The suspected Chinese spy balloon is a Sputnik moment for the space industry

Now that the US military has shot down a suspected spy balloon from China, there will be debate about the balloon’s meaning, its capabilities, and why it is there.

Although former CIA director Michael Hayden said on Friday that the threat to America’s well-being was growing, others described the incident as a wake-up call. Trump’s former national security adviser HR McMaster hopes it will lead to a “sputnik moment”, a return to the US space race with the Soviet Union. The Wall Street Journal even warned of a “ballooning gap” with China.

The balloon flies at about 60,000 feet and may gather intelligence. It flew over a military site, and the Pentagon said it was a surveillance balloon, which the Chinese Foreign Ministry denied, saying “it is a civilian aircraft used for research, especially meteorological, purposes.” Thousands of these balloons are now being studied and inspected to learn more about Chinese technology.

As much as the rhetoric about China’s threat is hyperbolic, one thing is clear: space is space – for military contractors and private capital, that is. When I asked military industry experts and investors in recent months about trends to watch in the coming year, many emphasized that space-related technology, as well as satellites and drones, is a booming industry. Although each of these technologies does different things and operates in different places, each is an arena of intense US competition with China – and a technology where artificial intelligence and autonomy will be tested.

Former President Donald Trump launched the Space Force, but this new space race is not the exclusive domain of government. Private investors are competing to vote for their beloved startups, with former US national security chiefs joining advisory boards to provide strategic insight into the geopolitical landscape.

More than $ 45.7 billion of private capital is invested in the space industry in 2021. Last year was slower ($ 21.9 billion), but it may be a function of 2021 being very hot. Despite the recent hiatus of technology, companies with sophisticated software and hardware are attracting huge investments.

And now the balloon will enter the conversation.

The commercial space industry is ballooning

Balloons, it turns out, have become part of that US arsenal, with the Pentagon spending $3.8 billion over the past two years, according to Politico. As industry expert George Howell posted on LinkedIn, “High Altitude Balloons are actually a pretty smart thing to invest in, they are cheap, easy to transport, can be fielded in large quantities and payload agnostic,” meaning when they are most likely to carry cameras or radar , in certain situations the balloon can field weapons.

Military contractor and balloon maker Aerostar was even more clear in a video posted to social media this week: “The sky is not the limit!”

Balloons are an old technology, vulnerable to high winds, but that vulnerability also translates into advantages, they fly low enough to avoid detection, said George Nacouzi, senior engineer at Rand Corporation. He predicted “some focus on anti-balloon technology,” including “balloon killers.”

Kevin Liu Huang, an entrepreneur who writes the Chiral Defense newsletter on investment trends and military technology startups, is not concerned about the ballooning gap, but he sees this episode as emblematic of US-China competition over satellites and drones. “It’s a whole kind of geopolitical competition that’s really developing,” he told me. “It’s also a very growing industry and market.”

The trend can now be capitalized on by US private technology companies, military contractors, and researchers studying the space race that the industry often bears. “Beijing is rapidly expanding its government and commercial space sectors,” said Kari Bingen of the Center for Strategic and International Studies in a recent congressional hearing. “We need to take important and purposeful steps to maintain our space advantage.” Last year, Rep. Mike Gallagher, a rising Republican national security figure, argued that the Pentagon should buy commercial satellite technology, which he said is moving faster than the government’s rigid procurement efforts.

One of the signals of the hot satellite and space startups is that they have become a rotating home for retired military and intelligence officials. Satellite imagery provider Planet is one of the big investments of former Google CEO Eric Schmidt. There is also HawkEye 360, whose constellation of satellites uses radio frequencies to help military and intelligence clients track events below, which many former US policymakers have decamped, and Maxar Technologies, a satellite company known for its high-resolution images of Earth.

The implications of the balloon incident for the space and satellite industry will not be felt immediately, but a taste of what could happen was seen at an event last week – before news of the balloon broke – in downtown Manhattan hosted by Silicon Valley Bank. A member of the America’s Frontier Fund venture group spoke on the panel and gave a rare insight into the benefits of investing in advanced technology to counter China. “If the China/Taiwan situation happens, some of our investments can be 10x, like overnight,” said a representative of America’s Frontier Fund at the event.

The fund is backed by Schmidt and tech tycoon Peter Thiel, and in its own marketing compares the sophisticated investment to the urgency of the US-Soviet space race. McMaster, for his part, serves on the fund’s board of directors and is a board member of Shield Capital, another military-focused investment group whose portfolio companies include satellite companies, such as Hawkeye, as well as drone producers.

“Remember 1957 with the Soviet satellites,” McMaster said. “Maybe this is a wake-up call, hey, we have to compete more effectively against the CCP, the Chinese Community Party, and what they’re doing to us.”