Shanghai to give tax incentives and funds to nurture home-grown chips industry as China enters next battlefront over technology

Daniel Ren
Shanghai to give tax incentives and funds to nurture home-grown chips industry as China enters next battlefront over technology

Shanghai’s government will offer tax incentives and funding to nurture China’s home-grown industry of producing semiconductor chips, as the country finds itself drawn into a new battlefront over technology with the United States.

Integrated circuits (IC), artificial intelligence (AI) and biotechnology will be the three key industries that the municipal government of China’s premier commercial city will focus its resources on, said Shanghai’s Vice Mayor Wu Qing during a press conference in the city.

“We have made some achievements in the industries that face the prospect of being strangled [by other countries],” Wu said, adding that the municipal authority will soon announce the details in a document called the Shanghai Programme.

The Chinese government, anxious to maintain technological self-sufficiency, set up the China National Integrated Circuit Industry Investment Fund, also called the Big Fund, in 2014 to nurture indigenous technology and acquire foreign patents and designs. China’s annual imports of semiconductor chips have risen 30 per cent over four years to US$260 billion in 2017.

Chinese companies already claim several superlatives in 21st century technology, including the largest maker of phone equipment and the dominant platform for online shopping, as well as electronic payments. But the core components of all these companies are made by either Intel or Qualcomm, and the operating systems at the heart of their applications are by Google’s Android unit in smartphones, or Microsoft for computers.

The imperative of self-reliance was given added urgency, after US President Donald Trump last week signed an executive order barring the use of telecommunications equipment made by companies deemed a threat to America’s national security, clearing the way for an outright ban on products made by China’s Huawei Technologies, the world’s largest maker of 5G telecoms equipment.

This week, Google suspended business with Huawei that requires the transfer of hardware, software and technical services except those publicly available via open source licensing, according to a Reuters report.

Under the “Made in China 2025” industrial strategy, chip-making is one of the 10 key sectors in which Beijing hopes its domestic players will catch up with global leaders and become self-sufficient by 2025.

Central and local governments play a big role in industrial development, including offering incentives to attract foreign manufacturers.

Last year, Shanghai government and Tesla agreed to set up the Gigafactory 3, the electric carmaker’s first manufacturing plant outside the United States.

The plant is expected to start producing Tesla cars at the end of 2019.

“Over the past five year, our investment in enhancing scientific research capabilities have improved greatly,” said Wu. “We also have 1,300 newly established businesses in Shanghai every day and many of them are technology companies which will eventually contribute to the city’s economic growth.”

Qiu Wenjin, a deputy director with the Shanghai Development and Reform Commission, said that taxation policies will be made to underpin technology start-ups and encourage investment in the most promising small firms.

Shanghai has a loss-proofing measure that allows venture capital and angel investors to use part of their investment in start-ups to offset tax payments.

By the end of last year, 17 investors had enjoyed the preferential policy, Qiu said.

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