China Is Making A $143B Budget For Semiconductor Industry counter US’s Semiconductor Regime

China is currently preparing a 1 trillion yuan ($143 billion) package for its semiconductor industry in a major step towards self-sufficiency in chips and to counter U.S. moves aimed at ceasing China’s technological advances. Beijing plans to roll out what will be one of its biggest fiscal incentive packages, allocated over five years, mainly as subsidies and tax credits to bolster semiconductor production and research activities at home, said the sources.

The 1 Trillion Yuan package will mainly take the form of subsidies and tax credits over a five-year period aimed at supporting research and development, but also advanced chip production on Chinese soil. Much of the money is expected to be spent on buying semiconductor fabrication equipment from Chinese firms.

China will take a much more direct approach in shaping the future of an industry which has become a geopolitical hot button due to soaring demand for chips and which Beijing regards as a cornerstone of its technological might. It will also likely further raise concerns in the United States and its allies about China’s competition in the semiconductor industry, says, analysts. Some U.S. lawmakers are already worried about China’s chip production capacity build-up.

China ends up producing chips that are likely to be based on the RISC-V architecture, and quantum computing could also receive a major injection of capital. However, China’s situation is expected to deteriorate further in the next few weeks, with both Japan and the Netherlands planning to impose some or all of the same export restrictions as the US. If so, China will no longer have access to the machinery required to manufacture chips more advanced than 14nm, which is already three generations behind the state-of-the-art semiconductors.

The plan could be implemented as soon as the first quarter of next year, said two of the sources who declined to be named as they were not authorized to speak to the media. The majority of the financial assistance would be used to subsidize the purchases of domestic semiconductor equipment by Chinese firms, mainly semiconductor fabrication plants, or fabs, they said.

Such companies would be entitled to a 20% subsidy on the cost of purchases, the three sources said. The fiscal support plan comes after the US Commerce Department passed in October a sweeping set of regulations, which could bar research labs and commercial data centers’ access to advanced AI chips, among other curbs.

The United States has also been lobbying some of its partners, including Japan and the Netherlands, to tighten exports to China of equipment used to make semiconductors.

And US President Joe Biden in August signed a landmark bill to provide $52.7 billion in grants for US semiconductor production and research as well as a tax credit for chip plants estimated to be worth $24 billion.

With the incentive package, Beijing aims to step up support for Chinese chip firms to build, expand or modernize domestic facilities for fabrication, assembly, packaging, and research and development, the sources said.

Beijing’s latest plan also includes preferential tax policies for the country’s semiconductor industry, they said.

China’s State Council Information Office did not immediately respond to a request for comment.

The beneficiaries will be both state-owned and private enterprises in the industry, notably large semiconductor equipment firms like NAURA Technology Group, Advanced Micro-Fabrication Equipment Inc China, and Kingsemi, the sources added.

Some Chinese chip shares in Hong Kong rose sharply after news of the package. Semiconductor Manufacturing International Corp (SMIC) added more than 8%, sending its daily gain to nearly 10%. Hua Hong Semiconductor Ltd closed up 17%, while mainland markets were closed when the report was published.

Achieving self-reliance in technology featured prominently in President Xi Jinping’s full work report at the Communist Party Congress in October. The term ‘technology’ was referred to 40 times, up from 17 times in the report from the 2017 congress.