Taiwan Semiconductor Manufacturing Company (TSMC) has announced it will build a new factory in Kumamoto Prefecture. TSMC is the world’s No. 1 semiconductor maker capable of mass-producing advanced chips. Japan is quite behind in the development of logic semiconductor chips and so is looking to regain ground by leveraging TSMC’s new facility here. The government must provide the public with a thorough explanation of the huge amount of financial support it will extend to the Taiwanese firm using taxpayer money.
In Japan, semiconductors used to be called the “rice of industry.” Now they are called the “brain of industry.” Logic semiconductor chips, which enable high-speed computing, are indispensable for artificial intelligence and 6G next-generation communications technologies to perform at full capacity. Demand for more sophisticated semiconductor will also grow within the automobile sector, a key industry in Japan, as autonomous vehicles become popular.
TSMC’s entry into the Japanese market is of great significance from the economic security perspective and from the standpoint of the global shortage of semiconductor chips. This may become the last chance for Japan’s declining semiconductor industry to regain its former glory.
One issue that may become controversial is the huge subsidy that TSMC will receive from the Japanese government. It is unusual to award hundreds of billions of yen sourced from taxpayer money to a foreign enterprise. The government must provide the public with a thorough explanation.
First, the government needs to explain the international context. It is not only China that is working to ramp up public-private partnerships in the development of semiconductor. The U.S. and Europe also allocate huge amounts of public funds to foreign manufacturers to have them build factories in their countries. Setting aside the question of whether this is right or wrong, the fact is that Japan will not be able to join the global race to be selected as a production site if the government is not involved.
The government also needs to explain the “returns” that extending a subsidy to TSMC will bring. The construction of the Kumamoto factory will not only create jobs and increase tax revenues in Japan. It will strengthen the competitiveness of Japan’s peripheral industries and help develop human resources and disseminate advanced technologies. Having a reliable production site in Japan will create a sense of security even in the event of an emergency.
The Ministry of Economy, Trade and Industry (METI), which has taken the initiative in this TSMC project, should convert the tangible and intangible benefits the project offers into quantitative terms and estimate what economic benefits and burdens the disbursement of funds to TSMC will have on the people of Japan.
Whether TSMC will keep investing in Japan will need to be closely watched. The company has decided to build its first factory in Japan because of the Japanese government’s subsidy. If the Japanese environment proves to be business-friendly, the company will build another factory and manufacture more advanced chips. On the other hand, if TSMC does not make an additional investment, this will mean that Japan is not an attractive production site compared to other countries.
Moves are underway within the government to promote public subsidy projects to other industries and businesses with fewer restrictions, but such projects should not be allowed. Reckless support to businesses will distort market competition and end up wasting taxpayer money.