Shanghai free-trade zone identifies specialist software as area China can lead in, to offer US$4.3 million in cash subsidies to developers
- Electronic design automation software is used for designing advanced integrated circuits that serve as brains of smartphones and aircraft, among other machines
- Free-trade zone in Lingang will also award buyers of locally developed software up to 2 million yuan in cash annually
Shanghai will offer subsidies of as much as 30 million yuan (US$4.3 million) a year to companies developing software used for designing advanced integrated circuits that serve as the brains of everything from electric appliances, smartphones and computers to sophisticated medical equipment, cars and aircraft.
According to analysts, China can catch up with global leaders in electronic design automation (EDA) software development because of a dearth of talent in countries such as the United States. And Shanghai is upping the ante. Through its free-trade zone in Lingang, it will also award buyers of locally developed EDA software up to 2 million yuan in cash annually.
“The cash offered by Shanghai to support EDA developers and users is [being] seen as one of the most substantial and substantive incentives to bolster the chip industry,” said Rich Zhu, an engineer with semiconductor firm Sigmastar Technology. “The policy shows the local government’s vision in focusing on EDA to create an industry chain.”
The incentives will also help Lingang develop into a modern economy on par with regional gateways such as Hong Kong and Singapore.
Analysts said a clutch of domestic industry leaders will benefit from the incentives if they set up shop in the 119.5 square kilometre free-trade zone. These include Beijing-based Empyrean Software and Hangzhou-headquartered Semitronix.
At present, imported EDA software accounts for about 95 per cent of mainland China’s market, with companies such as Mountain View, California-based Synopsys, San Jose, California-based Cadence Design Systems and Mentor, a Wilsonville, Oregon-based subsidiary of Siemens, dominating the sector.
According to online consultancy Huaon.com, the global EDA software market was valued at US$9.7 billion in 2018, up 4.5 per cent year on year.
Shanghai’s cash incentives come as China’s central and local governments move to bolster the country’s semiconductor industry. The US-China trade war spilled over to the technology sector this year, and many Chinese companies face the risk of having their supply cut off by US chip makers and suppliers.
Beijing has rolled out a series of incentives, ranging from tax breaks and government subsidies to cash awards, to help these companies grow more quickly.
“China needs to go back to the basics now, focusing on studies and research into key technologies and products, such as chips and software,” said Zhang Ming, managing director with Flag Leader Information, a software development and investment firm. “The incentives will be helpful to some of the chip companies, as they try to catch up with global leaders.”
In May, China’s ministry of finance announced tax breaks for semiconductor makers and software developers, exempting them from corporate tax for two years starting in 2019, followed by a halving of the 25 per cent rate levied on companies for the next three years.
Local governments such as those in Shanghai and Shenzhen are also offering incentives to semiconductor companies.
Chinese technology companies have been heavily reliant on chip imports from the US to make and develop products such as video surveillance equipment, mobile phones and computers. China accounted for more than 50 per cent of the global demand for chips in 2018, with 90 per cent of its chips imported at a cost of US$300 billion, according to Mei Xinyu, a researcher at the International Trade and Economic Cooperation Institute of the ministry of commerce.
