The Chinese government is threatening to build its own global satellite navigation system and to place its military signal atop frequencies reserved for Europe's encrypted Galileo satellite navigation service, and perhaps over the U.S. GPS military signal as well, according to European government and industry officials.

The Chinese disclosures to European governments in recent weeks have complicated an already-uneasy relationship between Europe and China over satellite navigation.

China has signed a partnership agreement with Europe for Galileo and has invested in becoming a shareholder in the system. But that shareholding, and a similar Galileo partnership with Israel, will expire at the end of this year when these two nations' European partner -- the Galileo Joint Undertaking in Brussels -- shuts down its operations.

The Galileo Joint Undertaking will be succeeded by a new, Europe-only management body called the Galileo Supervisory Authority, which will be Galileo's owner.

Currently there is no place for a non-European government in this new organization, in part because it also will manage Galileo's encrypted, government-only Public Regulated Service, or PRS. No non-European authorities will be permitted access to PRS.

The Chinese and Israeli cash deposits with the Galileo Joint Undertaking likely will be refunded, minus a portion for incurred expenses, government officials said. China and Israel both made deposits of 5 million euros ($6.5 million) to have small ownership stakes in Galileo.

Ukraine, India, Morocco and South Korea have signed tentative Galileo participation agreements, but they have not concluded firm deals and have not made cash deposits, officials said.

The Chinese already have a regional navigation system, called Beidou, based on three satellites launched into geostationary orbit in 2000 and 2003.

To complement that system and share in the commercial revenues expected from Galileo, China agreed to invest some 200 million euros in the European system, with almost all of it being spent in China to prepare Galileo ground installations and to promote a domestic industrial base for navigation products and services.

In addition, China is providing the search-and-rescue payload on the first four Galileo test satellites to be launched in 2008.

But in recent months, China has taken steps to prepare for its own global system, called Compass, which would feature 24 satellites in medium-Earth orbit -- a design similar to the GPS and Galileo constellations.

Taking a page from a failed French-led effort, China is saying that the Compass security signal -- the one to be used for encrypted government and military services -- will operate in the same frequencies as Galileo's PRS.

The French government had tried to persuade Europe to place Galileo's PRS signal on the same frequencies as those used by the GPS military code, a new signal gradually being introduced as new GPS satellites are launched.

The U.S. government strongly objected and said such a move would render impossible any cooperation between the GPS and Galileo programs. The European Commission, which leads satellite navigation negotiations for the 25-nation European Union, eventually dropped the French idea and agreed to place the PRS signal on frequencies separated from the GPS M-code.

The European decision was due in part to the fact that NATO nations, most of them in Western Europe -- plan to use the GPS M-code for weapons guidance, battlefield deployment and other purposes.

Placing PRS on the M-code frequencies would not have interfered with the functioning of either system and would not violate international regulations on frequency allocation issued by the International Telecommunication Union, a United Nations affiliate in Geneva.

But a frequency overlay would mean that, in a time of war, any U.S. or NATO attempt to jam the Galileo PRS signal would automatically jam the GPS M-code. The European decision to abandon the strategy was an implicit acceptance that U.S. military authorities could jam Galileo and continue to use GPS.

The Chinese are now adopting the same strategy. "This is something we are negotiating actively with the Chinese," one European Commission official said. "The Chinese have also said their Compass signal would be using some M-code signals. What we are saying is that we hope, by the end of this year, to have arrived at a policy of how to deal with the Chinese and other nations on Galileo, and how to treat this [frequency-overlay] issue."

Two officials said China's seriousness about building its Compass satellite constellation has been demonstrated by Chinese interest in purchasing atomic clocks in Europe. These devices -- rubidium and the more accurate hydrogen maser atomic clocks -- are the heart of a navigation satellite and permit the highly accurate timing that is the basis of satellite-based position location and navigation.

The atomic clocks for Europe's Galileo constellation are being built by Temex Neuchatel Time of Neuchatel, Switzerland. Officials from that company's Swiss and French offices did not immediately return calls June 9 seeking comment on whether China had made such a purchase.

The Chinese embassy in Paris did not respond by press time June 9 to a call seeking comment.

"This frequency issue worries everyone," one European government official said. "We want a partnership with China, but the partnership we have may not survive beyond this year because of the change in Galileo ownership. The Chinese say that, for them, Galileo is about commercial business, whereas their Compass system is a strategic interest."

The European industrial consortium negotiating with the Galileo Joint Undertaking to manage Galileo under a 20-year concession has estimated that around 20 percent of the system's future revenues would come from PRS use by European governments. Many of these users would be security or military personnel. A Chinese overlay would render PRS less attractive to these users, undermining the already-difficult business case for Galileo.

To operate Galileo as a business and reimburse its bank loans, the industrial consortium has estimated it would need to generate 600 million euros per year in revenues.

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