Last year, an experienced executive from the software industry in Silicon Valley, USA, took the helm of a startup in his home country, according to company records. The startup informed potential investors that it would sell software for semiconductor design, which is primarily available from a few large companies in the West.
The Importance of OPC Software in Advanced Chip Design
OPC software is a highly specialized and desirable tool used in the design of many semiconductors and is critical for advanced chip design. The production of advanced chips is one of the most controversial technological battlegrounds currently separating the United States and China in their race for economic and military supremacy. Washington is attempting to restrict China’s access to sensitive semiconductor design tools.
Seida’s Strategy
The strategy of the startup known as Seida illustrates why this containment effort is so challenging. Before becoming the CEO of Seida, Lego “Rico” Zhang lived in the United States long enough to obtain permanent residency and purchase a home in Silicon Valley, according to people familiar with his career and public records reviewed by Reuters. He worked at Siemens EDA, an American unit of German industrial giant Siemens AG, which dominates the market in China for the technology that Seida has told investors it plans to sell there. Three other Chinese colleagues from Siemens EDA joined Zhang at Seida.
Attracting Strong Chinese Investors
The startup has attracted the interest of strong Chinese investors. According to recent corporate reports reviewed by Reuters, one investor is an investment arm of Semiconductor Manufacturing International Corp or SMIC. The state-backed company based in Shanghai is the largest producer of semiconductors in China. U.S. companies are restricted by Washington from supplying technology to SMIC without special licenses because its alleged work with the Chinese military is considered a threat to U.S. national security.
Evolving Goals of the Startup
The goals of the startup have evolved, according to a message from Seida’s Chief Operating Officer following Reuters’ visit to its headquarters in Hangzhou, eastern China. He added that private investors and private institutions are the main backers of the company. He declined to specify how much capital Seida has raised or which products it aims to pursue, noting that its business plan is still “subject to ongoing evaluation.”
U.S. Restrictions on China’s Access to EDA Tools
Since Seida’s launch in October 2021, the U.S. government has intensified efforts to restrict China’s access to EDA tools, which are primarily developed and sold by American companies. Through export controls and other restrictions, Washington aims to prevent China from obtaining the knowledge that could allow it to catch up with the semiconductor advancements of the U.S. and its allies, including Taiwan, the self-governing island claimed by China and the largest chip producer in the world.
Limiting Business Opportunities at Siemens EDA
According to email exchanges with Reuters, Zhang, the COO, said that the U.S. restrictions were one of the reasons that prompted Zhang and his colleagues to leave Siemens EDA to join Seida in the first place. He wrote that the restrictions limited their business opportunities at Siemens EDA and “shrunk the scope for professional advancement and participation in major projects.” Zhang added that Seida complies with the rules of the United States and China.
China’s Technological Advances in Semiconductors Despite U.S. Restrictions
Despite U.S. export controls, China is making progress. In 2019, the U.S. Department of Commerce placed Huawei Technologies, the Chinese telecommunications giant, on its list of companies that could not purchase American technology unless the seller obtained a special license. SMIC was blacklisted by the department a year later based on national security concerns. However, in August 2023, Huawei launched a smartphone featuring advanced 5G technology and a seven-nanometer chip produced by SMIC. The phone was announced with great fanfare. Later, the Department of Commerce stated that it was investigating whether the two companies had relied on restricted American technology to develop the chip.
Challenges
Revealing the Source of Technology
It can be difficult to prove the source of certain technologies. Many developments in the chip industry rely on existing intellectual property. The transfer of employees within the industry, especially across international borders, can make it challenging to investigate export violations or pursue claims of intellectual property theft. “You cannot control what goes on in people’s minds through any export controls,” according to the technology and geopolitical director at Stiftung Neue Verantwortung in Berlin.
The Evolution of Chinese Startups in the Chip Industry
Seida is one of many Chinese tech startups founded in recent years in response to the Chinese government’s call to boost the local advanced chip industry. Tracking this development can be difficult. Recent changes in Chinese regulations restrict access to corporate records. Reuters was unable to determine whether the Chinese government played any role in launching Seida or whether Zhang, the CEO, or his colleagues received any government incentives to leave Siemens EDA and work there.
China’s Progress in Advanced Chip Manufacturing
China aims to achieve self-reliance in the manufacturing of advanced chips. Although the United States still leads in many of the technologies needed for chip design, most of the printing and assembly processes occur in Asia. The U.S. relies heavily on South Korea for memory chips and Taiwan for logic chips. China is making headway in this field despite American restrictions.
Challenges in Advanced Chip Design
Among the challenges China faces in producing more advanced chips is access to EDA tools, such as the OPC software that Seida promoted in early marketing. EDA tools require intensive processing power. They are specialized technologies to the extent that some advancements are classified as scientific breakthroughs. Despite U.S. export controls, China is making progress in this area.
U.S. Challenges in Facing China’s Advances
The previously unreported story of Seida illustrates the challenges that the West faces in hindering the development of advanced chip technology in China. Despite Washington’s efforts to slow down China’s acquisition of chip technology, Beijing is accelerating the push for local development and attracting expatriate Chinese experts to return home and catch up in this sector.
China and the United States’ Comments on the Issue
A spokesperson for the Chinese Foreign Ministry stated that the United States “abuses export control measures” and “imposes illegal unilateral sanctions and exercises jurisdiction over Chinese companies.” The Chinese spokesperson added that China has adopted laws to protect intellectual property and “abides by internationally accepted rules.” He affirmed that technological advancements in China “are not the result of theft, nor of plunder, but rather the result of the hard work and skills of the Chinese people.”
Challenges Facing the United States
U.S. officials have repeatedly emphasized that Chinese efforts to obtain Western technology represent one of the largest long-term threats to the U.S. economy and national security. They have expressed particular concern about China’s ability to utilize advanced chips and powerful processors for its rapidly growing military purposes.
The Impact of U.S. Restrictions on China
Although export rules may slow Chinese progress, industry experts say it is unlikely to hinder chip technology development in China. “The United States is blocking China, but it will merely become an obstacle,” according to Michael Brooke, former CEO of Intel in China. “China will be pushed to become more self-reliant.”
Challenges Facing China in Advanced Chip Manufacturing
Made
The Chinese government is developing more advanced chips as one of its strategic goals. Last year, Beijing announced that the government would spend $143 billion to bolster the domestic chip sector in China. Through a separate program known as “Thousand Talents,” the government offers job opportunities, housing, and other incentives for Chinese experts returning from science and technology jobs abroad.
Challenges in Revealing the Source of Technology
It can be difficult to prove the source of some technology. Many developments in the chip industry rely on existing intellectual property. The transfer of employees within the industry, especially across international borders, can complicate the investigation of export violations or following claims of intellectual property theft.
The Impact of Chip Technology Development on China and the United States
Since the 1950s, leading chip technology has played a significant role in establishing the world’s largest economy, strong technology and financial sectors, and an unmatched military so far. However, China’s rapid economic growth and its stated ambition to assert its status as a global power challenge this dominance.
Challenges for the United States in Facing China’s Progress
During the Cold War, Washington restricted exports of certain raw materials that could have been used by Eastern communist countries to develop weapons. At that time, these measures succeeded because countries behind the Iron Curtain were already economically isolated. Now, however, globalization has made most industries much more interconnected. Chips, valued at about $600 billion annually, are an exception. From raw materials to design to assembly, the chip industry is a global one.
Challenges of Self-Reliance in Chip Manufacturing
Both countries share a desire for self-reliance in advanced chip manufacturing. While the United States still leads in many of the technologies necessary for chip design, most of the printing and assembly process occurs in Asia. The U.S. heavily depends on South Korea for memory chips and Taiwan for logic chips. Last year, the $53 billion “CHIPS for America” program was approved, which offers financial incentives to companies that can increase domestic production. Incentive beneficiaries are restricted from sharing sensitive technologies with China and other countries that are not allied with the United States.
China’s Challenges in Accessing EDA Tools
Among the challenges China faces in producing more advanced chips is access to EDA tools, such as OPC software promoted by Seida in early marketing. EDA tools help in planning and verifying circuit designs and simulating how circuits perform in real-world conditions. However, these tools require intensive processing power.
China’s Progress in Chip Technology Despite U.S. Restrictions
Despite American export controls, China has made progress in chip technology. In 2019, the U.S. Department of Commerce put Huawei Technologies, the Chinese telecommunications giant, on its list of companies that cannot purchase U.S. technology unless the seller obtains a special license. Nonetheless, Huawei introduced a highly advanced 5G smartphone and a seven-nanometer chip produced by SMIC in August 2023. The phone was announced with great fanfare. Later, the Department of Commerce stated that it is investigating whether the two companies relied on restricted U.S. technology to develop the chip.
Challenges in Revealing the Source of Technology
It can be difficult to prove the source of some technology. Many developments in the chip industry rely on existing intellectual property. The transfer of employees within the industry, especially across international borders, can complicate the investigation of export violations or following claims of intellectual property theft.
Impact
Chip Technology Development in China and the United States
Since the 1950s, the leading chip technology has played a significant role in creating the world’s largest economy, strong technology and financial sectors, and an unmatched military. However, China’s rapid economic growth and its declared ambition to assert its position as a global power challenge this dominance.
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