Japan leads U.S., Germany in chip subsidies as share of GDP: Nikkei

Japan is prioritizing investment in its semiconductor sector compared to the U.S. and other major Western nations, as revealed by data presented at a crucial government panel, according to Nikkei's report on Wednesday.

In Tuesday's meeting of a subcommittee of Japan's Fiscal System Council, an advisory panel to the Ministry of Finance, data was released indicating that Japan's allocation of 3.9 trillion yen (about $25.5 billion) over three years equals 0.71 percent of its gross domestic product (GDP).

In comparison, the U.S. is investing more in terms of value, with an equivalent of 7.1 trillion yen over five years, yet its share of GDP falls short – at 0.21 percent, amounting to less than a third of Japan's investment proportion. France is spending the equivalent of 700 billion yen over five years, or 0.2 percent of its GDP, and Germany's support is the equivalent of 2.5 trillion yen, or 0.41 percent, according to the new data.

The U.S. Department of Commerce announced on Monday up to $6.6 billion in proposed direct funding for Taiwan Semiconductor Manufacturing Company Limited (TSMC). In Japan, the Finance Ministry is concerned about a lack of funding sources for much of the support. TSMC is receiving about 1.2 trillion yen, while state-backed chipmaker Rapidus receives roughly 900 billion yen as it works toward domestic production of cutting-edge chips, Nikkei reported.

However, an important source of subsidies is GX bonds – GX being an acronym for "green transformation" –  which the government has begun issuing for the green transformation of the economy in order to realize net-zero greenhouse gas emissions by 2050. The GX bonds are expected to raise about 20 trillion yen over a decade, to be repaid with carbon-pricing revenues. Projects tied to this are in the funded portion of the semiconductor-sector spending. In this case, not much more than 500 billion yen of Japan's semiconductor-sector spending so far is backed by actual funding, the report noted.

In the U.S., "pay as you go" rules require funding for certain new spending. For example, the Inflation Reduction Act provides $437 billion over 10 years, chiefly for climate change response, with funding from such sources as increased tax revenue from large corporations, Nikkei reported.

Japan's 3.9 trillion yen for the semiconductors is via supplementary budgets, which can lead to ballooning spending. A supplementary budget can be approved faster than an initial budget for a fiscal year. The Finance Ministry closely scrutinizes the need for proposed spending in the initial budget, but there is less time to do so for supplementary budgets, reported Japanese media.

Western countries typically publicize in advance the scale of semiconductor-industry subsidies and the timelines. That way, businesses can better forecast investments. This month, nongovernment experts on the Japanese government's Council on Economic and Fiscal Policy have called for long-term planning for multiyear investments, along with funding sources.

Japan should draw up medium- to long-term strategies, including fiscal resources, to "increase predictability" for the private sector, according to the handout for the Fiscal System Council subcommittee meeting.

Japan Post Holdings President and CEO Hiroya Masuda, who chaired Tuesday's meeting, told reporters that the view was aired that Japan should make a "substantial commitment" to the critical semiconductor sector. "It's a common understanding among council members that the benefits of the fiscal spending will be rigorously verified," Masuda said.

'Discriminatory' chip subsidies

Japanese Prime Minister Fumio Kishida said on Tuesday he saw opportunities for more collaboration with the U.S. in next-generation computer chips. U.S. tech giant Microsoft said on Tuesday it would invest $2.9 billion over two years to expand its cloud and AI infrastructure in Japan, its largest investment in the 46 years it has operated in the Asian country, Nikkei reported.

Speaking at a roundtable on critical and emerging technologies hosted by the U.S. Chamber of Commerce in Washington on Tuesday, Kishida referred to chip foundry venture Rapidus. "In the semiconductor field, Rapidus is partnering with a U.S. company in research and development of next-generation chips," Kishida said. "There will surely be more such opportunities for collaboration between Japan and the United States."

Rapidus is targeting mass production of cutting-edge chips on Japan's northern island of Hokkaido from 2027 in partnership with IBM and Belgium-based research organization Imec. Japan's industry ministry said this month it had approved subsidies worth up to 590 billion yen for the chip foundry venture as Tokyo pushes forward with plans to rebuild the country's chip manufacturing base.

The U.S. has been providing huge subsidies and tax incentives to its domestic chip sector, and some measures have been forcing companies to abandon China and choose the U.S., which is discriminatory and has violated market laws and international trade rules, distorting the global semiconductor industry chain, China's Ministry of Commerce spokesperson He Yadong said last month.

He said the semiconductor sector is highly globalized after decades of development and that this is the combined effect of the resource endowment of different countries and market laws. China is committed to promoting high-level opening up and welcomes global semiconductor firms to invest in China and boost the healthy development of the global semiconductor industry chain, He added.

In response to the U.S. Department of Commerce considering adding several Chinese chip companies related to Huawei to the sanctions list, He said China has always opposed politicizing and weaponizing economic, trade and technological issues, but in recent years, the U.S. has abused export controls, unjustly sanctioned and suppressed Chinese enterprises and seriously disrupted the global industrial and supply chains.

China considers the U.S. imposing sanctions on more Chinese companies and suppressing Huawei to be typical economic bullying, which violates international economic and trade rules and damages the global economic and trade order, He said.

While urging the U.S. not to adopt wrong practices, the spokesperson said China will take necessary measures to safeguard the legitimate rights and interests of its enterprises.