China vs. USA – Wheeler Dealer

EDA restrictions look like they were a feint.

• The US has rescinded its short-lived restriction on sales of chip design software into China, which now look like they were put in place merely to win concessions from China, especially as they were unlikely ever to have a really big impact on the USA’s long-term goals.
• It was barely one month ago that the US Department of Commerce suspended the export licences of the semiconductor software tools industry (EDA – electronic design automation), which meant no new sales of licences to Chinese companies.
• The global EDA industry is very concentrated and is essentially shared between Synopsis (30% or so), Cadence (30% or so) and Siemens EDA (used to be Mentor Graphics (15% or so).
• All of these companies are based in the USA, and so despite being owned by Siemens of Germany, its EDA business will be subject to the direction of the USA Chamber of Commerce.
• This was about to cause Chinese companies problems with chip design in general, including the technology nodes where they are not restricted (>20nm).
• It would have made little difference at nodes below 20nm, as China can no longer purchase the equipment, meaning that at these nodes, it will have difficulty in making the chips regardless of the status of EDA tools.
• It would also have made very little difference at 7nm and below, where China is currently using an old technique pioneered by TSMC, where it has been developing its own tools, which are described as “usable”.
• US policy is to keep China as far as possible behind the West, and the limitations on equipment sales and AI chip exports have been fairly effective.
• However, this extra restriction would not have had a large impact on the success of this policy, but would have caused China’s semiconductor industry at 28nm and below considerable difficulty.  
• At the same time, China’s restrictions on rare earth metal exports have caused the USA and the West some problems, as it takes time and money to ramp up production elsewhere.
• Hence, it looks very much like these EDA restrictions were put in place as a bargaining chip to incentivise China to come to the table and relax some of its retaliatory restrictions on rare earth metals exports.
• This relaxation comes just after trade negotiations last week that were aimed at implementing the terms that were agreed in Switzerland a few weeks ago.
• Consequently, I see this as a deal-making manoeuvre aimed at giving some concessions to China in return for rare earth metal supplies that the West needs while it finds other sources of supply.
• In the long term, this will not be a problem because while China controls production, it does not control the resources, meaning that these metals can be sourced and refined from outside of China in time.
• While this helps China’s 28nm+ semiconductor industry, it will do very little to help China go beyond the 7nm multi-patterning technology that it has managed to create with Huawei and SMIC.
• Hence, this is not going to change China’s ability to make leading-edge semiconductors, and hence its economic disadvantage (see here) will remain.
• In effect, the USA has simply used China’s dependence on US EDA tools to wring concessions from Beijing without having to compromise the long-term agenda.
• The net result is that while the Chinese can compete on performance, they can’t compete on economics, and it is the economics that will decide which version non-affiliated countries adopt most of the time.
• This is why I think the Chinese are behind, and there is very little scope to catch up, given that it has no access to cutting-edge hardware.
• This will be crucial to the ideological struggle that is being played out between China and the West, and at the moment, I think it is the West that has the advantage.