I think China's space strategy is not primarily about space. It's all about planet Earth and particularly how to dominate the global order on Earth, of course, by enlisting space to gain advantage. And as you've just said, you know, when you look at what China and of course the US is doing in space, there's a military domain and there's a commercial domain. And then there's this sort of fuzzy hybrid domain, dual use, I suppose, that could be military, could be commercial. And the more you look at all of the space furniture up there, the more you scratch your head and think, well, could that be military? Could that be commercial? You know, there's a lot of interoperability.
Welcome to China Decode. I'm Alice Han.
In today's episode of China Decode, we're discussing China's huge strides in the space race, the looming $2 trillion generational wealth transfer, and regulating dim sum automation. That's all coming up. But first, let's do a quick check-in with how the markets are starting the week. On Monday, Chinese stock markets were closed in observance of the Labor Day holiday. The Shanghai Composite ended the month of April up 5.66%.
And the Shenzhen component surged over 12% thanks to strong PMI data and notable gains in several tech stocks. China's manufacturing PMI for April was 50.3, slightly above forecast, suggesting expansion in the manufacturing sector. Shares of Xiaomi, the Chinese smartphone and EV maker, closed 6.8% higher in the Hong Kong stock exchange today. All right, let's get into it. In the last 5 years, they've landed a rover on Mars, completed a space station, and collected samples from the far side of the moon. We're talking not about the US, but China. And in 2025 alone, the country executed over 90 orbital launches, setting a new national record. And in the tightening space race, China is also pulling ahead with innovations like a giant robotic arm to service satellites in space, a space telescope with a wider view than the Hubble, and reusable rockets to compete with Elon Musk's SpaceX. China is also actively developing rockets that can take off from water-based platforms. James, we've talked about space in the last few episodes, and it seems like with Elon Musk IPOing SpaceX, we've made space great again, but China is also a key part of this. And some of the startling videos that I've seen, like of that orbital arm in space, seem very futuristic, but it's what's actually currently happening. And certainly, as with any kind of technology, it has direct contemporary use cases, potentially even military use cases. How are you seeing China's startling advancements in the space race?
Well, yeah, Alice. I mean, it may be an obvious point, but I think China's space strategy is not primarily about space. It's all about planet Earth and particularly how to dominate the global order on Earth, of course, by enlisting space to gain advantage. And as you've just said, you know, when you look at what China and of course the US is doing in space, there's a military domain and there's a commercial domain. And then there's this sort of fuzzy hybrid domain, dual use, I suppose, that could be military, could be commercial. And the more you look at all of the space furniture up there, the more you scratch your head and think, well, could that be military? Could that be commercial? You know, there's a lot of interoperability.
But when I was doing a bit of research on this, I must say I came across one quote from a China military expert that really stopped me in my tracks. This was in a story by the Financial Times and it's written by, as I said, a military expert in a textbook for Chinese military officers. So this isn't sort of for public consumption. This is something directed at the Chinese military, which I think shows that it's pretty authentic. And basically this expert says that China intends to control the Earth by controlling space. Let me just give you the whole quote because I think it is really quite startling. He says, "Looking up at the skies today, we see that space is already shrouded in the smoke of potential conflict." And then he continues by saying, "The potential for high returns, the ability to control Earth by controlling space represents a powerful strategic and military incentive. Therefore, the development of space warfare capabilities has become a focal point of the arms race." So, I think that puts it pretty clearly. China sees space quite nakedly as a power game. And you've already mentioned the satellite with a grappling arm that sort of sidles up to other satellites. And the US intelligence caught, I suppose, a space-based video of this. They saw this Chinese satellite with a grappling arm sidling up to another defunct Chinese satellite and literally picking it up and hurling it into what's called a graveyard orbit. That all happened more than 36,000 kilometers above the Earth. The Chinese satellite with the arm is called the Shijian-21. And it didn't take long for the US military establishment to wonder, well, if it can do that with a defunct Chinese satellite, then maybe it can do the same thing to one of our satellites. And the US has more than 8,000 satellites in space, including around 80 spy satellites, some of which are trained on China's territory and are literally monitoring every square meter of China's territory. And you can imagine that China might not want one of those spy satellites to be doing that. So in 2023, the Office of the Director of National Intelligence in the US warned that this episode, the one I've just described, proves China's ability to operate space-based counter-space weapons. So in other words, weapons that can degrade US capabilities in space. And I think, you know, what we're kind of evolving into here is not only a huge commercial market, as defined by the number of satellites that are going up into space and all the different uses they have and their crucial nature to the economy here on Earth, but also an equally vigorous military-driven space race. How are you seeing it, Alice?
Well, I completely agree with what you're saying, James. And what's interesting to me is the growth in spending that we've seen. Just to give people a sense, the US is still leading in the space tech investment era. And this is accounting for both public and private investment. They did around $7.3 billion of space tech investment last year. That's 60% of global funding. By far the largest source of funding for space technology. But China is catching up and right now I believe it's somewhere around $3.8 billion that it invested in the commercial space sector in 2025. Just for reference, 10 years ago that was only about $340 million. So we've seen a sort of 10x rise, so to speak, in the last decade. And certainly I could see, you know, further growth moving forward because it is very clear in also the five-year plan as well as the Marchang, if you recall, two months ago in the documents there was a reference to China being a space superpower, you know, a manufacturing superpower, technological superpower, but also a space superpower. So there's a lot of attention being paid by the Chinese government towards what you rightly call dual-use technologies that are being deployed in this ecosystem. What was interesting to me also about that on-orbit robotic arm is that I believe it's a private company that is supplying this technology. I think it's Sanuran that is providing commercial space technology to the Chinese government. So there is really a private-public ecosystem establishing around space tech that isn't too dissimilar from what we're seeing in the States. And this is all happening in a time where increasingly Western investors and observers are really fixated on space as the next technological frontier. Everyone is going to be watching with bated breath for the biggest IPO in history this year, which is SpaceX. So I think this may become another political issue potentially between the US and China as people get more and more interested in space technology. One other thing that I will say is that, you know, space was a big part of China's strategy going back to 2013 with the launch of the Belt and Road strategies referenced as part of China's broader Belt and Road strategy. So this has been a long time in the making and it will be interesting to see, you know, how it shapes up in the US-China, not just talks coming up very soon, but sort of longer-term strategic competition.
Yeah, absolutely. And I mean, you know, it's hard to know who will eventually win the space race. It's clear that when it comes to commercial presence in space, the US is far ahead. It's got a much bigger share of the space economy, which, according to the Space Foundation, is worth about $613 billion US. So it's a huge market already. The US has currently about 55% share of that and China's much, much less at about 8%. But China's really, really moving now. You mentioned more than 90 orbital launches. Of course, these orbital launches are sending something into space like a satellite or a spaceship. The US is currently doing about 180 launches per year, mostly driven by SpaceX. But China's doing a lot of other things, too. They've had a few other milestones. They had a mission to the far side of the moon. That's the dark side of the moon for Pink Floyd fans. It's also completed its own low-orbit space station called Tiangong. There's a lot of activity going on in Tiangong. There are modules going up there meeting, you know, demand for further advances. My favorite space fact when it comes to China is that China is actually officially trying to find signs of aliens. China has a huge satellite dish. It's 500 meters across. They call it Tianyan or Sky's Eye or Heaven's Eye. And it's there in southwestern China listening for signs of extraterrestrial life. I mean, because it's, I think, the biggest dish in the world, it probably has a higher capability of listening for that kind of life. And recently, well, in June 2022, there was a report in the Chinese Science and Technology Daily that said that researchers had found multiple suspicious narrowband signals. So there was a great flurry of excitement. Maybe the Chinese Tianyan had found some sort of sign of extraterrestrial life. But in fact, later on, scientists in the US said that this was almost certainly radio interference. But I just sort of think that it just shows the level of China's ambition. You know, this is not something crazy. They really are listening for extraterrestrial life. I think that just shows they're leaving no stone unturned.
That reminds me of the book series. Did you ever read it? The Three-Body Problem, Santi by Sushin. It's about these Chinese, you know, astrophysicists who are also looking for extraterrestrial activity and they come in the form of Trisolarans. I highly recommend the book. And one last point, it can't be overstated how important satellite technology is and we've definitely seen that being used in Russia-Ukraine. We've seen it being used more recently in Iran. And it's been critical for the supply of intelligence and tracking used to guide precision missiles and ICBMs. So just to apply it to the current day, you know, China having capabilities to really append American satellites out in space can materially affect the outcomes of current battles that we're seeing in Russia, Ukraine, in Iran, and potentially even, you know, closer to home. So I thought that was definitely worth flagging. Okay, we'll be back with more after a quick break. Stay with us.
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Welcome back. For the first time in its modern history, China is grappling with what to do about a massive generational wealth transfer and the fact that almost none of it will be taxed. Chinese citizens with fortunes above $5 million are expected to pass down roughly $2.1 trillion over the next decade. The country, only really allowing entrepreneurship and a doorway to wealth since the 1970s, has no inheritance tax at all and limited property tax and tax on accumulated wealth. This is coming at a time when the government could use the additional tax revenues. James, you know, I'm an economist focusing on China. It's been quite interesting to see the decline in fiscal revenues. I know this sounds very wonkish, but it's really important to understand where the government is today. It's the huge decline in fiscal revenues largely driven by land sales declining and property values declining. So last year alone we saw a 15% decline in land sales revenue going to predominantly the local governments. And we've seen just fiscal revenues as a share of GDP continue to decrease. China's fiscal revenues as a share of GDP are one of the lowest in the world, it's only about 15%. Just for reference, the OECD average is around 34%. So, just to give people a sense of how cash-strapped the local governments are, this I think really indicates the shape of things and this is why the new five-year plan's discussion about tax reform, in particular the capital gains tax and the inheritance tax, is super interesting. Why do you think it hasn't happened yet and what it could mean moving forward for society and the economy?
Well, Alice, you highlighted this topic and I must say since you have done so and I've been looking into it a bit, I really do think that it's indicative of so much in China. And I think at the middle of it is a bit of a mystery, at least an ostensible mystery to me, because when you look at China, you find what is one of the world's most unequal societies. And yet this is a country still controlled by the Communist Party of China. Of course, we know that it is only communist in name. Egalitarian communism went out at least a couple of decades ago. But if you look at the numbers, China is more of an unequal society than any of the capitalist G7 nations. Canada, France, Germany, Italy, Japan, UK, US. It's more unequal than any of those countries. I'll come to the statistics I'm using, but my main point is here, why has it taken China so long to come up with an inheritance tax when it could use an inheritance tax to take money from the very rich, when the patriarchs and the matriarchs of the rich families die, they could use an inheritance tax to redistribute some of that enormous wealth to other people who need it much more. And yet, as you said, Alice, China hasn't done this. And so I really do wonder about this. So, at the center of this topic to me anyway, is the big question mark. I don't know what your reflections would be, but before I throw it back to you, let me just give you some numbers. The way in which wealth inequality is measured in a society is this Gini coefficient. And there are various different data sets that come up with this. And the Chinese government also used to publish the Gini coefficient for China. And in 2021, the Gini coefficient showed that China was over what is 0.45. That is, put simply, a threshold that shows high inequality for a society. Right? The US, for comparison, was about 0.4. So that's lower than China. And places like Canada and Germany and Sweden were hovering around 0.35. So you can see that according to the numbers, China is genuinely one of the most unequal societies in the world in spite of the fact that it is still ruled by a communist party, at least one that claims to be communist in name. Anyway, but let me, could I throw it back to you, Alice? Why has China taken so long to move on this or to consider moving on this very important topic of inheritance?
Well, I look at the history of taxes and what is interesting, I think it is a legacy of the Soviet system, is that China is very good at recording and taxing and to some degree controlling the supply side or the production side rather than the consumption side. So historically, you know, if you look back to the 80s onwards, a lot of the policies is about, you know, subsidizing or spurring or even to some extent price controlling the supply side and really only in recent years have we seen reforms to really understand the consumption side of things. So we had reforms very recently on value added tax, which is effectively, you know, shaping consumption related outcomes and there was talk in the last few years, ongoing talk about property tax, but that is pretty much gone and it wasn't in this year's five-year plan even though it was mentioned many times in the previous one because the government understands that that is going to provide very little in terms of revenues given that we're 15, 20, even potentially more percent down relative to pre-crackdown trend in terms of property valuations. So the discussion now I think has been revived, you know, after so many years because right now I think the central government is really scratching its head to figure out where else it can generate revenues especially now that it can't really rely on land sales. It can't really rely as much on corporate tax and income tax in a period in which, you know, growth is slowing and it remains reluctant, although this has been touted as one policy choice, to do reforms to the export tax rebates, effectively getting rid of some of the subsidies on the taxes for Chinese exporters because they ultimately don't want to harm and hinder China's export machine. You know, basically they want to protect the Chinese manufacturers. So what else can they do? I think this is pretty low-hanging fruit for them to really target what is going to be one of the biggest wealth transfers in contemporary history and certainly in Chinese history. And then the question is how are they going to do this? I think that ultimately they're going to have to pilot this in certain cities to see how it works. And then they're going to have to figure out the division of fiscal revenues between the central and the local governments. And here I think maybe the local governments might again be screwed because the central government feels that it probably needs to replenish its coffers. We have an overall fiscal deficit that is nearing 10% potentially this year which is a historical high. So I think this is all coming to a head because predominantly there are little other choices in terms of tax sources, tax revenues for the central and local governments. And you know, I predict that in the next few years we'll probably start to see some of the piloting of these inheritance taxes. But it's interesting because I remember reading a couple years ago Thomas, you know, writing about how, you know, China needed to have these inheritance taxes because ultimately what he called patrimonial capitalism was going to be very bad for China. And certainly I recall, James, doing my own historical research on the Gini coefficient in the last two to three decades, it has actually expanded since really reform and opening and it's been a, you know, a flip side to the story of high level growth is that a lot of inequality has sort of settled in the top echelons of Chinese society. But it's interesting because, you know, the government also does care about equality, I do believe, you know, hence the terminology common prosperity that Xi Jinping coined. There was also a discussion a couple years back about an olive-shaped economic distribution as opposed to an upside-down triangle, meaning that you would try to create a bigger middle class like in America and elsewhere in the developed world. But it's hard to see that happening. And maybe having this wealth tax could be a step in that direction, although I'm somewhat skeptical.
