China's 7.4 Trillion Yen Semiconductor Fund: A Crisis and Opportunity for Japan - The Future of Japanese Companies?

In late May, China injected approximately 7.4 trillion yen into its national strategic funds. The goal appears to be developing cutting-edge semiconductor chip production technology. Recalling the shockwaves sent across the globe in the summer of 2023 when Huawei, a Chinese company, unveiled its new smartphone, the "Mate 60 Pro," equipped with a 7-nanometer process chip, it's clear that the US Biden administration's sanctions against China haven't yielded the anticipated results. Huawei is scheduled to release another new smartphone in the fall of 2024. Furthermore, the Chinese government has instructed automakers to use 25% domestically produced chips in their vehicles. Amidst this intense rivalry between the US and China, what stance should Japanese companies take?

Huawei's new smartphone is slated for release this fall as well. The US and China are engaged in a fierce competition in the semiconductor sector. In the midst of the US-China power struggle, the US has been tightening its encirclement of China to curb the growth of its semiconductor industry. In response, China has been employing all available means to break through this encirclement and foster its semiconductor industry. The US-China semiconductor war is becoming more intense than ever in advanced fields.

In January 2017, the White House released a report on the semiconductor industry. The report stated that "China aims to lead the world in the semiconductor field" and that "the growth of the Chinese semiconductor industry poses a security threat to the US." Since then, the US has intensified its policies to curb the growth of the Chinese semiconductor industry, both in hardware and software.

Conversely, China has been rapidly expanding its industrial policies in the semiconductor field in response to the US's tightening encirclement. China has strengthened its subsidy policies and accelerated efforts towards domesticating its semiconductor supply chain. Research and development related to "chiplet production," which involves combining multiple chips to enhance performance, is also progressing rapidly.

Amidst the intensifying US-China conflict, global semiconductor companies are increasingly prioritizing direct investment in Japan. Crucially, a concentration of companies supplying semiconductor components, manufacturing equipment, and other related items to Japan exists. This growing emphasis on Japan within the global semiconductor industry will be a vital factor in restoring Japan's economic competitiveness in the long term.

The Japanese government has recently been bolstering its support for nurturing and developing Japan's semiconductor industry. On August 29, 2023, Minister of Economy, Trade and Industry Nishimura, during a post-Cabinet press conference, stated that to enhance Japan's semiconductor industry competitiveness, the government would strengthen the foundation of semiconductor production technologies through expanded investment in Rapidus and the expansion of AI supercomputers at the National Institute of Advanced Industrial Science and Technology (AIST/ABCI). The aim is to secure a global supply chain in next-generation semiconductor fields.

Furthermore, the Japanese government has expressed caution regarding China's semiconductor fund and emphasizes that Japanese companies must be wary of security risks when participating in China's semiconductor industry.

Japan boasts strong competitiveness in semiconductor materials, equipment, and manufacturing technologies, but it has been facing challenges due to China's recent rapid growth and the US's technological blockade. Japanese companies need to reduce their dependence on the Chinese market and maintain their competitiveness through technological development and investment.

With the escalating US-China power struggle, Japan finds itself caught in the middle in the semiconductor field, facing difficult choices. However, Japan can leverage its accumulated experience and expertise in semiconductor components, equipment, and manufacturing technologies to create new opportunities. Japanese companies must embrace innovation and collaboration to forge a new future amidst the competition between the US and China.