The State Council has provided fresh confidence and impetus to the country’s integrated circuit and software sectors with its decision to continue preferential corporate tax policies at an executive meeting on May 8.
The Cabinet decided at the meeting, presided over by Premier Li Keqiang, that the country will continue the tax cut and exemption policies for businesses devoted to IC design and those in the software sector starting from tax calculation and collection for last year.
Chip designers and software producers will be exempt from corporate taxes for two years, according to a statement released after the meeting. For the following three years, their corporate taxes will be cut by half, the statement said.
The tax cut followed a decision last year by the country to cut taxes for chipmakers, who had been exempt from corporate income tax for up to five years.
Meanwhile, the meeting also called for accelerated efforts to come up with supporting policies to further promote the development of IC and software industries to a higher level, the statement said.
Han Xiaomin, a senior analyst on the semiconductor sector with the research company CCID Consulting, said the decision by the State Council had offered a major confidence boost to businesses in the IC industry.
“It ensured the continuity of previous policies and stabilized market expectations,” he said.
Statistics from the Ministry of Industry and Information Technology showed that the country’s IC production was down by 8.7 percent year-on-year in the first quarter, with slumping prices for chips and weak market demand.
China remained the world’s largest importer of ICs last year, with the total volume of imports reaching $312 billion, up by 19.8 percent year-on-year, according to the General Administration of Customs.
Miao Wei, minister of industry and information technology, said in a signed article in July that there are potential risks in industry security in the sectors of IC and basic software.
Manufacturers in the two sectors are restricted to the lower end of the global value chain and the security of their industry and supply chain cannot be guaranteed, he said.
In a guideline on promoting the growth of the sector in 2014, the State Council had set a target of making the country into a global leader in major links of the IC sector by 2030.
The guideline called for efforts to enable accelerated growth in the design, manufacturing, packaging and testing of the IC sector, with a national IC industry fund also set up to promote growth of the sector.
Han noted that the large number of IC imports underlined the country’s weakness in the sector.
However, it is also important to keep in mind the demand in IC is behind the fact that China is also the world’s largest manufacturer of electronics and made-in-China products have been supplying the global demand, he said.
“Thus, it is impossible to set a target of self-reliance in the sector,” he said.
The State Council highlighted the importance of unbiased treatment to businesses under all forms of ownership, including foreign businesses, in order to attract different types of investment in promoting the development of the sector.
Han said it is important for authorities to prioritize support measures to the sector of IC design, the weakest link in the IC sector, in future policy-making procedures, adding that there are very few foreign businesses that are devoted to chip designs in China.
Another constraining factor is the lack of talent, he said.
“The education at colleges must be more compatible with the demand of businesses and the market.”
Meanwhile, the flow of talents in the IC sector from overseas must be further encouraged to address the shortage, he said.
Wei Shaojun, director of the microelectronics institute at Tsinghua University, said it is also important for businesses to bolster their investment in research and development.
“For some Chinese businesses, their investment in R&D only takes up about 10 percent of their total input, while the international average stands at about 20 percent,” he said.