China
Semiconductor tensions chip away at cross-Strait relations
Author: Yvette To, CityU
US House of Representatives Speaker Nancy Pelosi’s visit to Taiwan and President Joe Biden’s pledge that the United States would defend the island have escalated tensions in the Taiwan Strait. At the 20th National Congress of the Chinese Communist Party, President Xi Jinping stressed the importance of reunifying with Taiwan.
The escalating US–China technology rivalry and global chip shortage make Taiwan’s role as a leading global supplier of semiconductors strategically and economically important to both powers.
The question is what will happen to global chip production in the event of a cross-Strait military conflict. COVID-19 lockdowns have already disrupted global semiconductor supply. Since global semiconductor production capacity is highly concentrated in Asia, including in Taiwan, South Korea and China, a cross-Strait military conflict will crimp the global production of semiconductors. In a military confrontation, China might impose an embargo on Taiwan’s exports of critical technologies.
Taiwan is home to several of the world’s largest semiconductor foundries. Together they represent more than 63 per cent of the global market share. The world is heavily dependent on the Taiwan Semiconductor Manufacturing Company (TSMC), which produces more than 90 per cent of the world’s most advanced semiconductors, including 5-nanometre chips.
Supply disruptions will directly impact Apple — TMSC’s largest customer — Nvidia, Qualcomm and AMD. It will also disrupt leading US technology companies specialised in computer processors and chipsets that power modern devices, from consumer electronics and medical equipment to artificial intelligence and military technologies.
With supplies from Taiwan crimped in the event of a cross-Strait conflict, companies may have to look to South Korea for replacement chips. Samsung is the world’s second largest semiconductor foundry by revenue, accounting for approximately 17 per cent of the global market — a 35 per cent smaller share than TSMC. But the production capacity of South Korean foundries is unlikely to meet global demand and Seoul could be drawn into the conflict should the United States get involved.
Chinese foundries produce around 8 per cent of the world’s semiconductors. But even if Chinese companies maintain their semiconductor production in a cross-Strait conflict, the chips they can mass produce are mainly 28-nanometre and 14-nanometre chips. These are less sophisticated and powerful than the 7-nanometre and 5-nanometre made by TSMC and Samsung.
While there were reports in August 2022 that China’s Semiconductor Manufacturing International Corporation had made a great leap in successfully developing 7-nanometre chips, the company’s mass production capacity remains unknown. Indeed, the global semiconductor supply chain is complex and involves different stages of manufacturing demanding high-, medium- and low-skilled inputs. Any disruption will have knock-on effects on upstream and downstream industries.
Southeast Asian countries are also involved in semiconductor manufacturing. Malaysia packages and tests newly made semiconductors, accounting for 13 per cent of the global market share. Singapore operates fabrication plants for US-based Micron and GlobalFoundries and several assembly and testing facilities for Taiwanese companies.
Many industries rely on a stable supply of semiconductors, exposing them to the effects of a cross-Strait conflict. The automotive industry is still battling the global chip shortage that emerged in 2020. Over the past few years, automakers have competed with other consumer electronics providers over chips made in Asia. Some automotive giants have already cut production, while others expect the chip crunch to last into 2024. A military conflict involving the global hub of chip production will further strain the industry, creating knock-on effects on other parts of the automotive supply chain.
The effects of a cross-Strait conflict can be mitigated by strengthening supply chain resiliency. Some countries and companies have already started diversifying and securing their semiconductor supply chains. But diversification comes with a cost. The US Chips and Science Act uses federal subsidies to lure technology firms — including US, Taiwanese and South Korean companies — to invest in cutting-edge chip development and manufacturing in the United States. Companies are not allowed to build advanced chipmaking facilities in China for 10 years to receive these subsidies.
China
China Provides Tax Incentives on Special Equipment for Green and Digital Development
China has introduced a new tax incentive for companies investing in digital and smart upgrades of special equipment to encourage environmental protection and safe production. Companies can enjoy a 10 percent deduction from their corporate income tax payable. Eligibility and requirements are outlined by the Ministry of Finance and State Tax Administration.
A new China tax incentive aims to encourage companies to invest in digital and smart upgrades of special equipment. Companies upgrading certain equipment that aids environmental protection and safe production can enjoy a deduction of the investment at a rate of 10 percent from their corporate income tax payable. We explain the requirements of the new tax incentive.
China’s Ministry of Finance (MOF) and State Tax Administration (STA) have issued a new preferential corporate income tax (CIT) incentive for companies investing in digital and intelligent transformations of certain types of equipment. To be eligible for the incentive, companies must invest in the digital and intelligent transformation of equipment related to energy and water conservation, environmental protection, and safe production.
The new tax incentive aligns with a State Council Action Plan, released in March 2024, which aims to accelerate the renewal of large-scale equipment and consumer goods, promoting high-quality development and driving investment and consumption for long-term benefits.
If the annual CIT payable is insufficient for the offset, it can be carried forward to future years for up to five years.
The CIT payable refers to the balance after multiplying the annual taxable income by the applicable tax rate and deducting the tax reductions and exemptions according to China’s CIT Law and relevant preferential policies.
Note that companies enjoying the tax incentives must use the transformed equipment themselves. If the equipment is transferred or leased within five tax years after the transformation is completed, the incentives must stop from the month the equipment is no longer in use, and the previously offset CIT must be repaid.
The “special equipment” eligible for the preferential tax treatment covers equipment purchased and used by companies listed in the Catalog of Special Equipment for Safe Production for Corporate Income Tax Incentives (2018 Edition) and the Catalog of Special Equipment for Energy Saving, Water Conservation, and Environmental Protection for Corporate Income Tax Incentives (2017 Edition).
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
China
Revealing the Encouraged Industries of Hainan in 2024: Unlocking Opportunities
The 2024 Hainan Encouraged Catalogue, issued by the NDRC, MOF, and STA, aims to boost industries in the Hainan Free Trade Port. It prioritizes sectors like tourism, modern services, and high technologies, offering incentives for foreign investment and market access expansion since 2020. The Catalogue includes 176 entries across 14 categories, with 33 new additions focusing on cultural tourism, new energy, medicine and health, aviation, aerospace, and environmental protection.
The National Development and Reform Commission (NDRC), in collaboration with the Ministry of Finance (MOF) and the State Taxation Administration (STA), has issued the Catalogue of Industries Encouraged to Develop in Hainan Free Trade Port (2024 Version), hereinafter referred to as the “2024 Hainan Encouraged Catalogue.” The updated Catalogue took effect on March 1, 2024, replacing the previous 2020 Edition.
Beyond the industries already addressed in existing national catalogues, the new entries in the 2024 Hainan Encouraged Catalogue are based on practical implementation experiences and the specific needs within Hainan, prioritizing sectors such as tourism, modern services, and high technologies.
The Hainan FTP has been providing incentives to draw investors to invest and establish businesses in the region, especially foreign investment. Alongside a phased approach to opening the capital account and facilitating free capital movement, Hainan has significantly expanded market access for foreign enterprises since 2020, particularly in sectors such as telecommunications, tourism, and education.
The Hainan Encouraged Catalogue comprises two main sections:
Similar to the approach adopted by the western regions, foreign-invested enterprises (FIEs) should always implement their production or operations in accordance with the Catalogue of Encouraged Industries for Foreign Investment.
On top of the industries already addressed in existing national catalogues, the 2024 Hainan Encouraged Catalogue encompasses 14 distinct categories and a total of 176 entries especially encouraged in the region, including 33 new additions compared to the 2020 Edition. These new entries predominantly span cultural tourism, new energy, medicine and health, aviation and aerospace, and ecological and environmental protection, among others.
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
China
Key Guidelines for Companies in Compliance Audits for Personal Information Protection Standards
China’s standards authority has released draft standards for personal information protection compliance audits, potentially making them mandatory for companies in 2023. The audits will require companies to undergo annual or biennial checks based on the number of people’s information they handle. The draft standards outline the audit process and requirements, seeking public feedback until September 11, 2024.
China’s standards authority has released draft standards for conducting personal information protection compliance audits. Regular compliance audits to ensure compliance with personal information protection regulations may become a requirement for companies in China under draft measures released in 2023. We explain the audit processes and requirements proposed in the draft standards.
The Standardization Administration of China (SAC) has released a set of draft standards for conducting personal information (PI) protection compliance audits. Under draft measures released by the Cyberspace Administration of China (CAC) in August 2023, companies that process the PI of people in China are required to undergo regular compliance audits.
Specifically, companies that process the PI of over one million people must undergo a compliance audit at least once a year, while companies that process the PI of under one million people must carry out an audit at least once every two years.
While the draft measures stipulate the obligations of the auditing body and the audit scope, the draft standards outline the specific audit process, including evidence management and permissions of the audit organization, as well as the professional and ethical requirements of auditors.
The Secretariat of the National Cybersecurity Standardization Technical Committee is soliciting public feedback on the draft standards until September 11, 2024. Public comment on the draft measures released in August last year closed on September 2, 2023, but no updated document has yet been released.
The draft standards outline five stages of the PI protection compliance audit: audit preparation, implementation, reporting, problem rectification, and archiving management.
Auditors are required to accurately document identified security issues in the audit working papers, ensuring that the records are comprehensive, clear, and conclusive, reflecting the audit plan and its execution, as well as all relevant findings and recommendations.
This article is republished from China Briefing. Read the rest of the original article.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at china@dezshira.com.
- China Provides Tax Incentives on Special Equipment for Green and Digital Development
- Revealing the Encouraged Industries of Hainan in 2024: Unlocking Opportunities
- Key Guidelines for Companies in Compliance Audits for Personal Information Protection Standards
- A Comprehensive Guide to China’s Expanded 144-Hour Visa-Free Transit Policy at 37 Ports
- Regulatory Changes in China Aim to Boost Service Sector Growth in Six Cities
- Adhering to Updated Registered Capital Regulations in China’s Revised Company Law
