Japan Semiconductor swears to surpass South Korea within 10 years

Source: Semiconductor Industry Observation

    According to a report by South Korea‘s East Asia Daily, the increasingly fierce competition in the semiconductor industry has led countries to introduce industrial policies one after another, while Japan has offered huge subsidies to attract domestic and foreign businesses to invest and establish factories. In contrast, South Korea‘s semiconductor industry policy lacks subsidies, and it is feared that Japan will surpass it in the next decade.

    Micron, a major memory chip manufacturer, has built a DRAM chip factory in Hiroshima, Japan, receiving a 39% government subsidy to increase its cost competitiveness by 5% to 7%.

    Due to the high cost of advanced semiconductor factory equipment and the relatively high labor and other costs in Japan among Asian countries, semiconductor companies often invest trillions of yen in setting up factories in Japan. In order to attract overseas businesses to set up factories in Japan, the Japanese government not only promotes that many domestic semiconductor upstream suppliers can meet supply chain needs, but also generously provides subsidies to reduce the burden on businesses and enhance the competitiveness of products produced in Japan.

    Taking Micron as an example, the company currently ranks third in the global DRAM chip market, but with the strong support of the Japanese government, there is an opportunity to narrow the market share gap with Samsung Electronics and SK Hynix in the future.

    TSMC has also chosen to establish a factory in Kumamoto in recent years, under the active persuasion of the Japanese government. The Japanese Ministry of Economy, Trade and Industry announced in June last year that TSMC, Sony, and Denso‘s joint investment in Kumamoto One Factory could receive up to 476 billion yen (approximately 3.34 billion US dollars) in subsidies, equivalent to half of the construction cost.

    Gan Liming, President of the Japan Semiconductor Strategy Promotion Alliance, previously stated that the Japanese government will provide one-third of the construction cost subsidy to TSMC Kumamoto II. However, the nearly 2 trillion yen semiconductor subsidy plan passed by the Japanese cabinet in November this year has decided to provide a subsidy of 900 billion yen to TSMC Kumamoto II, accounting for more than one-third.

    The above-mentioned semiconductor subsidy plan not only benefits overseas businesses, but also provides a subsidy of 590 billion yen to Japanese chip manufacturer Rapidus, implementing the Japanese government‘s dual pronged strategy of attracting domestic and foreign semiconductor industry investors to invest in Japan.

    Kim Jeong ho, a professor at the Department of Electrical and Electronics Engineering at the Korean Academy of Science and Technology (KAIST), said that "Japan‘s increased cost competitiveness is expected to turn the tide." Although the South Korean Congress expanded tax incentives for semiconductor plant investment plans in the chip bill passed in March this year, it did not provide cash subsidies, causing industry insiders to worry that the South Korean semiconductor industry is gradually being surpassed by Japan.

    On November 10th, the Japanese Cabinet approved an additional budget plan of 13.20 trillion yen for the 2023 fiscal year (April 2023 to March 2024), of which approximately 2 trillion yen (13 billion US dollars) will be used to support the chip industry. Part of the funds will be used to subsidize Taiwanese chip manufacturer TSMC and Japanese startup Rapidus, which aims to develop the next generation of microchips.

    Japan is a major supplier of chip manufacturing tools and materials, but has lost its advantage in chip manufacturing in recent decades. The shortage of parts caused by the COVID-19 pandemic has affected Japanese car manufacturers and other manufacturers, sounding the alarm of national security risks, which has prompted Japan to seek to establish a stronger supply chain.

    At the same time, like major economies in Europe and America, Japan is seeking to de risk its relationship with China and strengthen the resilience of its supply chain while its relationship with the Communist Party is tense. To achieve this goal, the Japanese government seeks to provide subsidies to chip manufacturers to establish production capacity and revitalize Japan‘s advantage in this field.

    The chip industry funding is part of the additional budget of 13.20 trillion yen ($87 billion) approved by the Japanese Cabinet on Friday for the 2023 fiscal year. This additional budget provides funding for a new economic plan aimed at alleviating the burden of rising prices on Japanese households. Approximately 2.74 trillion yen will be used to alleviate inflation, such as extending existing subsidies until next spring to reduce gasoline and other fuel costs.

    The government will invest 1.33 trillion yen to support salary increases for small and medium-sized enterprises, and 3.44 trillion yen to promote economic growth through investment in strategic areas such as artificial intelligence and semiconductors.

    The goal of the Fumio Kishida administration is to seek approval of this budget plan from Congress by the end of November.

    In order to provide funding for the additional budget, Japan will issue nearly 9 trillion yen (59.8 billion US dollars) in bonds.

    Given that Japan is a key country in the semiconductor supply chain, the European Union, seeking to reduce its dependence on China, is strengthening its chip cooperation with Japan. EU Industry Director Thierry? Thierry Breton stated in July this year that the European Union and Japan will jointly monitor the chip supply chain and promote exchanges between researchers and engineers. The EU will also support the intention of Japanese semiconductor companies to operate in EU countries.