WASHINGTON, Dec 29 (Reuters) – Last year, a veteran Silicon Valley software executive took the helm of a startup in his native China, company records show. The startup told potential investors it would sell microchip design software that is mostly available from just a handful of large Western companies.
The coveted and highly specialized software tool, known by its initials of OPC, is used in the design of many microchips and is crucial to the design of advanced chips.
The production of advanced chips is one of the most contentious technological struggles now dividing the United States and China as they vie for economic and military supremacy. Washington is trying to curb China’s access to sensitive microchip design tools.
The strategy behind the startup, dubbed SEIDA, shows why that containment effort is so challenging.
Before becoming chief executive of SEIDA, Liguo “Recoo” Zhang had lived in the United States long enough to secure permanent residency and purchase a Silicon Valley home, according to people familiar with his career and public records reviewed by Reuters.
He was employed by Siemens EDA, a U.S. unit of German industrial giant Siemens AG that dominates the market in China for the very technology SEIDA told investors it planned to sell there. At least three other Chinese-born colleagues from Siemens EDA joined Zhang at SEIDA.
In a 2022 business-plan presentation prepared for investors, SEIDA called OPC “indispensable technology” and said it would offer the tool by early 2024. A Chinese version of the product, SEIDA said, would “break through the foreign monopoly,” helping China become self-reliant in chip technology. SEIDA’s ultimate goal, according to one slide: “Become OPC leader in the world.”
The pitch attracted powerful Chinese investors.
One backer, recent corporate filings reviewed by Reuters show, is an investment arm of Semiconductor Manufacturing International Corp, or SMIC. The state-backed, Shanghai-based company is China’s leading maker of microchips. U.S. companies are restricted by Washington from providing technology to SMIC without a special license because its alleged work with China’s military is considered a threat to American national security.
On a recent visit to SEIDA’s headquarters in Hangzhou, in eastern China, a receptionist told Reuters that Zhang wasn’t available for an interview. In an email after the visit, Peilun “Allen” Chang, SEIDA’s chief operating officer, said the prospectus reviewed by Reuters is “obsolete.”
The company’s objectives have evolved, he wrote, adding that its backers are primarily “private institutions and individuals.” Chang declined to specify how much capital SEIDA has raised or what products it now aims to pursue, saying its business plan remains “under continuous evaluation.”
Siemens EDA, in a statement, confirmed Zhang’s departure and that of three other colleagues. The company said it considers SEIDA “a potential competitor” but declined to comment further.
Reuters couldn’t determine whether SEIDA has progressed toward selling OPC, short for optical proximity correction. The software is commonly employed for the design of many microchips and is part of a broader set of technologies known as electronic design automation, or EDA. The tools can help design chips that could advance strategic new technologies like artificial intelligence, quantum computing and hypersonic flight.
Since SEIDA’s launch in October 2021, the U.S. government has increased efforts to curb China’s access to EDA tools, developed and sold mostly by American companies.
Through export controls and other restrictions, Washington aims to prevent China from obtaining know-how that could allow it to match microchip advances by the United States and its allies, including Taiwan, the self-governing island claimed by China and the world’s leading chip manufacturer.
In email exchanges with Reuters, Chang said U.S. restrictions were one of the reasons Zhang and his colleagues left Siemens EDA for SEIDA to begin with. The restrictions, he wrote, limited their business opportunities at Siemens EDA, “diminishing scope for career advancement and involvement in key projects.”
SEIDA adheres to U.S. and Chinese rules, Chang added.
Neither SEIDA nor its executives have been accused of wrongdoing. And Reuters has no evidence SEIDA is using knowledge or technology that could be considered proprietary by Siemens EDA or others. Chang said SEIDA has “a stringent vetting process…ensuring no infringement upon the intellectual property of others.”
Experts in the sector, and people familiar with efforts by Beijing to outmaneuver U.S. curbs on technology transfer, say SEIDA’s launch follows a pattern of Chinese companies building upon foreign know-how. Even if the SEIDA executives didn’t take property from their previous employer, the technologies involved are so complex that only years of experience with existing purveyors would allow them to offer similar products.
“Developing OPC from scratch without access to any existing intellectual property would be challenging in this timeframe, to say the least,” said Jan-Peter Kleinhans, director of technology and geopolitics at Stiftung Neue Verantwortung, a Berlin think tank where he has researched China’s market for EDA tools.
The story of SEIDA, which hasn’t been previously reported, illustrates the challenges the West faces in thwarting Chinese development of advanced microchip technology. Despite Washington’s efforts to slow China’s acquisition of chip technology, Beijing is rushing to foster domestic development, attract expert expatriates to come home and overcome its lag in the sector.
A spokesperson for China’s foreign ministry said in a statement that the United States “abuses export control measures” and “applies illegal unilateral sanctions and long-arm jurisdiction to Chinese companies.”
China, the spokesperson added, has adopted laws to protect intellectual property and “complies with internationally accepted rules.” Technological advances in China, the statement continued, “are not the result of theft, nor of robbery, but are the result of Chinese people’s ingenuity and hard work.”
American officials have repeatedly said that Chinese efforts to secure Western technology pose one of the biggest long-term threats to the economy and security of the United States. They have expressed particular concern about China’s ability to employ advanced chips, and the powerful processors they enable, for its fast-growing military.
“At no point have export controls been more central to our national security,” Matthew Axelrod, assistant U.S. commerce secretary for export enforcement, said at a Congressional hearing in Washington this month.
The Chinese foreign ministry spokesperson said such concerns reflect “a Cold War and hegemonic mentality.”
While export rules may delay Beijing’s progress, industry experts say, they are unlikely to stunt China’s development of chip technology. “The U.S. is lying across the tracks in an effort to stop the Chinese, but it is just going to become a speed bump,” said Michael Bruck, a former general manager in China for chipmaker Intel Corp. “It will push China to be more independent.”
China’s government has made its drive for more sophisticated chips a centerpiece of its strategic plans.
Last year, after Washington announced new restrictions, Beijing said the government would spend $143 billion to spur China’s domestic chip sector. Through a separate program known as “Thousand Talents,” the government offers employment, housing, and other incentives for Chinese experts who return from science and tech jobs abroad.
The program, in existence for more than a decade, has been criticized by Washington because it is viewed by some as a mechanism for China to illegally obtain intellectual property from abroad.
Last May, the U.S. Federal Bureau of Investigation arrested a California-based software engineer on trade secrets charges. In an FBI affidavit related to the case, investigators said the engineer, Liming Li, had stolen millions of files from two unidentified U.S. employers.
One of the employers, the affidavit shows, found a folder on Li’s laptop containing documents related to “Thousand Talents.” The pilfered company files, the FBI alleged, included unspecified materials related to “national security, nuclear nonproliferation and anti-terrorism.”
Li has pleaded not guilty. His attorney, Daniel Olmos, declined to comment.
Reuters this year has chronicled the race between the West and China for dominance in sectors ranging from killer robots to undersea cables to encryption of digital communications. The struggle for primacy in chipmaking will help determine who triumphs in these technologies and others that will become available once faster processors are developed to enable them.
