China unveils policies to boost chipmakers

China has unveiled a slew of policies to help boost its domestic semiconductor industry as tensions with the U.S. continue to rise, but analysts have cast doubt over whether they will have a major impact.

A large part of the incentives from China’s State Council focus on tax relief. For example, a manufacturer that has been in operation for more than 15 years and that makes so called 28 nanometer or more advanced chips, will be exempt from corporate income tax for up to 10 years.

For chip manufacturers, the preferential treatment period starts from the first profit-making year. But it’s not just the actual manufacturing side of the industry getting tax relief. Other players working in areas from chip design and software, areas where the U.S. and Europe have been traditionally very strong, also received tax incentives.

Beijing’s new policies also focus on funding and encourages firms to list on China’s technology-focused stock exchanges such as the Shanghai Science and Technology Innovation Board, often dubbed the STAR Market.

Under the so-called “Made in China 2025” industrial plan, the country aims to produce 40% of the semiconductors it uses by 2020 and 70% by 2025. It’s unclear what that figure is at currently. But it’s a key focus for the government and one that has been ramped up in the past 18 months as tensions between China and the U.S. have escalated.

The United States’ latest sanctions on Huawei has exposed China’s reliance on external chipmakers. Washington’s latest rule requires foreign manufacturers using U.S. chipmaking equipment to get a license before being able to sell semiconductors to Huawei.

The semiconductor supply chain is quite complex. While Huawei for example designs its own chips, it needs TSMC to actually make them. And the manufacturing process is made up of various very complex pieces of equipment made by very few players.

For example, Dutch firm ASML makes a machine that uses so-called extreme ultraviolet (EUV) and is required to make the most advanced chips such as those manufactured by TSMC and Samsung. But earlier this year, Reuters reported that the U.S. pressured the Netherlands government to stop the sale of an ASML machine to SMIC. That shipment has not made it to China.

China unveils policies to boost chipmakers as tensions with U.S. rise. Analysts say they may not help, CNBC, Aug 11