China is dropping its chip tax rebate scheme.
China will scrap a tax rebate system that offered rebates on products either made or designed in China, after being dragged to the World Trade Organization by the US.
Beijing’s decision to junk the current chip tax regime brings to an end the first WTO complaint filed against China since it joined the trade group in 2001.
While the agreement is being hailed as a victory for the US, it will likely benefit silicon producers in other countries, as it was China’s treatment of domestic production that was the issue.
Under the previous policy, China imposed a 17% tax on semiconductors, but gave vendors rebates on products either produced or designed in China, effectively cutting their tax rate to as little as 3%. The US chip industry claimed this discriminated against non-domestic producers, and the US Trade Representative filed a formal complaint in March with the WTO.
The decision was welcomed by the US chip industry, which had lobbied hard for Washington to take Beijing to task over the issue. US producers are thought to account for $2 billion of imports to the Chinese chip market, which is worth $19 billion overall. The Semiconductor Industry Association said China’s efforts to come into compliance with the WTO would accelerate the development of its high-tech industries.
The tax change is unlikely to dampen China’s appetite for silicon – the country is expected to become the number two market for chips by the end of the decade. Arguably the changes may act as a dampener on investment in manufacturing in China. However, the country will still have plenty to tempt US and other investors looking to set up shop, with its massive workforce and equally massive domestic market.
