China cuts tax rates for chipmakers amid trade tensions

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BEIJING (Reuters) – China’s finance ministry said on Friday it has introduced new tax breaks and exemptions for firms making semiconductors, seeking to limit dependence on foreign chips amid trade tensions with the United States over technology transfers.

FILE PHOTO: A researcher plants a semiconductor on an interface board during a research work to design and develop a semiconductor product in Beijing, China, February 29, 2016. REUTERS/Kim Kyung-Hoon

The move comes as the United States is considering imposing tariffs on $50 billion worth of Chinese exports, citing discriminatory trade practices in high-tech sectors, including semiconductors.

Chipmakers will be exempt from corporate taxes for two to five years followed by partial deductions, the ministry said in a notice posted on its website on Friday.

The exemptions cover a range of products, from very basic to cutting-edge chips.

The new rules are effective from Jan. 1, 2018.

China relies heavily on foreign semiconductors, which make up one of its largest import categories by value. It is seeking to overtake foreign rivals and become a top semiconductor producer by 2030, according to its own roadmap.

China’s ambitions have riled overseas regulators however, who have blocked several acquisition attempts by Chinese firms looking to speed up development through technology transfers.

U.S. President Donald Trump’s administration is requesting China purchase more semiconductors from the United States as part of a plan to avoid proposed tariffs and a potential trade war, Reuters reported on Tuesday.

According to Friday’s notice, companies producing high-end chips using 65 nanometer technology or smaller with an investment of over 15 billion yuan ($2.39 billion) will be exempt from corporate taxes for five years. Companies producing chips using 130 nanometer technology or smaller will be tax exempt for two years.

Reporting by Cate Cadell; Editing by Himani Sarkar and Christopher Cushing

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