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Kazamidori column: Illusion of “Japan Inc. semiconductor”

  • August 1, 2021
  • , Nikkei , p. 4
  • JMH Translation

By Osamu Satow

 

The policy on semiconductors has been of growing interest within the government and the Liberal Democratic Party over the past six months. Back in 1988, Japan controlled a 50% share of the global semiconductor market, but its share has shrunk to a meager 10%. Some people are calling for investing some trillion yen from state coffers to resuscitate “Japan Inc. semiconductor.” As politics, government and industry are joining hands in promoting this, it seems feasible that the industry may be able to regain its luster, but it could also end up being only an illusion.

 

“I’ve already heard about semiconductors from U.S. President Biden,” Prime Minister Suga Yoshihide told members of an LDP parliamentary league on the semiconductor industry on June 3, who were at the Prime Minister’s Office [Kantei] to present a proposal calling for strengthening the nation’s semiconductor sector.

 

The cost was of concern. PM Suga asked, “How much will it cost?” One member answered: “To build a factory will require 1.5 trillion yen.”

 

Up till last year, the topic had hardly been discussed. Things have changed throughout the world since the new U.S. administration led by President Joe Biden came into office in January.

 

In February, President Biden signed an executive order to strengthen semiconductor supply chains and mapped out strategies to ramp up production and secure semiconductors by working closely with countries that share common values. 

 

In principle, politics supporting a specific industry on a grand scale are not welcomed in the free trade framework. But now that the U.S. has made clear that it will bolster the semiconductor industry as it is raising vigilance against China and finds it necessary to shore up economic security, this rule has changed. Countries across the world are plowing huge amounts of money into the sector.

 

Japan began to move in spring. In April, the joint statement released after the Japan-U.S. summit meeting said that the two countries will “partner on sensitive supply chains, including semiconductors.” In May, the LDP launched the parliamentary league, proposed by LDP members who had read the text.

 

In May, the Japan Electronics and Information Technology Industries Association (JEITA) also presented to the Ministry of Economy, Trade and Industry (METI) a proposal seeking government support out of concern that the “Japanese semiconductor industry may fade in about ten years if no action is taken.” The following month, the ministry published an 80-page plus report that encompasses semiconductor strategies.

 

In Japan, politics, government and industry are scrambling together not to miss the bus that President Biden drives [in promoting the semiconductor industry]. The move may look similar to a “Japan Inc.” initiative in the past, but in fact it is not.

 

Inside the LDP parliamentary league, senior members are warning that “this is not something like a ‘Japan Inc. semiconductor’ initiative pursued in the past. This time we are building semiconductor supply chains.”

 

What is the difference? The ‘Japan Inc. semiconductor’ initiative in the past was led by politics, which supported the industry through a convoy system, and all parties involved benefited. On the other hand, the “supply chain semiconductor” initiative promotes the horizontal division of labor among companies selected from the fields of semiconductor materials, manufacturing equipment, design and production. No one says so explicitly, but this is a top-dog alliance. Companies that can not join this alliance might have no choice but to be swept up by industrial consolidation.

 

Japan has an international edge in semiconductor materials, manufacturing equipment and sensors.

 

But on microfabrication, TSMC commands the international market, followed by South Korea’s Samsung and U.S. Intel. Japanese firms are not even in the running. 

 

The semiconductor strategies drawn by METI also mention “concern about the industrial hollowing-out” in the manufacturing equipment and semiconductor material sectors. If competitive Japanese firms get more involved in the global division of labor, they may shift their operations closer to rivals’ production bases located in the U.S. and Taiwan. 

 

In June, Chief Cabinet Secretary Kato Katsunobu told senior members of the LDP parliamentary league: “Back in the 1980s and 90s, Japan locked horns with the U.S. in the semiconductor sector. You should keep in mind that we cannot afford to repeat the same failure.”

 

Kato witnessed the Japan-U.S. semiconductor friction as a Ministry of Finance official, seeing at firsthand Japan’s semiconductor industry lose its shine because of politics. Even today, across the world, whether the industry can thrive or not depends on financial support extended by governments. Politics affects the fate of the industry.

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