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China announces $143 bln support package for its semiconductor firms to counter U.S.

HONG KONG, Dec 13 – China is working on a more than 1 trillion yuan ($143 billion) support package for its semiconductor industry, three sources said, in a major step towards self sufficiency in chips and to counter U.S. moves aimed at slowing its technological advances.

Beijing plans to roll out what will be one of its biggest fiscal incentive packages over five years, mainly as subsidies and tax credits to bolster semiconductor production and research activities at home, said the sources.

It signals, as analysts have expected, a more direct approach by China 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.

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 authorised to speak to media.

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The majority of the financial assistance would be used to subsidise the purchases of domestic semiconductor equipment by Chinese firms, mainly semiconductor fabrication plants, or fabs, they said.

Such companies could receive a 20% subsidy of purchase costs, three sources said. The financial relief plan comes after the US Department of Commerce passed sweeping rules in October that would bar research labs and commercial data centers from accessing advanced artificial intelligence chips.

The US has also lobbied some partners, including Japan and the Netherlands, to reduce exports to China of equipment used in semiconductor manufacturing. More

And US President Joe Biden signed the landmark $52 bill in August. 7 billion in grants for U.S. semiconductor production and research as well as tax credit for chip plants estimated to be worth $24 billion.

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With the incentive package, Beijing aims to step up support for Chinese chip firms to build, expand or modernise 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.

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The beneficiaries will be both state-owned and private enterprises in the industry, notably large semiconductor equipment firms like NAURA Technology Group (002371.SZ), Advanced Micro-Fabrication Equipment Inc China (688012.SS) and Kingsemi (688037.SS), the sources added.

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After the news of the package, the stock price of some Chinese chips soared in Hong Kong. Semiconductor Manufacturing International Corp (SMIC) (0981.HK) rose more than 8%, bringing the daily gain to nearly 10%. Hua Hong Semiconductor Ltd (1347.HK) was up 17% at launch while the mainland market closed.

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.

Xi’s call for China to “win the battle” in core technologies could signal an overhaul in Beijing’s approach to advancing its tech industry, with more state-led spending and intervention to counter U.S. pressures, analysts have said. read more

The U.S. sanctions published in October have caused major overseas-based chip manufacturing equipment companies to cease supplying key Chinese chipmakers, including Yangtze memory Technologies Co (YMTC) and SMIC, and makers of advanced artificial intelligence chips to cease supplying companies and laboratories.

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The world’s second-largest economy has launched a trade dispute at the World Trade Organization against the United States over its chip export control measures, China’s commerce ministry said on Monday.

China has long lagged the rest of the world in the chip manufacturing equipment sector, which remains dominated by companies based in the United States, Japan, and the Netherlands.

A number of domestic firms have emerged in the past twenty years, but most remain behind their rivals in terms of ability to produce advanced chips.

NAURA’s etching and thermal process equipment, for example, can only produce 28-nanometer and above chips, relatively mature technologies.

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Shanghai Micro Electronics Equipment Group Co. Ltd (SMEE), China’s only lithography company, can produce 90-nanometers chips, well behind that of the Netherlands’ ASML, which is producing those as low as 3 nanometers.

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