Chinese defence and aerospace equities jumped on February 3 as investors digested two converging narratives: Elon Musk’s SpaceX has folded xAI into a venture aimed at building AI compute in orbit, and China’s COMAC is visibly accelerating work on a homegrown wide‑body, the C929. The onshore military ETF 512660 closed up 4.44%, a short‑term market reaction that reflects broader investor expectations about new demand for space‑grade power, communications and avionics components.
SpaceX’s completed merger with xAI and the firm’s stated ambition to deploy up to 1 TW of compute capacity in orbit has reframed the commercial space opportunity from launch and imagery to a vertically integrated “AI model—space compute—reusable rocket” stack. The proposal—backed by filings for very large satellite constellations—points to a technical pathway that combines space photovoltaic arrays, laser inter‑satellite links and radiative cooling systems. If realised at scale, that pathway would create very large addressable markets for specialised power systems, optical communications and spacecraft thermal management.
Chinese industry and markets have taken notice because the same technology nodes map onto domestic supply chains. Beijing has been explicit about boosting national capabilities across “space, air and core components” in the coming Five‑Year cycle. Several Chinese launch vehicles and small‑sat projects are slated for test or deployment in the first half of 2026, while lower manufacturing costs for rockets and satellites are putting a premium on higher‑value, inflation‑resilient subsystems such as laser comms and efficient energy systems.
At the same time COMAC’s C929 wide‑body programme has reportedly advanced to initial wind‑tunnel testing, a milestone that signals faster design and qualification rhythms. The C929 is intended to compete with Boeing’s 787 and Airbus’s A350 in the long‑haul twin‑aisle segment; faster progress there would push the entire civil aerospace supply chain up the value curve. Parallel progress on the smaller C919 narrow‑body—capacity targets of around 150 aircraft per year by 2027 and possibly 200 by 2029—would amplify manufacturing scale effects and reduce unit costs across materials, avionics and engine subsystems.
For investors the immediate takeaway is structural: China’s defence and aerospace sectors sit at an intersection of state procurement, export markets and civil demand. The military ETF 512660, which tracks the CSI Military Index and had roughly RMB10 billion in assets under management as of February 3 (Wind), is positioned to capture exposure across that mix. The likely beneficiaries range from primary airframe producers to tier‑one suppliers in composites, avionics, power systems and optical communications, all of which stand to gain from both domestic programmes and potential export opportunities.
Risks remain material. Orbital compute is capital‑intensive and unproven at the scale envisioned; regulatory, spectrum and space‑traffic constraints are unresolved at the international level. China’s ability to localise high‑end engines, chips and certain avionics remains a partial constraint, and global export controls and competition from well‑capitalised Western players will shape market share outcomes. Investors should thus weigh compelling long‑run demand narratives against execution, technology and geopolitical risk.
Taken together, the SpaceX‑xAI move and China’s aviation milestones illustrate a broader industrial pivot: compute and communications are relocating to orbital infrastructure while terrestrial aerospace capacity is moving up the value chain. That double shift—if realised—would remap supplier economics across both commercial and defence ecosystems and create strategic opportunities for firms that can combine technical depth with scale.