India and Taiwan are in talks on an agreement that could bring chip manufacturing to South Asia along with tariff reductions on components for producing semiconductors by the end of the ear, People familiar with the matter said, a move that may spark fresh tensions with China.

Official is New Delhi and Taipei have met in recent weeks to discuss a deal that would bring a chip plant worth an estimated $ 7.5 billion to India to supply everything from 5G devices to electric cars, the people said. India is currently studying possible locations with adequate land, water and manpower, while saying it would provide financial support of 50% of capital expenditure from 2023 as well tax breaks and other incentives, the people said.

Official in Taipei wanted quick progress on a bilateral investment agreement that would include tariff reductions on dozens of products used to make semiconductors – a precursor to a broader trade deal also under consideration, the people said.

The people asked not to be identified to discuss negotiations that were currently ongoing. The Office of Trade Negotiations under Taiwan’s cabinet declined to comment, while a spokesperson for India’s trade ministry didn’t immediately respond to a text message.

The trade talks come at a time when democracies across the world are boosting economic and military links to stand up against an increasingly assertive China. While Taiwan has long sought a trade deal with India, officials in New Delhi had been hesitant to anger Beijing, which claims the island democracy as its territory.

Since last month, Taiwan has battled a rise in domestic cases, tightening curbs on private gatherings and closing entertainment venues. Officials have signalled the measures may need to be extended beyond a June 28 date set for their lifting. Health Minister Chen Shin-Chung announced 75 new domestic infections but added that infections were trending downwards.

“We hope this trend can continue, he told a daily news briefing. “This needs everyone to work hard together.”

However, people should not relax their vigilance and must continue to wear masks and wash their hands, Chen added. How would not be drawn on when restrictions may be lifted, saying: “I won’t speculate.”

Monday was the first time the daily figure had dipped below 100 since May 15, when Taiwan raised the alert level for its capital, Taipei, and the neighbouring city, after a sudden spike of 180 domestic cases.

The government has been working to speed a vaccination programme hobbled by supply delays, with just about 6% of a population of 23.5 million have received at least one of the required two doses.

On Sunday, 2.5 million vaccine doses arrived in Taiwan from the United States, more than doubling stocks in the island, a major producer of semiconductors. Taiwan’s tally of infections in the pandemic stands at 14,080, including 569 deaths.