China ramps up subsidies to lure chip firms to Hengqin, an island near Macau, turning it into a major semiconductor outpost

Hengqin, located in the southern city of Zhuhai, will offer subsidies of up to US$4.4 million each to semiconductor firms that set up operations there
The island was selected by Beijing as a priority site for reforms in finance and technology in the Greater Bay Area

Semiconductors

Jiaxing Li

Published: 8:00pm, 28 Jul, 2022

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China’s special economic zone in Hengqin, the largest island in the southern city of Zhuhai and located near the gambling hub of Macau, will offer generous cash incentives to semiconductor companies to help develop the area into a major new outpost for their industry.

Hengqin, covering an area measuring 106.46 square kilometres that is roughly three times the size of Macau, will offer cash subsidies of up to 30 million yuan (US$4.4 million) each for semiconductor firms to set up new offices or conduct research and development activities in the island, according to a notice posted on Wednesday by the management body for this pilot initiative.

The island, which Beijing picked as a priority site for reforms in finance and technology in the Greater Bay Area, will provide a 20 million yuan cash reward to each listed semiconductor firm, government-endorsed “ little giant” and industry unicorn that moves there, according to the notice. A cash incentive of 10 million yuan will be given to each company that sets up its regional headquarters in the special economic zone.

Chip firms that establish research and development programmes in Hengqin will receive a 5 million yuan subsidy and get 50 per cent of the tapeout cost – involving the final design process of an integrated circuit before it goes to production – covered by another subsidy that is capped at 30 million yuan, the notice said. Companies involved in 14-nanometre or lower chip processing design will be eligible for up to 25 million yuan in subsidies.

The special economic zone in Hengqin, located in the city of Zhuhai in southern Guangdong province, has embarked on an initiative to help establish the area as a major new outpost for China’s semiconductor industry. Photo: Shutterstock

The largesse of this Hengqin pilot scheme also extends to personnel. The economic zone will offer subsidies of more than 100,000 yuan each to researchers and senior managers, who have signed contracts with mainland semiconductor firms and are assigned to work in the economic zone for a three-year period, the notice said.

Hengqin will also hand out 1 million yuan annually to companies that can nurture semiconductor talent in the special economic zone, showing the importance given by China to narrow the talent gap with the US and other developed countries.

China’s latest effort in Hengqin reflects the mainland’s bid to further develop its semiconductor supply chain amid rising geopolitical tensions between Beijing and Washington, where the US Senate has passed a bill providing US$52 billion in subsidies to America’s chip industry.

The so-called Chip 4 Alliance, a partnership envisioned by the US to include South Korea, Japan and Taiwan, also threatens to exclude China from global semiconductor supply chains and to harm the country’s technology self-sufficiency drive.

US Senate passes bill providing US$52 billion to semiconductor industry

While China remains heavily dependent on imported semiconductor manufacturing equipment, materials and advanced chips, Washington has pushed its economic allies to restrict Chinese firms’ access to various US-origin technologies.

Under that situation, China must pursue breakthroughs in critical sectors to improve tech self-sufficiency, according to Li Yizhong, the country’s former Minister for Industry and Information Technology, during a local summit earlier this month.

Recent anti-corruption investigations, however, have cast a shadow on China’s chip ambitions. Earlier this month, the former chief executive of Sino IC Capital, which manages the state-backed China Integrated Circuit Industry Investment Fund, was put under investigation by the Central Commission for Discipline Inspection. Last November, Gao Songtao, formerly a vice-president at Sino IC Capital, was investigated by the commission for alleged corruption.