Monthly Note - September 2023
China’s semiconductor champions pose a variety of risks to the security and prosperity of the United States. Intensified geopolitical competition around the supply chains that bring microelectronics to the market have brought new political, economic, regulatory, and compliance challenges for an integrated, global ecosystem.
Horizon Advisory’s Chip Risk Monitor is a recurring source of risk assessment meant to provide decision makers with a reference for the risks posed by China’s integrated circuit ambitions.
Methodology Overview
The Chip Risk Monitor looks to assess those risks in a recurring and transparent fashion. Two factors of risk associated with China’s semiconductor champions are reviewed:
One is objective risk. What are the features of a given Chinese semiconductor firm’s business profile that indicate how likely they are to pose a threat to compliance with existing norms and regulations? These direct risk factors are assessed in two separate variables:
Proximity to China’s industrial policy ecosystem
Ties to China’s military and surveillance ecosystems
The second factor is the probability that ex-PRC supply chains and capital flows are exposed to the direct risks presented by proximity to China’s industrial policy system and to China’s military and surveillance efforts. This is referred to as contamination risk. The probability factor is assessed based on two separate variables:
Financial performance
Global profile
Objective risk and contamination risk combine to provide a heuristic for the regulatory and compliance challenges presented to the global marketplace – and US firms and government authorities – by the PRC’s semiconductor champions.
The Playing Field
The initial Chip Risk Monitor Scorecard assesses regulatory and compliance risks for a set of four Chinese integrated circuit champions: SMIC, Huawei, CXMT, and YMTC.
Aggregate indicator scoring is reflected in the chart below:
Additional detail on recent highlights in the key Indicators of risk are covered in Industrial Policy, Military-Civil Fusion, Global Profile, and Financial Performance.
What’s Next
The PRC industrial policy and military-civil fusion systems are activated in the fight for security and relative independence in semiconductor supply chains. The Chip Risk Monitor will be updated at the end of each month with a review of latest developments and evolutions in the risk profiles of individual semiconductor champions in China. The set of companies reviewed in month two of the Chip Risk Monitor is slated to expand from four to eight with coverage expanding to address each segment of the integrated circuit value chain as well as representative types of ownership of Chinese firms.
Reading
From Horizon Advisory:
From around the web: