Hong Kong Becomes Key in CCP’s Supply of Semiconductors to Russia

The superyacht Nord, believed to belong to Alexey Mordashov, an ally of Russian President Vladimir Putin and Russia's third-richest oligarch, Anchored in Hong Kong waters on Oct. 7, 2022. Big Mack/The Epoch Times

Commentary

A substantial amount of data indicates that Hong Kong has become a crucial link in the supply chain for high-tech products, including semiconductors, supplied by the Chinese Communist Party (CCP) to Russia.

A China analyst indicated that the CCP has tied Hong Kong and mainland China together, and Hong Kong no longer plays the role of an intermediary. The recent visit to China by U.S. Secretary of State Antony Blinken could lay down a final ultimatum: if the CCP continues to support Russia, another U.S.-China trade war will start with more severe sanctions. At that point, U.S. sanctions against the CCP will encompass Hong Kong.

When meeting with Chinese Foreign Minister Wang Yi on April 26, Mr. Blinken expressed concerns about Beijing supplying components “that are powering Russia’s brutal war of aggression against Ukraine.”

“China is the top supplier of machine tools, microelectronics, nitrocellulose, which is critical to making munitions and rocket propellants, and other dual-use items that Moscow is using to ramp up its defence industrial base,” he said.

He warned that if Beijing does not address the problem, Washington will.

A 2023 report by the Carnegie Endowment for International Peace shows that Hong Kong acted as a transit center in Russia’s illegal procurement network, transferring microelectronic components manufactured in the West to enterprises related to the Russian military. Since Russia’s invasion of Ukraine, Hong Kong’s exports of integrated circuits to Russia have surged, with semiconductor exports reaching approximately $400 million in 2022, second only to China and far exceeding any other country conducting semiconductor transactions with Russia.

According to data by the Indian research company Export Genius, records of Russia’s semiconductor imports show that between Feb. 24 and Dec. 31, 2022, out of 3,292 transactions worth at least $100,000 each, around 70 percent involved products manufactured by American chip makers, totaling approximately $740 million.

Among these transactions, 1,774 (about 75 percent) were shipped from Hong Kong or mainland China. Many of the companies were small and medium-sized, some of which were newly established after Russia’s invasion of Ukraine. The total value of these transactions reached $570 million, representing a tenfold increase in U.S. chip exports to Russia from Hong Kong and mainland China compared to before the Russia-Ukraine war.

Based on data provided by Silverado Policy Accelerator, a Washington NGO, from March to December 2022, China and Hong Kong accounted for nearly 90 percent of the chips exported to Russia by transaction value.

According to Russian customs data from C4ADS, an investigative nonprofit organization, shipments of high-end chips to Russia surged in the first half of 2023, many of which moved through Hong Kong.

From January to May 2023, over 200 Russian enterprises received 17,000 TI chips worth $25 million from the U.S. semiconductor company Texas Instruments Inc. (TI), with the two largest recipients being NPP Itelma and VMK. The chips received by these companies were processed by two Hong Kong companies, which were sanctioned by the United States in October 2023 for supplying military-related companies in Russia.

TI and Analog Devices, another American semiconductor company, both denied selling chips directly to Hong Kong entities.

New Companies With ‘Russia’ in Names Surge

After Russia’s invasion of Ukraine in 2022, the number of newly registered companies with “Russia” in their names surged in Hong Kong.

Liber Research Community, a local organization that specializes in studying Hong Kong’s development, examined the list of newly registered companies and those that had changed their names at the Companies Registry.

The community found that from Russia’s invasion of Ukraine on Feb. 24, 2022, to October 2022, 35 new companies registered in Hong Kong with “Russia” in their names. During the same period in 2021, however, only 13 such companies registered, indicating a “significant increase.”

DJI Matrice 300 reconnaissance drones, bought in the frame of program “The Army of Drones” are seen during test flights in the Kyiv region on Aug. 2, 2022. Sergei Supinsky/AFP via Getty Images

In addition, although companies involved in the liquor industry accounted for the highest proportion in the list, some companies involved in relatively sensitive industries were also found, including agriculture, chemicals, energy, and finance, with a considerable proportion.

In October 2022, Sherman Yan, managing partner of the Hong Kong law firm ONC Lawyers, told Bloomberg that some large Russian companies, including state-owned enterprises, are seeking cooperation with Hong Kong law firms to help Russia enter Hong Kong. They hope this will be a “friendlier jurisdiction” than New York and London, among others.

Mr. Yan said that his firm has had preliminary discussions with Russian clients, some of whom seek to change certain registration items to Hong Kong while retaining their businesses in Russia.

Expert: US Sanctions Will Include Hong Kong

Since the anti-extradition movement in 2019, the CCP’s tightening control over Hong Kong has become increasingly severe, and the degree of autonomy promised under the Basic Law for Hong Kong’s “one country, two systems” is disappearing. Since Russia’s invasion of Ukraine, under the authorization of the CCP, the Hong Kong authorities have openly disregarded Western sanctions and deliberately relaxed export controls.

The Carnegie Endowment for International Peace report stated that Hong Kong’s place as a neutral trade hub connecting East and West is no longer valid. According to the report, “High levels of semiconductor trade between Hong Kong and Russia, as well as the Hong Kong government’s public scorn for Western sanctions, have made Hong Kong’s allegiance clear: it sits firmly in the camp of an emerging China-Russia axis.”

On March 29, the Biden administration announced another revision to regulations preventing the CCP from acquiring American AI chips and chip manufacturing equipment, which took effect swiftly on April 4, less than a week after its publication.

The 166-page revision includes restrictions on semiconductor exports to China and restrictions on notebook computers containing these chips. There are indications that these restrictions may escalate to include low-end mature chip industries.

The U.S. chip ban has dealt a significant blow to the development of advanced Chinese semiconductor technology. The image shows a factory producing LED chips in Huai'an City, Jiangsu Province, on June 16, 2020. STR/AFP via Getty Images

Shi Shan, a columnist and senior editor of the Chinese edition of The Epoch Times, believes that the CCP has tied Hong Kong and mainland China together, and Hong Kong no longer plays the role of an intermediary.

This visit by Mr. Blinken to China should be the final negotiation. If the CCP continues to support Russia, the United States will initiate further severe sanctions, he said.

Mr. Shi believes the United States is gradually tightening the CCP’s access to high-tech products, and a U.S.-China trade war is imminent. Therefore, future U.S. trade sanctions against the CCP and Russia, especially severe sanctions in the high-tech field, will certainly include Hong Kong.

“Hong Kong, once super-connector, is highly likely to be implicated and will suffer even greater damage in the future,” he said.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.