The Semiconductor Industry Association (SIA) today issued a study of China's emerging semiconductor industry which, among its conclusions, finds that the country's discriminatory Value-Added Tax (VAT) rebate scheme distorts trade investments and imposes a cost penalty for semiconductor importers trying to compete for sales in China.

"The SIA supports open markets for all semiconductor products thus providing the consumer access to the best technology and the most competitive pricing from semiconductor companies throughout the world," said SIA President, George Scalise. "The SIA has discussed this matter on several occasions with the U.S. Government, and the Chinese Government and industry. We will continue to raise this issue and we're hopeful it can be resolved quickly and amicably.

The SIA's study is entitled China's Emerging Semiconductor Industry — The Impact of China's Preferential Value-Added Tax on Current Investment Trends. China is currently the world's most rapidly growing market for semiconductors and ranks as the world's third largest market, with $19 billion in sales. The SIA report also outlines other factors contributing to the growth of China's semiconductor industry. The Chinese government provides income tax holidays for factories located in China, tax incentives for individuals, and man power and education programs. With the exception of the VAT, the study does not criticize industrial promotional efforts by China as a general matter.

Currently China provides for VAT rebates on semiconductor products manufactured and sold within the country while continuing to charge the full VAT on imported semiconductor products. China applies a VAT of 17% on sales of imported and domestically-produced semiconductors. However, in June of 2000, China's State Council announced that all integrated circuits manufactured in China would receive a rebate of the VAT in excess of 6% of the company's tax burden. The policy was amended in September 2001, with an announcement that integrated circuits both designed and built in China would be eligible for rebate of the VAT in excess of 3%. The VAT rebates must be applied to research and development or capital expenditures within China.