China Cuts Taxes for Chipmakers to Promote Industry Development

(Bloomberg) -- China said it cut taxes for semiconductor makers, lending new support for the pivotal industry just as U.S. President Donald Trump weighs tariffs on the sector amid rising trade tensions.

The new rules cover a broad swath of semiconductor companies. They will be exempt from corporate income taxes for up to five years starting Jan. 1, the Finance Ministry said in a statement on Friday. Tax rates after that will then be half of the current 25 percent through the 10th year.

The tax breaks follow tax cuts announced Wednesday to benefit high-end manufacturing and innovation-driven technology companies supported by the Made in China 2025 plan: a blueprint for the Asian nation to sharpen competitiveness in emerging industries from information technology to aerospace.

Beijing has long tried to elevate its chip sector. China wants to reduce a reliance on some $200 billion of annual semiconductor imports, which it fears undermines national security and hampers the development of a thriving technology sector. The country envisions spending about $150 billion over 10 years to achieve a leading position in design and manufacturing, an ambitious plan that U.S. executives and officials warn could harm American interests.

While officials have suggested their initial vision of attaining a global lead may be unrealistic, the government remains intent on finding ways to reduce imports as the world's largest consumer of semiconductors. For starters, a key Chinese government fund is said to be aiming to raise as much as 200 billion yuan ($32 billion) to invest in homegrown chip companies and accelerate its ambition of building a world-class semiconductor industry.

The country has been offering lower taxes for integrated circuit companies since at least 2012 to encourage the development of the technology. Requirements of companies eligible for the deduction were revised in Friday's statement to include more up-to-date technology.

To contact Bloomberg News staff for this story: Miao Han in Beijing at mhan22@bloomberg.net, Yinan Zhao in Beijing at yzhao300@bloomberg.net, Jessica Sui in Beijing at jsui3@bloomberg.net.

To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Jeff Kearns, Edwin Chan

©2018 Bloomberg L.P.

With assistance from Miao Han, Yinan Zhao, Jessica Sui