China Tempts Chipmakers With Tax Cuts Amid Tensions With U.S.

Qualcomm Snapdragon 630 Snapdragon 660 Chips AH

China is tempting chipmakers with tax cuts amid trade-related tensions with the United States, with Beijing officially announcing its attempt to do so earlier this week. The new framework is set to go into effect on January 1, 2019, allowing semiconductor companies to be exempted from tax for up to five years and only pay half of the current 25-percent rate over the following half a decade. The government is hoping the move will attract more foreign and domestic investments from the semiconductor industry, with the relaxed tax rules being part of the Made in China 2025 initiative which is conceptually similar to the Made in India policy that New Delhi has been pursuing for several years now.

The long-term program isn’t just targeted at the semiconductor industry but emerging technologies in general, though chipmakers are understood to be one of its most important targets due to the ubiquitous demand for the offerings. Regarding mobile chipsets, China is still behind the likes of South Korea, Taiwan, and the United States in terms of technological advancements and even shipments. Companies from the Far Eastern country are still importing approximately $200 billion worth of chips on an annual basis, with Beijing believing that state of affairs has serious national security implications.

President Donald Trump recently opted to block Broadcom’s proposed takeover of Qualcomm for similar reasons, wanting to avoid a scenario in which a major American chipmaker falls into foreign hands even though the Singapore-based company was (and still is) in the process of relocating its corporate headquarters back to the U.S. Coupled with the possibility of Broadcom cutting Qualcomm’s R&D budget and allowing China’s Huawei and other companies to seize the leadership in the 5G and other crucial tech segments, Washington ended up blocking Broadcom’s bid. China is now seeking to cut its annual chip imports by $50 billion over the course of the next decade, with Qualcomm being among companies that are likely to take a sales hit as a direct result of those ambitions.