Year in Review: Domestic Manufacturing Support

As countries around the world compete for market share, governments are offering major incentives to drive fab construction, equipment manufacturing, research and supply chain localization.



Funding targets smaller nodes
Many provisions incentivize the most leading-edge chip manufacturing. For example, of the $6.8 billion Japanese funding goal, $5.3 billion is set to establish a base of advanced manufacturing in Japan, and $410 million will go towards mature-node production. Similarly, the US CHIPS and COMPETES Acts aim to support advanced node manufacturing at 3nm and below, while allocating only $2 billion out of $52 billion for legacy chip production.

In 2020 and early 2021, Chinese tax policy was upgraded to favor advanced node manufacturing, with 10-year income exemptions for fabs operating at 28nm process nodes or below, 5-year for 65nm or below, and 2 years for 130nm and below. Similarly, India’s government is offering financial support of up to 50% for chip manufacturing at process nodes below 28nm, 40% for 28-45nm, and 30% for 45-65nm.

Incorporated in the Invest in Taiwan Initiatives, in 2021, Taiwan launched the Angstrom Semiconductor Initiative, which is set to run until 2025. Funded by government investment, the project is dedicated to technological pathfinding for cutting-edge 1nm devices.

Support building for start-ups While the US and Japan concentrate spending on large fab construction projects, other governments are ramping up their support for start-ups to strengthen supply chains and ensure that chip manufacturers can source required production technologies, equipment and materials. The proposed EU Chips Act includes a new facility within the InvestEU program which has laid out initial plans for €2 billion in support equity to 2030 to fund start-ups and scale-ups of small-to-medium-sized enterprises (SMEs) supporting innovative chip technology development.

The Chinese government is assisting SMEs through grants and tax cuts with the hope that companies focusing on niche areas will spur greater innovation. In 2021 six Chinese ministries endorsed a greater emphasis on ‘little giants,’ aiming to provide $475 million for an SME program by the end of the year to several high-tech industries, with semi-conductor related SMEs being a key beneficiary.

R&D is prioritized to localize supply chainsR&D funding is at the heart of several proposed incentives. For example, South Korea’s K-Semiconductor Strategy offers up to 50% and 20% tax credits for semiconductor-related R&D and facility investments, respectively. The scheme aims to plug supply chain gaps and achieve self-sufficiency in semiconductor equipment and materials, including ultrapure water production, to avoid imports from Japan.

The EU also wants to bolster its supply chain to reduce reliance on Asia for material and equipment . The EU Chips Act will include €11 billion for research and development; pilot lines for prototyping, testing and experimentation of new devices for applications; workforce training; and developing an in-depth understanding of the semiconductor ecosystem and value chain.

R&D is also a priority for younger markets, such as Canada. The Canadian government unveiled a strategy in November 2021 to develop a national semiconductor industry, vying to specialize in R&D for chip production for electric vehicles, batteries and sensors. Out of the $190 million package to develop and supply semiconductors, $70 million is designated to R&D.