Chinese Companies Are Clear About Their Position on the U.S. Tech Ban: ‘The Best Development Opportunity Ever’

On May 29, the Department of Commerce’s Bureau of Industry and Security ordered domestic Electronic Design Automation (EDA) software companies to stop selling their products to China. This move aims to further undermine China’s semiconductor industry, where EDA software is crucial for advancing advanced lithographic processes.

In response, China has made it clear that it views this situation as one of the greatest growth opportunities in its history.

Context. The semiconductor industry heavily relies on software to automate design and verification processes, where the margin for error is minimal. U.S. companies, such as Cadence, Synopsys, and Siemens, have been dominant players in this market for years, collectively controlling 74% of the global EDA market.

The U.S. has instructed these three companies to cease sales of their software to Chinese entities in an effort to isolate them from a tool essential for progressing in chip manufacturing.

Why this matters. EDA software is fundamental to the production process for every chip. The U.S. wants to slow down China’s semiconductor development, warning that the country has been preparing for its biggest counterattack for years. In early September 2023, the Chinese government approved a $41 billion fund specifically for companies involved in manufacturing integrated circuits.

China has invested billions in developing its own lithography equipment. The country clearly prefers to focus on advancing its technology rather than adapting existing solutions. Additionally, it’s nearing self-sufficiency in developing its own 5 nm lithography. While wafer yield remains low, one thing is certain: Sooner or later, China will emerge as a world leader in chip production.

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China’s response. Three U.S. companies primarily dominate the EDA industry. However, local Chinese companies have been making significant progress in developing this type of software for several years. Notably, three major players are emerging in China: Empyrean Technology, Primarius Technologies, and Semitronix.

Following the announcement of new U.S. export restrictions, the shares of these three companies surged by more than 20%, with Primarius being one of the most benefited. Primarius president Yang Lianfeng said in April that domestic EDA suppliers view this situation as “the best development opportunity ever.”

A national counteroffensive. Yang emphasizes that China doesn’t aim to replicate U.S. EDA software. Instead, it seeks to establish its own ecosystem. This setback is seen as an opportunity to enhance self-sufficiency in domestic semiconductor production.

Emerging companies are making strides in the sector. One example is UniVista Industrial Software Group, founded in 2020 by former executives from Synopsys and Cadence. UniVista is offering free trials of its UniVista Archer EDA platform across the country. The company serves more than 200 Chinese integrated circuit design companies and aspires to become a leading name in the EDA sector.

Limitations. While China wants to respond quickly to these new restrictions, the path forward will be challenging. The race to develop 2 nm technology is critical, a competition in which companies such as Nvidia, ASML, and TSMC have been engaged for years.

For instance, Xuanjie, the chip design unit established by Xiaomi, faces significant hurdles in transitioning to this advanced lithographic process. TSMC manufactures its chips, and the XRing 01 is constructed using TSMC’s 3 nm process. However, the designs are proprietary, and without access to U.S. EDA tools, breaking through this barrier currently appears unattainable.

The U.S. restrictions strike at a crucial bottleneck in the supply chain, simultaneously compelling China to expedite the development of a national alternative.

Image | Umberto

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