Future World Order: Industrial policies / Public-private Cooperation, Intl Tie-Ups Key to Japan Making a Semiconductor Comeback

The Yomiuri Shimbun

20:00 JST, October 30, 2023

Against a background of growing Chinese economic hegemony and the world becoming increasingly split over such issues as Russia’s ongoing aggression against Ukraine, countries that operate liberal economies are increasingly valuing the role of the state in industrial development. This is the first installment of the new series that reports on security-focused, private-public industrial policies.

***

Domestic production of next-generation semiconductors is set to move into full swing following a recent groundbreaking ceremony at an industrial compound on the east side of New Chitose Airport in Hokkaido.

The Sept. 1 event — organized by semiconductor maker Rapidus Corp. — was attended by about 130 people, including Economy, Trade and Industry Minister Yasutoshi Nishimura and executives from U.S. and European companies that fabricate related technology, such as IBM Corp. The international collaboration symbolized Japan’s continuing progress toward becoming a semiconductor powerhouse.

“By working together with like-minded countries and regions, we can strengthen the global semiconductor supply chain,” Prime Minister Fumio Kishida said in a video shown during the ceremony.

The Rapidus project is expected to attract investment of ¥5 trillion, with mass production scheduled to begin in 2027. The government intends to contribute ¥330 billion to the undertaking.

During the 1980s, Japan controlled a more than 50% slice of the semiconductor market, triggering trade friction between Washington and Tokyo. In recent years, however, Japan’s share of the market pie has fallen below 10% due to price competition with South Korean and Taiwanese rivals. Observers say Japan is some 10 to 20 years behind nations with state-of-the-art technologies.

Despite past many failures in reviving semiconductor industry, Japan has raised the importance of semiconductors as a strategic commodity in a wake of a U.S.-China chip war, from the aspect of economic security

Semiconductors are ubiquitous in modern society and are utilized in such items as smartphones, home appliances, automobiles and weapons.

Several years ago, with an eye on countering China’s advanced military- and civilian-use chip technology, the administration of then U.S. President Donald Trump levied heavy trade restrictions on China. More recently, U.S. President Joe Biden’s administration announced a policy to cooperate with Japan, Taiwan, South Korea and Europe to establish a China-free chip supply chain — and the Rapidus project plays a role in this policy.

　On May 18, seven high-ranking foreign figures visited the Prime Minister’s Office, representing such semiconductor-related entities as Belgian research organization imec and IBM — which offer technical cooperation to Rapidus — and Taiwan Semiconductor Manufacturing Co. (TSMC).

Prior to the meeting, Kishida had requested the executives to cooperate with Japanese semiconductor-related companies and and had been telling people within his circle that Japan’s approach to semiconductors had “changed dramatically.”

While pursuing semiconductor products with cutting-edge quality through Rapidus, the government also is keen to secure sufficient quantity, with TSMC’s Kumamoto plant playing a key role in this regard.

Trillions in aid

The Kumamoto plant is scheduled to begin full-scale operations at the end of 2024, with the government contributing up to ¥476 billion to a total investment figure of around ¥1 trillion.

The plant is set to produce general-purpose semiconductors that are several generations behind the cutting-edge although the technology level is higher than products that can be produced by Japanese companies. Chips produced at the plant will be sold to the automotive and camera industries — areas in which Japanese makers enjoy considerable sway.

“It is significant that semiconductors indispensable for domestic production can be procured within Japan,” an economy ministry official said.

The possibility of a contingency in Taiwan also was a contributing factor behind the establishment of the new chip plant.

In July, TSMC completed construction of an advanced semiconductor research and development facility in Hsinchu, northern Taiwan. During the inauguration ceremony, TSMC Chief Executive Officer C.C. Wei said he wanted to show people in Taiwan that company would remain “rooted in Taiwan.”

　TSMC enjoys a 90% market share in the contract manufacturing of cutting-edge semiconductors, with the vast majority of its factories concentrated in Taiwan. This “silicon shield” strategy concerns China and the wider international community, over fears that chip supplies could be disrupted in the event of an emergency in Taiwan.

TSMC factories located overseas manufacture generic products in principle; the Japan plant was established for just such a purpose. However, Japan needs to take on the challenge of producing advanced semiconductors domestically.

Domestic production of semiconductors and other critical products form part of the Kishida administration’s economic stimulus package that is expected to be formulated soon. Rapidus is expected to require trillions of yen in investment — even after mass production begins — and the government plans to continue its financial support. However, market observers have expressed concerns over demand-related issues and whether high levels of technology can be achieved quickly.

　“Semiconductors make up the information processing infrastructure that supports the digital industry,” said Meisei University Prof. Masahiko Hosokawa. “Japan has no choice but to take up the challenge of manufacturing advanced semiconductors. With massive state support for the semiconductor industry becoming a global trend, it’s only natural for the Japanese government to provide trillions of yen [in investment].”