China offers five-year tax breaks to chip makers, software developers to bolster industry as trade war stretches to tech

China will give a five-year tax break to its home-grown semiconductor makers and software developers in a bid to bolster the industries as the trade war shifts to an assault on Chinese technology.

Integrated circuit makers and software companies will be exempt from paying corporate taxes for two years, starting in 2019, and their tax payments will be halved from the 25 per cent universal rate levied on Chinese companies in the following three years, the finance ministry said on its website on Wednesday afternoon.

The announcement comes as the intensifying trade war between China and the US spills over into the technology industry. The Trump administration has put Huawei Technologies, China’s biggest maker of telecommunications equipment, on a blacklist that will ban it from buying American technologies and goods.

The White House is considering cutting off the flow of vital American technology to as many as five Chinese video surveillance companies, including the biggest, Hikvision, and Zhejiang Dahua Technology, according to a Bloomberg report citing people familiar with the situation.

China last week imposed retaliatory tariffs on US imports after President Donald Trump had earlier more than doubled duties on US$200 billion worth of Chinese goods.

“The government is acting very quickly this time to support the domestic high-technology industry after Huawei was targeted in the rising trade tension,” said Wu Kan, an investment manager at Soochow Securities in Shanghai. “The megatrend is that China will have to develop its own chips and software on a large scale to reduce its reliance on the US. We’ll see other support measures and that’s big positive news for China’s technology sector in the long turn.”