China Provides Local Tech Tax Cuts As Global Concern Escalates

China Yuan
Illustration photo of a China yuan note (Photo: REUTERS/Thomas White/Illustration/File Photo)

China announced that they give tax breaks for qualified domestic chipmakers and software vendors for two years as the trade war continuous. They will also receive a 50 percent tax cut for the three years after the break. China supported its own tech companies by imposing tax breaks and cuts as they compete with their foreign rivals.

The Chinese Ministry of Finance and the State Taxation Administration announced the tax breaks on Wednesday amid the escalating trade friction between China and the United States.

The recent development on the trade war sparked concern by global chipmakers after the United States President Donald Trump raises the tariffs on Chinese goods and as he targets the Chinese firm Huawei Technologies Co.

Tom Caulfield, chief executive officer of GlobalFoundries Inc., the largest U.S. contract manufacturer of chips, said that everyone will suffer in the industry if things are not resolved.

The order of the American president to ban Huawei shows how interconnected the global supply chain for chipmakers and software vendors. Mr. Caulfield said that it is impossible to avoid hurting American companies in the process of pressuring their Chinese rivals.

Following the announcement of Mr. Trump, United States chip makers stopped their supplies to Huawei. Google decided to end its Android services to the latest Huawei phones. Rumors are circulating that China plans its tech independence following its recent visit to a rare earth plant.

The exchange of tariffs of the two nations hurt the tech industry. The Information Technology & Innovation Foundation reported that strict export restrictions on emerging technology could lead United States companies to lose $14.1 billion to $56.3 billion in revenue over five years. The report added that as many as 74,000 individuals might lose their jobs. The researcher also highlighted that the semiconductor industry alone could lose more than 9,000 jobs after a year of 20% tariffs.

Chris Caso, an analyst at Raymond James & Associates, said that we would expect that many, if not most, semiconductor companies will need to lower estimates.

The suppliers from Huawei including Skyworks Solutions Inc. and Xilinx Inc. reported their biggest decline as the Philadelphia Stock Exchange Semiconductor Index plunges 14 percent.

The Semiconductor Industry Association President John Neuffer said in a statement that they hope to work with the Administration to broaden the scope of the license so it advances U.S. security goals in a manner that does not undermine the ability of the U.S. semiconductor industry to compete globally and ensures the economic security of an industry that is the backbone of this country's technology leadership.

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