“outer space shall be free for exploration and use by all States;”
https://en.wikipedia.org/wiki/Outer_Space_Treaty#List_of_par... shows it was ratified by 112 countries, including the USA and China.
So, countries may not like being spied upon from space, but that “and use”, to me, means they signed up for allowing it.
I think that article IV of https://www.unoosa.org/oosa/en/ourwork/spacelaw/treaties/out... makes that clear. It doesn’t ban military use of space; it only bans placing weapons of mass destruction there, thus allowing surveillance.
They have occasionally mentioned that 40,000 feet is close enough to pick up communications signals that would otherwise not be available to satellites.
Spy satellites, spy balloons, spy network appliances, spy phones, and plain spies are all proxies for "the enemy", that can be invoked at will, whenever we must be reminded that there are potential enemies and that they are "that close" to becoming an actual threat. Today it is balloons, tomorrow it will be something else. The easier it is to actually see that proxy, the easier it is to transmit the message.
And balloons happen to be more visible than satellites.
Spy satellites couldn’t be hiding a bomb that they could drop.
People have generally agreed that sovereign territorial rights don’t extend into outer space. It would be ridiculous for stars and planets to become e.g. German territory one minute and French territory half an hour later.
Given altitude is unlimited, territory has to end somewhere and that seems to be space, from the cold war period.
Also there are agreements not to weaponise space which reduces threat levels. Also when this became the norm sattelites were far less capable which may have help this become acceptable, though not confident on that.
Also consider nations grabbing comms is considered reasonable. They protest occasionally but largely this is considered fair game as you are again not physically present, where as spy caught in a building type event is a big deal.
There needs to be some boundaries. Physical presence in 'territory' seems to be it.
The USSR was getting close to launching Sputnik, so the US government decided to let the USSR launch first.
That set the precedent that it was OK for overflight as long as it was in space. When the US launched, the USSR could not use it as an excuse.
https://www.inventionandtech.com/content/how-america-chose-n...
I'm no expert but let's say you wanted detailed intel on a oil refinery, manufacturing plant or military facility. With a sensitive enough antenna a balloon fly-by might be able to pick up WiFi signals, keyfob codes, security radio crosstalk, even wireless keyboard emissions.
Also, remember, China has extremely sophisticated facial recognition it uses to track its citizens. A fly-over of a facility at a shift-change could give them a lot of people to target for human-engineering attacks at the site's security.
[0]: https://www.unoosa.org/oosa/en/ourwork/spacelaw/treaties/int...
I don’t usually do this but you could have answered your own question with like, a minute of thinking for yourself.
A spy satellite is in orbit, and would likely burn up before hitting the ground.