[The Trap of Subsidies] "Do We Really Have to Co-Sign?" Japan Government's Tense Standoff Over Semiconductor Support

Subtle Conflict Between Japan's Ministry of Economy, Trade and Industry and Ministry of Finance
Clash Over 'Government Guarantee' Required for Rapidus Loans
Unified Voice in Leading Government's Semiconductor Revival

The Japanese government, aiming to revive the semiconductor industry, has reportedly struggled with subtle conflicts and a game of one-upmanship between ministries while pushing for large-scale semiconductor support measures. In a situation where major countries such as the United States, South Korea, Taiwan, and Europe are rushing to pour in massive investments and support measures, Japan's Ministry of Economy, Trade and Industry (METI), which leads semiconductor policy, and the Ministry of Finance (MOF), responsible for the budget, engaged in a tense tug-of-war over the scale and method of support.

[Image source=AFP Yonhap News]

According to the Nihon Keizai Shimbun on the 5th, METI announced in May that it is considering a government guarantee scheme when Rapidus, a domestic startup semiconductor company, receives loans to support its financing. Earlier, the Japanese government had supported Rapidus with 70 billion yen (about 60 billion KRW) in development costs at its founding in 2022, and later decided to provide a total of 920 billion yen in funding solely to Rapidus for reasons including the localization of cutting-edge semiconductors.

Rapidus was established by eight leading Japanese companies, including Toyota, Kioxia, Sony, NTT, and SoftBank, to localize advanced semiconductors. A total of 5 trillion yen is to be invested in semiconductor mass production, but the capital contributions from the eight companies amount to only 7.3 billion yen. From the Japanese government's perspective, which dreams of producing cutting-edge 2 nm (nm: nanometer = one billionth of a meter) semiconductors by 2027 with technology licensed from IBM in the United States, the funds are grossly insufficient, and it expressed its intention to back this financially.

In May, Japan's Minister of Economy, Trade and Industry, Saito Gen, personally visited the Rapidus factory construction site and stated, "This has great significance that will influence the future of the Japanese economy," showing how METI has been heavily involved in funding from Rapidus's establishment to the construction of production facilities, striving for the semiconductor industry's recovery.

However, the Ministry of Finance opposed METI's support.

They questioned whether a government guarantee was necessary for loans when 920 billion yen in government support had already been decided. At financial review meetings, criticism was raised that Japan's semiconductor industry support scale relative to its gross domestic product (GDP) is excessively large compared to the United States or Germany. The MOF expressed concerns, saying, "We need to consider what problems might arise if the loans become unrecoverable."

In response, METI reportedly countered, "The United States not only provides subsidies but also offers substantial tax credits." Since there have been no official announcements or reports from the Japanese government on this matter yet, it appears that this debate has not been concluded. Nihon Keizai Shimbun conveyed the atmosphere, saying, "The traditional rivals, METI and MOF, have not reached a decision and are in an overtime battle."

Conflicts over semiconductor support between METI and MOF reportedly occurred elsewhere as well. This happened during the process of establishing the "Basic Policy on Economic and Fiscal Management and Reform," which serves as the standard for Japan's fiscal management and budget formulation. The draft included METI's desired content related to the semiconductor industry, such as "maintenance of domestic production bases and human resource development," but the final version omitted "human resource development," adjusted according to MOF's wishes. Additionally, MOF's desired phrases such as "securing necessary resources while providing support" and "considering diversification of support methods" were reportedly added.

However, even though METI and MOF are in conflict, Nihon Keizai Shimbun reported that MOF does not oppose legal reforms beyond subsidies in line with the government's goal of semiconductor industry revival. The basic policy retained METI's desired content to "consider necessary legislative measures for next-generation semiconductor mass production," and MOF did not express a negative stance on the government taking a leading role in industrial policy.

Opinions among experts are also divided regarding the Japanese government's large-scale semiconductor support measures.

Keiichiro Kobayashi, a professor at Keio University, said, "In the past, it was rare to provide large-scale support through industrial policy, but now support for public-interest fields such as semiconductors is increasing worldwide. Although government guarantees carry risks, they can be implemented if a proper system is established." On the other hand, Takahide Kiuchi, Executive Economist at Nomura Research Institute's Financial IT Innovation Business Division, expressed concern, saying, "If semiconductor companies rely complacently on government guarantees, their motivation to ensure business success may decline, increasing the likelihood of failure."