands.”
Some analysts believe that Kleo will not be the only fighting ground as China continues to pursue valuable dual-use technology.
“China’s making a lot of moves in what’s called its military-civil fusion program: to bring together its commercial components, try and push them towards getting cutting-edge technology, and have that integrated with the military,” says the Atlantic Council’s Eftimiades. “Having access to LEO for space communications is critical now for all nations.”