Exclusive: China is preparing a $143 billion package for chip companies in the face of US restrictions

HONG KONG (Reuters) – China is working on a subsidy package worth more than 1 trillion yuan ($143 billion) for the semiconductor industry, in a major step toward self-sufficiency in chips and countering US moves aimed at slowing technological progress, three sources said.

The sources said Beijing plans to roll out what will be one of the largest financial stimulus packages, earmarked over five years, mainly in the form of subsidies and tax credits to boost semiconductor production and research activities at home.

It signals, as analysts expected, a more direct approach by China to shaping the future of an industry that has become a geopolitical hot button due to surging demand for chips and which Beijing sees as a cornerstone of its technological might.

Analysts say it is also likely to raise more concerns in the United States and its allies about China’s competition in the semiconductor industry. Some US lawmakers are already concerned about China’s increased chip production capacity.

Two sources, who declined to be named because they are not authorized to speak to the media, said the plan could be implemented as soon as possible in the first quarter of next year.

They said the majority of the financial aid will be used to support domestic semiconductor equipment purchases by Chinese companies, especially semiconductor manufacturing plants.

The three sources said that such companies will get a subsidy of 20% on the cost of purchases.

The financial support plan comes after the US Commerce Department in October passed a sweeping set of regulations, which could block research labs and commercial data centers from accessing advanced artificial intelligence chips, among other restrictions.

The United States has also been pressing some of its partners, including Japan and the Netherlands, to tighten exports to China of equipment used in the semiconductor industry.

US President Joe Biden in August signed a landmark bill to provide grants worth $52.7 billion for US semiconductor production and research as well as a tax credit for chip factories valued at nearly $24 billion.

With the stimulus package, the sources said, Beijing aims to ramp up support for Chinese chip companies to build, expand or upgrade domestic manufacturing, assembly, packaging and research and development facilities.

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

The Chinese State Council Information Office did not respond to a request for comment.

potential beneficiaries

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

Shares of Chinese chipmakers jumped in early trade on Wednesday after news of the package. China’s SSE STAR Chip Index (.STARCHIP) opened nearly 4% higher. Shanghai-listed shares of industry giant Semiconductor Manufacturing International (SMIC) rose as much as 5.2% to a four-month high.

Some Chinese chip shares in Hong Kong also rose sharply on Tuesday after the Reuters report. SMIC (0981.HK) added more than 8%, sending its daily gains up nearly 10%. Hua Hong Semiconductor Ltd (1347.HK) closed up 17%. Mainland markets were closed when the report was published.

Achieving self-reliance in technology featured prominently in President Xi Jinping’s Complete Work Report at the Communist Party Congress in October. The term “technology” was mentioned 40 times, up from 17 times in the 2017 conference report.

Analysts said Xi’s call for China to “win the battle” in basic technologies could signal an overhaul in Beijing’s approach to developing its tech industry, with more state-led spending and intervention to counter US pressure.

US sanctions published in October caused major overseas chipmakers to stop supplying key Chinese chipmakers, including Yangtze Memory Technologies Co (YMTC) and SMIC, makers of advanced artificial intelligence chips to stop supplying companies and labs.

China’s Ministry of Commerce announced today, Monday, that the world’s second-largest economy has launched a trade dispute in the World Trade Organization against the United States over chip export control measures.

China has long been lagging behind the rest of the world in the chip making equipment sector, which is still dominated by companies based in the US, Japan and the Netherlands.

A number of domestic companies have emerged in the past 20 years, but most of them have remained behind their competitors in terms of the ability to produce advanced chips.

For example, NAURA’s drilling and heat treatment equipment can only produce 28nm and above wafers, which are relatively mature technologies.

Shanghai Micro Electronics Equipment Group Co Ltd (SMEE), the only Chinese lithography manufacturer, can produce wafers with a diameter of 90 nanometers, which is much lower than that of Dutch company ASML, which produces wafers as low as 3 nanometers.

($1 = 6.9796 CNY)

Covering by Julie Zhou in Hong Kong; Additional reporting by Josh Horowitz, Brenda Goh, and Jason Zhieu in Shanghai, and Kevin Huang and Xu Jing in Beijing; Editing by Sumeet Chatterjee, Muralikumar Anantharaman, and Lincoln Feast.

Our Standards: The Thomson Reuters Trust Principles.