TAIPEI, Taiwan -- In what could propel China into a serious contender in the silicon foundry business, two new startups in Shanghai have quietly signed separate technology licensing deals with a pair of Japanese companies.

Grace Semiconductor Ltd.--a new Shanghai-based foundry venture between the sons of China President Jiang Zemin and Taiwanese plastics tycoon Y.C. Wang--has reportedly signed an agreement to license sub-micron IC technology from Japan's Oki Electric Industry Co. Ltd., according to several sources. Last week, Grace Semiconductor officials formally announced the formation of the venture, which intends to build an 8-inch wafer fab by 2002 (see Sept. 15 story).

The other Shanghai-based foundry venture led by Taiwanese chip veteran Richard Chang. This venture has signed an IC technology licensing deal with another Japanese company, reportedly Toshiba Corp., according to sources.

Officials from Oki and Toshiba in Japan declined to comment on reports of agreements with the ventures. Neither Grace Semiconductor nor Richard Chang could be reached for comment.

But industry observers say the agreements will give the new Chinese foundry ventures both competitive chip-making technology and instant credibility in the market. "It's still too early to tell, but these projects look like winners," said analyst Danny Lam of Fisher-Holstein Inc. of Wilmington, Del.

"For example, Grace Semiconductor has high-level support from people in China and Taiwan," noted Lam, who tracks new wafer projects and expansions in the chip industry. "I don't know what linewidths Grace Semiconductor is developing, but they are taking a conservative and safe route by going with 200-mm wafer technology."

Competitors believe that the new Chinese-backed foundry companies could carve out a viable niche by offering "trailing-edge" process technologies to foreign fabless design houses and integrated design manufacturers. These foundries will also look for opportunities within China, which boasts hundreds of IC design houses.

"There's still a lot of demand for trailing-edge 0.35- and 0.50-micron process technologies," said F.C. Tseng, president of Taiwan Semiconductor Manufacturing Co. Ltd. (TSMC), in a recent interview with SBN at the company's headquarters in Hsinchu, Taiwan. "But we don't intend to give up the market to the new foundries," Tseng said.

Initially, the new chip entities in China are not expected to pose as a threat to the pure-play foundry giants in Taiwan and Singapore. However, the Chinese-based startups could present some problems for second-tier silicon foundries, such as Amkor's Anam Semiconductor fab in South Korea, Tower Semiconductor in Israel, X-Fab in German, and others, according to market observers.

The new foundries in China will also compete against two emerging players in Malaysia--1st Silicon (Malaysia) Sdn Bhd. and Silterra (Malaysia) Sdn. Bhd. Both foundry companies, backed with government financing and technology partners, are separately building 8-inch wafer processing plants in Malaysia.

In any event, the semiconductor race in China is heating up. Recently, NEC Hua Hong Semiconductor Ltd., a joint DRAM venture between Japan's NEC Corp. and the China government, opened the country's first 8-inch-wafer fab in Shanghai.

And last month, Motorola Inc. announced it will move ahead in equipping its long-stalled 8-inch wafer fab shell in Tianjin, which had been restricted by unilateral U.S. export controls to using only 0.35-micron processing gear. Motorola said the new $1.5 billion fab is expected to be in full production by 2002 (see Aug. 21 story). The fab, called MOS-17, will start production with 0.35-micron technology, but a Motorola spokeswoman indicated that the company had received clearance from the U.S. government to migrate the facility to 0.25-micron technology (see Aug. 21 story by EET).