Chip Four Alliance Plus The Netherlands: De-Risking from China and Russia?
Executive Summary
1. The Biden Administration proposed the Chip Four Alliance to strengthen American and Allied access to vital chips and weaken the involvement of American adversaries, namely China and Russia, on trade and national security grounds.
2. The Alliance aims to provide a forum for governments and companies to discuss and coordinate policies on supply chain security, workforce development, research and development, and subsidy harmonization. A series of unresolved challenges remain within the Alliance itself regarding American market regulations.
3. Semiconductors are unique in that, unlike virtually any other commodity (such as oil), they can only be sourced from a small group of countries and their respective companies. In 2022 there were still more semiconductors produced globally than all other manufactured goods combined.
4. The risk of China and Russia gaining access to weapons-grade semiconductors through financial investments in the Chip 4 Alliance countries is a concern for national security agencies.
5. Prior to the official announcement of the Chip Four Alliance, Chinese and Russian companies had already made substantial investments in these countries and established linkages across the entire value chain, including in research and development.
6. The most active Chinese company has been the Semiconductor Manufacturing International Corporation (SMIC), a state-owned company that is officially domiciled in the Cayman Islands. State-owned, Moscow-headquartered RUSNANO is the most active Russian semiconductor player in the Chip Four countries and the Netherlands.
7. Even in the event of a forced share sale, Chinese companies can utilize the domestic legal system in question to extend the process. Also, up until recently companies such as SMIC enjoyed the same investor rights, such as access to intellectual property and research and development projects, as other major investors.
8. This same principle holds true for Russian companies such as RUSNANO or Rostec in these same countries. Even if both China and Russia are somehow completely ejected from these countries, they still have been able to absorb technology and knowhow that would be considered at least near state-of-the-art as recently as 2023.
9. This knowledge adds to established engineering knowhow that exists across the Chinese and Russian semiconductor industries to produce legacy chips. As China currently spends more money importing chips than it does oil, there is a strong incentive to scale up production.
10. China and Russia have established the core structure of an alternative semiconductor industry that covers the entire value chain. Such an alternative industrial structure would likely prioritize mass production of both legacy chips and their most recently acquired chip designs and other technologies prior to their ejection from Chip Four and Dutch environments.
