Shenzhen, Hong Kong’s neighbour to the north and mainland China technology powerhouse, will extend tax breaks to top overseas and local talent as it seeks to maintain its edge in innovation amid an escalating trade war between the United States and China. Wang Lixin, a deputy mayor, said on Sunday the city would use its own operating income to make up for the shortfall in tax revenue. Under the scheme, income tax will be cut to 15 per cent of annual income for certain individuals. “Suppose you earn a million yuan [US$144,894] a year. Under the new rules, you will need to pay 150,000 yuan as income tax, which saves you about 300,000 yuan at the current level,” Wang told a innovation summit in Shenzhen. “We need to fill all the links in the supply chain. Then we are truly competitive in the world, and can truly have the power of say,” he said. It seems the Shenzhen government has been given permission by Beijing to extend favourable tax rates to not only foreign talent, but also local talent, said Zeng Zhen, executive director of the department of urbanisation research at Shenzhen-based think tank China Development Institute. “The key now is how to define top talent,” he said, adding that it would not be long before the Shenzhen government releases specific standards. He said the city’s most urgent need was professionals in electronics and telecommunications: “In short, all the sectors where China sees itself being contained by the US, technology wise.” Will Trump’s assault on Huawei create a digital iron curtain? The tax breaks are part of efforts by Shenzhen to transform itself into a global centre of innovation. They are also in response to Washington, which has singled out some Shenzhen-based technology companies, including Huawei and drones manufacturer DJI , over national security concerns this year. The company has been banned by the Trump Administration and can no longer acquire key components made in the US. “China will gather all the power and resources it needs to improve innovation in its technology sector. It will not let its hopes be dashed with the US cutting off supplies. Whether you can lure and keep top talent is key,” said Zeng. China uses a progressive taxation system, with seven tax brackets and a top income-tax rate of as high as 45 per cent. Although Beijing announced a systematic reform this year to cut individual income taxes, China’s levies are still much higher than in other regions, including Hong Kong, where individuals’ salary tax is capped at 17 per cent. Beijing has already okayed tax breaks for overseas talent in the “Greater Bay Area”, in a guideline issued by the ministry of finance on March 14, but local governments still have to draw up their own specific rules. The tax breaks are meant to attract top talent from Hong Kong and Macau and boost innovation and entrepreneurship among the youth in this region.