The many ways Japan is trying to invigorate its chip industry

Earlier this week, the government of Japan announced that it aims to uplift its chip industry by tripling the sales of companies manufacturing semiconductors, parts, and materials. The goal is to reach 15 trillion Yuan ($113 billion) by 2030, which will be achieved mainly by beefing up investments, the country’s Industry Ministry said on Monday.

The move came amid an intensifying competition to secure a stable supply of critical technology. According to government data, in 2020, sales of companies manufacturing chips, related parts, and materials in Japan totaled around 5 trillion Yuan, accounting for about 10% of the global share.

Massive investment.

To push that higher, the Industry Ministry estimated that about 11 trillion Yuan needs to be invested by the public and private sectors, including for research and development, over the next ten years. The government has been stepping up efforts to ensure chipmaking inside Japan.

In the 1980s, Japan was the world’s largest chip producer, accounting for over 50% of global semiconductor production. Then came the early 2000s, when the country faced challenges in shifting business models from traditional vertical integration (IDM) to horizontal division of labor (fabless/foundry). Its failure to catch up has led to its downfall in the global chip supply chain, leaving Japan accounting for only 9% of the world’s semiconductor production.

Fortunately, despite no longer being the world’s largest semiconductor market, Japan still maintains a high market share and international competitiveness in product groups such as memory (especially NAND), sensors (especially CMOS image sensors), and power semiconductors.  

According to the International Trade Association on November 2022, Japan’s approximate share of the global supply of semiconductors and related equipment stands at;

• Semiconductor Chips (Logic, Micro, Memory, Analog) 6% 
• Semiconductor Manufacturing Equipment 35% 
• Semiconductor Materials 50%  

Given how since the pandemic, the world has begun shifting its focus toward the semiconductor industry, Japan too has started leveraging its position to woo major chipmakers such as Taiwan Semiconductor Manufacturing Co. and South Korea’s Samsung Electronics Co. After the announcement that Japan will be tightening its grip on crucial equipment, the country announced its intention to hike up expenditure on chip gear for next year.

Japan plans to spend US$7 billion on fab equipment next year, which would mark an 82% jump from this year — the largest in the world — according to data from SEMI, a global association of chipmaking equipment producers. Its aim is simple – to boost its position in the worldwide semiconductor market.

The US influence.

For context, China is forecast to increase its expenditure by a mere 2%, and Japan’s total expenditure would be higher than the combined spending of the Europe and Middle East markets. However, it is fair to note that Taiwan remains the largest spender — US$24.9 billion expected in 2024 — on chip-fabrication equipment. Japan’s move to increase spending by 82% is part of its ambitious program to bring back cutting-edge semiconductor manufacturing, a field ceded to Taiwan, South Korea, and China nearly 20 years ago. 

The aggressive investment complements a US push to reconfigure global chip supply routes and sources. Last week, Tokyo said it would expand curbs on shipments of 23 types of cutting-edge chipmaking tools, including extreme ultraviolet mask-testers, immersion lithography machines, and silicon-wafer cleaners. 

The restrictions, whether Japan would like to admit it or not, came as part of a deal with the US and the Netherlands. Japan has been careful not to refer publicly to the agreement between itself, the US, and the Netherlands. It seems the export controls will affect a more significant number of Japanese companies than previously expected, and require producers of high-end equipment to obtain licenses for all regions. 

That would give the Japanese authorities oversight of machinery sales to countries that could produce high-end chips for military use in China and elsewhere. Various reports also indicate that many Japanese companies depend on China for much of their growth.

When Japanese Foreign Minister Yoshimasa Hayashi recently visited China — the first such trip to China’s capital by a top Japanese diplomat in more than three years – his Chinese counterpart Qin Gang was also present. Qin told Hayashi that the US had in the past tried to “brutally suppress” Japan’s semiconductor industry and was now “repeating its old tricks” against China. 

“Don’t do to others what you don’t want others to do to you,” Qin said, according to a statement published on China’s Foreign Ministry website on Sunday. The “blockade” would “only stimulate China’s determination to become self-sufficient,” he added.

Even in the case of the Netherlands, China has sought to discourage the country from participating in the deal. Tan Jian, the Chinese ambassador to the country, warned last month of “consequences” if it went ahead with restrictions.  

Pressure from Beijing over the restrictions was also noticeable when the Cyberspace Administration of China, the sector’s regulator, launched a review of imports from the US-based chipmaker Micron Technologies on the grounds of “national security.”