BEYOND THE CHIP GAP: WAICO AND CHINA'S INSTITUTIONAL STRATEGY IN GLOBAL AI COMPETITION

Abstract

Artificial intelligence has emerged as a major front of US-China strategic competition. The competition is not limited to AI models but also extends to the semiconductors and computing infrastructure that support them, where the United States enjoys a substantial material advantage. In July 2026, China established the World Artificial Intelligence Cooperation Organization (WAICO) leaving the question of whether institutional leadership can offset this constraint.This paper asks: to what extent can China's leadership through WAICO compensate for its disadvantages in advanced semiconductor technology in the global AI race? Drawing on a qualitative case study of WAICO's founding agreement and Xi Jinping's inaugural address, and applying institutional balancing (He, 2008) and contested multilateralism (Morse & Keohane, 2014), this paper argues that WAICO does not resolve China's semiconductor gap. Instead, China's constraint incentivises a shift toward downstream domains - capacity building, standards, technology diffusion, and governance - where that disadvantage is less binding. This partial strategic compensation remains conditional: WAICO's low formalisation limits binding agreement on sensitive issues, and its formally universal membership has not translated into broad participation. This suggests a refinement to institutional balancing theory: a constrained state may relocate competition toward adjacent domains rather than balancing within its weakest domain. WAICO's significance lies not in closing China's technological gap, but in broadening the terrain on which global AI leadership is contested. Keywords: WAICO; China; institutional balancing; contested multilateralism; semiconductor disadvantage; AI governance, strategic compensation.