Shenzhen plans to shower cash on local chip industry to bolster development after intensified US trade restrictions

Chinese city will provide support for design of high-end, general purpose and special purpose chips, and manufacture of silicon-based ICs
Move comes as China seeks to accelerate development of the local chip industry amid intensifying US trade sanctions

US-China tech war

Iris Dengin Shenzhen

Published: 9:00pm, 10 Oct 2022

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China’s tech hub Shenzhen has doubled down on efforts to grow its local chip industry by promising fat subsidies and cash rewards to semiconductor businesses registered in the city, as the US continues to ratchet up trade restrictions on Chinese chip champions.

According to a draft plan published by Shenzhen’s economic planning agency on Saturday, the Chinese city will provide support for design of high-end, general purpose and special purpose chips, the manufacture of silicon-based integrated circuits (IC), as well as for packaging of chiplets among other parts along the supply chain. These are areas particularly affected by recent US trade restrictions.

The Shenzhen Development and Reform Commission, the government agency drafting the plan, is soliciting public opinion on the proposals through to November 8. At the heart of the plan is a goal to achieve breakthroughs in core links including the design and development of central processing units (CPUs) and graphics processing units (GPUs) – currently a weak link in China’s semiconductor industry.

The Shenzhen government has pledged to provide a maximum of 20 per cent, or up to 10 million yuan (US$1.4 million) each year, towards the IP cores fee for the research and development (R&D) of high-end chips. In other words, the Shenzhen government will foot part the bill for local chip design firms to buy the necessary know-how to progress their research.

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Local companies working on open-standard RISC-V chip design architecture can also qualify for subsidies of up to 10 million yuan, or 20 per cent of their R&D investment.

The Shenzhen government also wants to boost the adoption of home-grown electronic design automation (EDA) software. Companies and research institutions that buy domestic EDA tools will qualify for a subsidy of up to 10 million yuan each year, or less than 70 per cent of the fees, while those who rent the tools will be given 5 million yuan, or less than half of the expenses.

The government is also keen to improve the chip value chain by attracting leading companies, at home and from overseas, which focus on core equipment and components for the IC industry, with up to 30 million yuan in cash rewards if they set up operations to Shenzhen. The southern city also wants to attract top talent by providing up to 5 million yuan in rewards for key R&D and management staff.

While the jury is still out on whether government money will help Chinese chip companies to manage US restrictions, it highlights the country’s desire to accelerate development of the local chip industry. Last week, the US Department of Commerce’s Bureau of Industry and Security made two updates to export-control rules aimed at restricting China’s ability to obtain advanced computing chips, develop and maintain supercomputers, and manufacture advanced semiconductors for modernising Chinese military.

The latest step follows a series of US moves to restrict China’s access to semiconductor and other critical technologies. In August, Washington banned Nvidia and Advanced Micro Devices from selling advanced chips to China used for artificial intelligence and high-performance computing work. That was initiated a few weeks after US President Joe Biden signed into law the Chips and Science Act, which provides nearly US$53 billion in semiconductor production incentives on American soil.

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President Xi Jinping stressed at a key meeting last month that China must step up development of technology critical to national security and adopt a top-down “new whole country system” to seek breakthroughs.

However, this is not the first time that Shenzhen has sought to boost the local semiconductor sector. The local government issued a similar plan in 2019, when it also pledged to support various parties in the chip supply chain, with smaller subsidies and rewards compared to the new plan.

In June the city also announced a plan to build “an influential cluster” for the semiconductor industry by 2025, aiming to double the value of its existing chip sector within three years to reach 250 billion yuan in annual sales.