What is the Chip 4 alliance?

When Nancy Pelosi, the US House speaker, landed at an American military base in South Korea on August 3, many experts expected she’d receive a red carpet reception. Instead, she got, what one headline said, snubbed. 

South Korean President Yoon Suk-yeol didn’t interrupt his staycation – he was relaxing at his home in Seoul. His foreign minister didn't come to meet the US lawmaker either. 

Pelosi was on a whirlwind tour of Asia. Her controversial trip to Taiwan at a time of heightened tensions with China resulted in angry protests from Beijing.

Even though Yoon spoke to Pelosi over the phone a day later, many saw the posture of South Korean leadership as an attempt to pacify China. 

Seoul’s ability to balance relationships with its key military ally – the US – and main trading partner – China – is being put to the test over the question of its joining the ‘Chip 4’ alliance. 

Here’s what you need to know about the alliance. 

The big 4 

From iPhones and Playstation gaming consoles to Dell laptops and Tesla electric cars – modern electronics depend on semiconductors (chips) to manage their complex functions. 

A shortage of chips during the Covid-19 pandemic disrupted the production of multiple products and initiated a debate in the US on its dependence on chip imports. 

US President Joe Biden recently signed the Chips and Science Act, which sets aside tens of billions of dollars to encourage companies to set up manufacturing and design facilities in the US. 

The US, Taiwan, South Korea and Japan meet most of the world’s semiconductor demand. They sit on most of the capacity to design, produce and test tiny chip components. 

Taiwan’s TSMC is the largest contract chip maker, counting Apple and Nvidia as its customers. 

Taiwan, a tiny island, relies on US diplomatic and economic support to push back against China. 

Beijing sees Taiwan as essential part of its territory, a claim much of the world accepts. Only a handful of small nations see Taiwan as a sovereign state. Even the US adheres to the One China policy and hasn’t recognised Taiwan as an independent country. 

Starting in early August, China’s military carried out live-fire drills around Taiwan that included the use of its sophisticated jets and naval ships. 

The idea behind the alliance

The US accuses China of stealing intellectual property from American and western companies such as the technology behind turbines for windmills. 

In the last few years, successive US administrations have imposed restrictions on the know-how of sophisticated products to China, which aims to move up the technology supply chain instead of being seen as the world's contract manufacturer. 

What raised the alarm in Washington was China’s rapid capture of the market for 5G network. Shenzhen-based Huawei owns most of the 5G patents and faces a concerted US effort to block its expansion. 

Experts say China has forced foreign companies to share patented information with local joint-venture partners. 

The World Trade Organisation (WTO) prohibits rules that require forced technology transfers as a trade-off for granting access to the market.

Western companies desperate to sell their goods in the fastest-growing market for everything from electric cars to solar panels often chose to stay silent.

China’s President Xi Jinping has vowed to focus on tech development and help manufacturers move up the technology supply chain.  

The so-called 'Chip 4' alliance aims to enhance cooperation between the members on design and production of sophisticated semiconductors. 

It’s likely the US, which is home to global tech leaders such as Intel and Google, will convince Taiwan and Japan to join its semiconductor supply chain as leaders meet to kickstart the initiative later this month. But courting South Korea is another story. 

Will South Korea join the alliance? 

President Yoon has tried to play down the concerns, saying Seoul will do what’s in the national interest. His government has informed the US that it will participate in the preliminary meeting but hasn't given an all out support to the idea. 

“The government is closely examining the issue from the perspective of the national interest. Relevant government agencies will study and discuss the issue in a way to preserve national interests. People don’t have to worry about it too greatly,” Yoon said.

China is the biggest market for South Korean semiconductor makers Samsung and SK Hynix. 

Out of South Korea’s memory chip exports of $69 billion in 2021, around 40 percent of that went to China. Add Hong Kong to the export figure and the percentage rises to 60 percent. 

Korean companies rely on Chinese firms for important materials used in chip making. 

Samsung’s only overseas memory chip facility is based in Xi’an and accounts for around 40 percent of Galaxy phone makers' NAND flash output. 

“Like it or not, China is a massive market, and abandoning it isn’t an option. We need to keep cooperating economically [with China] where possible and making progress on that,” SK Group Chairman Chey Tae-won told a press conference.

SK Hynix, which has plants in Wuxi, Chongqing and Dalian, has been struggling to equip its facilities with advance machines such as extreme ultraviolet lithography equipment after the US blocked its export to China.