Japan sees peril in U.S. chip hub to counter China

SumCo

17/08/2021 23:00

* Japan fears China, U.S. will dominate global chip making
    * Future of its industry a national security issue
    * Hopes to create Asian data centre hub to spur demand
    * Rivals backing industry with tens of billions of dollars 

    By Tim Kelly
    TOKYO, Aug 18 (Reuters) - Japan is worried that U.S. plans
to pour billions of dollars into chip manufacturing to fend off
China could finish off what's left of a Japanese semiconductor
industry that once dominated the world.
    After "three lost decades", according to Japan's industry
ministry, the country's share of global chip manufacturing has
fallen from a half to a tenth as it leaked customers to cheaper
rivals and failed to maintain a lead in cutting edge production.
    As China and the United States, driven by a trade war and
security concerns, ramp up support for the manufacturing of
chips that run everything from smartphones to missiles,
officials worry Japan will be squeezed out altogether. 
    "We can't just continue what we have been doing, we have to
do something on a completely different level," former Prime
Minister Shinzo Abe told fellow ruling LDP party members in May
at a first party meeting to discuss how the country can be a
leading digital economy. 
    Illustrating Japan's fear of being left out of a new
technology world order, documents distributed by the Ministry of
Economy Trade and Industry earlier this year showed a thick red
dotted line over a bar graph pointing to the possibility of a
zero chip industry share by 2030.
    A major concern is the future of the country's still
world-leading firms that supply chipmakers with items such as
silicon wafers, chemical films and production machinery.
    Officials fear that by luring Asian chip foundry giants such
as Taiwan's Semiconductor Manufacturing Co Ltd  2330.TW  (TSMC)
to its soil, the United States could tempt these firms to
follow.
    "It's possible for companies to build in Japan and export,
but the closer you can be as a supplier the better, it's easier
to exchange information," said Kazumi Nishikawa, director of the
IT industry at METI. 
    While the shift may not come immediately, "it could happen
over the long term," he said.
    The companies Nishikawa worries about include wafer makers
Shin-Etsu Chemical  4063.T  and Sumco Corp  3436.T  photoresist
supplier JSR Corp  4185.T  and production machinery builders
Screen Holdings  7735.T  and Tokyo Electron  8035.T .
    "We are always prepared to respond to policy changes in each
country," said a spokesperson for JSR, which makes light
sensitive photoresist coatings used for engraving chips in
Japan, Belgium and the United States.
    When asked by Reuters, none of the companies said they
currently plan to shift production to the United States.
    
    TECH WAR
    To retain them, Japan needs chip foundries that will buy
their wafers, machinery and chemicals, and will also ensure 
stable supplies of semiconductors for the country's car
companies and electronic device makers.
    TSMC, which is looking to expand overseas amid concern about
the potential vulnerability of its Taiwan operations to mainland
China's territorial ambitions, has established a research and
development centre near Tokyo. It is also reviewing a plan to
build a fabrication plant in Japan.
    However, its biggest foreign venture by far is a $12 billion
plant it is constructing in Arizona in the United States.    
    In a bid to keep up in the technology race, Prime Minister
Yoshihide Suga's government in June approved a strategy devised
by Nishikawa's team at METI to ensure Japan has enough chips to
compete in technologies that will drive future economic growth,
including artificial intelligence, high-speed 5G connectivity
and self driving vehicles.
    One initiative is to turn Japan into an Asian data centre
hub. Such hubs generate huge demand for semiconductors, which in
turn will lure chipmakers to build plants nearby. 
    
    SPENDING SUPPORT
    The success of its industrial policy, however, will depend
on money.
    So far the country has allocated 500 billion yen ($4.5
billion) to reinforce technology supply chains to help companies
grapple with shortages of chips and other components during the
coronavirus pandemic, and to promote a shift to 5G. 
    That's only a fraction of spending proposed by other
countries.      
    "At the current level of support, it's tough for Japan's
semiconductor industry, and we want government incentives that
are comparable with elsewhere in the world," The Japan
Electronics and Information Technology Industries Association
(JEITA) said in an email. 
    The U.S. Senate has approved a bill authorizing $190 billion
of public money for new technology, including $54 billion on
chips, while the European Union plans to spend 135 billion euros
($159 billion) on nurturing its own digital economy. 
    To equal this spending, Japan would have to earmark large
sums of public money that the greying nation might otherwise
spend on health and welfare. METI has yet to say how much it
believes it needs.
    "Given Japan's financial situation it will be difficult to
match" the United States, the EU and China, former economic
revitalization minister, Akira Amari and leader of the LDP group
looking to "make Japan number one again," told Reuters. 
    
($1 = 0.8485 euros)

($1 = 110.3400 yen)

 (Reporting by Tim Kelly; additional reporting by Takashi
Umekawa and Ben Blanchard; editing by Richard Pullin)
 ((tim.kelly@thomsonreuters.com; +813-6441-1311;))