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China mulls new chip maker tax breaks

(Reuters)
Updated: 2006-07-19 16:58

More than a year after ending a tax rebate that many foreign firms said amounted to an unfair subsidy, China is considering new preferential policies to aid development of its chip-making sector, local media reported.

The new policies, which may take effect by the end of the year, would come on top of current preferential tax policies already enjoyed by all foreign companies that manufacture in China, the China Securities Journal reported on Wednesday.

Under the rules being considered, foreign-invested chipmakers would get five years of tax-free status, instead of the usual two years enjoyed by other foreign-invested manufacturers.

They would also get another five years of 50 percent tax reductions, the newspaper reported.

Foreign-invested chip makers would also enjoy tax credits for their research and development expenses and tax exemptions for their fixed-asset investments, the newspaper said.

The report was one of several to appear in the Chinese media recently discussing the drafting of new preferential policies to be implemented in the coming months.

A spokesman from Semiconductor Manufacturing International Corp., China's largest maker of made-to-order microchips, had no immediate comment.

Other major global chipmakers with major manufacturing facilities in China include industry giant Intel, Advanced Micro Devices Inc. and Europe's STMicroelectronics, which owns a factory with South Korea's Hynix Semiconductor.

The new policies would come two years after China caved to pressure from foreign chipmakers in 2004 and cancelled a tax rebate policy after the United States filed a complaint with the World Trade Organisation.

Under the policy, China had given back all but 3 percent of the taxes collected from companies that made and designed chips on the mainland.

The new policies would also come amid a marked slowdown in China's chip sales as the sector starts to mature, following two decades of strong growth.

Semiconductor sales in China rose 12.8 percent last year to US$37 billion, with 18 percent growth expected this year, according to research house iSuppli.

While strong, both of those rates are well below break-neck growth of the past, including a 34.9 percent gain logged by the industry in 2004.