“America invented the semiconductor,” declared President Joe Biden upon signing the CHIPS and Science Act of 2022, a $280 billion bill intended to strengthen the U.S. semiconductor industry, and with it American competitiveness. “And this law brings it back home,” the president continued. “It’s no wonder the Chinese Communist Party actively lobbied U.S. business against this bill.”
That rhetoric sounds great. Unfortunately, it is just rhetoric. The reality is that without appropriate protection of technological advance, these investments risk ceding competitiveness to Beijing. The U.S. foreign investment review process—overseen by the Committee on Foreign Investment in the United States (CFIUS)—is allowing Beijing-linked entities access to potentially game-changing semiconductor innovation.
The latest example: at the end of August, just two weeks after the CHIPS Act became law, Chinese-funded AlphaWave IP Group announced that its planned acquisition of California-based OpenFive had been approved by all regulators, including CFIUS.
Alphawave is a semiconductor IP company founded in Canada and headquartered in the U.K. It has had extensive exposure to China and Chinese government influence: the company’s fifth-largest shareholder, with a more than 6 percent stake, is Wise Road Capital—with which AlphaWave also partners on a China-based joint venture.
What is Wise Road? A government-backed, -guided, and -partnered Chinese investment vehicle charged with the internationalization element of Beijing’s semiconductor strategy. Run by Li Bin—a shadowy figure with close Chinese government ties—Wise Road takes advantage of its opaque nature and private-entity facade to buy up cutting-edge technology all across the global semiconductor supply chain.
OpenFive is a perfect target for Wise Road. It provides advanced system-on-chip designs for artificial intelligence, edge computing, and networking solutions. It sits at precisely the advanced point in the semiconductor value chain where the U.S. leads, and where Beijing is working to catch up. AlphaWave’s acquisition, therefore, constitutes precisely the sort of threat that U.S. investment review is supposed to defend against.
Neither Wise Road nor its attendant risk factors are news to the U.S. government. In 2021, Wise Road announced it would acquire South Korea’s MagnaChip, a designer and manufacturer of analog and mixed-signal semiconductor platform solutions. CFIUS blocked that $1.4 billion deal, with the U.S. Treasury Department ruling that it posed “risks to national security.”
Wise Road appears to have learned from that failure. This time it took an indirect route, using a third party to relaunch its global Go Out efforts. This is a canny mechanism for evading U.S. defenses. Washington, CFIUS, and other regulatory tools are failing to keep up.
In part, the failure is a tactical one, a refusal effectively to leverage defensive tools meant to protect advanced technologies. Earlier this month the Biden administration issued an executive order to sharpen foreign investment screening by CFIUS; those measures do not address China’s indirect route.
The failure is also a strategic one. The U.S. is proving unable to shore up an industrial system that Beijing has co-opted, instead pouring hundreds of billions of dollars into a semiconductor ecosystem built on, dependent on, and penetrated by Beijing.
Washington’s failure, in the AlphaWave case and more broadly, signals to China that the U.S. is not serious about competing—CHIPS Act or not. It signals the same to U.S. allies and partners, setting a terrible example for an international ecosystem that the U.S. desperately needs in an industrial competition with China. Wise Road also recently acquired U.K. chip maker Newport Wafer Fab, despite concerns raised by members of Congress and others. Why would London get serious about screening such investments if Washington isn’t doing the same?
Moreover, the Wise Road-AlphaWave case is just the tip of the iceberg. Beijing has spent decades integrating itself into the global semiconductor ecosystem—as well as other strategic industries and technologies—so that it can weaponize that integration. It has secured international dependence on Chinese industry for upstream inputs, production, and markets. In the process, it has locked in technological access and influence. The result: systematic co-option. The global semiconductor industry rests on a Chinese foundation. And right now, the U.S. is funneling tens of billions of dollars into that co-opted system without addressing its vulnerabilities.
Washington boasts an impressive arsenal of defensive tools. It should start using them. One way it can do so is by activating investment review to protect against not just direct adversarial efforts to acquire strategic and sensitive technology, but also indirect ones. The same should be done with a revamp of technology export restriction processes managed by the Commerce Department.
But Washington also needs to develop new tools, models, and frameworks to address the strategic, systemic problem. The U.S. needs to invest in the upstream sources of the semiconductor supply chain—such as gallium and electronic-grade silicon—to lessen dependence on China. It needs to impose real guardrails on U.S. investments in cutting-edge technology, to the point of barring any company receiving CHIPS Act subsidies or other incentives from manufacturing chips, operating subsidiaries or joint ventures, or engaging in research partnerships in China. And the U.S. needs to do all of this in conjunction with allies and partners, establishing itself as the leader of a new industrial model—not a lone, half-hearted objector to China’s.
That is what global technology leadership in this century would look like. The alternative, of course, is authoritarians cheering an American demise fueled by American technology and American cash.
Nathan Picarsic and Emily de La Bruyère are Senior Fellows at the Foundation for Defense of Democracies and co-founders of the supply chain and geopolitical risk startup Horizon Advisory. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.