The construction site of the Rapidus chip factory in Chitose, in the northern prefecture of Hokkaido. — ©2024 The New York Times Company
CHINA’s envy-inducing success in using industrial policy to expand its economy and finance green manufacturing has helped kick off a fevered scrimmage among nations to develop and protect their own hometown businesses.
It has been 40 years since such competitive anxieties about a rising Asian power prompted this kind of embrace of government intervention among the biggest free-market economies.
Only then it was Japan, not China, that was the source of unease.
Michael Crichton’s 1992 thriller, Rising Sun, with its dark depiction of Japan’s ruthless economic warriors, ruled the best-seller lists, alongside non-fiction titles that warned of the financial and technology juggernaut created by Japan’s powerful government trade ministry.
In a 1990 survey, nearly two-thirds of Americans said Japanese investment in the United States posed a threat to American economic independence.
It turned out that the anxiety about Japan Inc peaked just as the country began a long economic slide after the collapse of real estate and stock market bubbles.
Now, after a period of stagnation that Japan’s economy ministry refers to as “the lost three decades”, Tokyo is engaged in a multi-billion-dollar industrial policy to jumpstart the lacklustre economy and recapture its position as a tech innovator.
This time, Japan is working with technology leaders in the US and other countries – a collaborative approach that decades earlier would have been unthinkable.
But even as Tokyo is pursuing less inward-looking policies, the political storm over a Japanese-led acquisition of US Steel illustrates how the US is increasingly moving to protect other key industries from foreign influence.
Tokyo’s industrial policy focus today is on advanced forms of technologies ranging from batteries to solar panels.
But the priority is reclaiming a bigger share of the global semiconductor industry, for which the Japanese government earmarked more than US$27bil over the past three years.
“In the future, the world will be divided into two groups: those that can supply semiconductors and those that only receive them,” said Akira Amari, a senior official in Japan’s ruling party who previously led the Economy, Trade and Industry Ministry.
“Those are the winners and the losers.”
Based on lessons learnt over the past few decades, Japan is trying out a new playbook when it comes to chips.
Amari said: “Now, we are collaborating with international partners from the very start.”
Although other nations are spending hundreds of billions of dollars to gain an edge, Japan’s efforts stand out because of its history of using industrial policy to develop quickly after World War II.
“It doesn’t have to start from scratch,” said Alessio Terzi, an economist at the European Commission.
“This is already something that sets it apart from other countries.”
The centrepiece of Japan’s new industrial push is taking shape at a year-old construction site on Hokkaido, its northernmost island.
The area is better known for champagne powder skiing in winter, lush carpets of flowers in summer and volcanic hot springs.
Across open pastures and not far from the Chitose airport is the rough outline of Rapidus Corp’s new semiconductor plant, still surrounded by a sprawling exoskeleton of silver scaffolding.
The factory, financed in part by billions of dollars of government money, is being developed by an unusual collaboration between Rapidus, a startup Japanese chipmaker, and American tech company IBM.
It will produce the so-called two-nanometre chips, a technology that IBM pioneered at its lab in Albany, New York.
The idea for the partnership was conceived in the summer of 2020 with a phone call to Tetsuro Higashi, chair of Rapidus, from a friend, John Kelly III, a longtime executive at IBM.
“I thought he was maybe just calling to catch up,” said Higashi, 75.
He wasn’t. Kelly explained that IBM was developing a new generation of chips and wanted to produce them in Japan.
Higashi soon determined that no company in Japan was capable of mass-producing this kind of advanced logic chip.
In his eyes, he said, it was a now-or-never moment.
“I knew if I refused IBM’s call at this point, there would be nothing going forward,” Higashi said.
Japan, once the world’s premier semiconductor manufacturer, had seen its market share fall from more than half in the 1980s to less than 10%.
Without action, Higashi said, “Japan would just fall further and further behind in our technologies.”
Higashi’s next move was to reach out to Amari, the government’s point person on industrial policy.
It was a good time to ask the Japanese government for help in building a factory.
Pandemic-related shortages of everything from computer chips to chilli sauce and then skyrocketing energy costs stemming from Russia’s invasion of Ukraine had refocused attention in Tokyo and capitals around the world on the importance of resilient and secure supply chains.
Rapidus will receive technology from IBM for its high-performance semiconductors and has dispatched hundreds of engineers to the IBM research facility in Albany to help develop technologies for mass-producing the chips.
The government is backing both big gambles like Rapidus and smaller ones.
Japan wooed Taiwan Semiconductor Manufacturing Co, the chipmaking behemoth, to build a plant in the southern town of Kikuyo with investment from domestic players including Sony.
The factory, financed in part by the government, opened in February.
“Without government intervention, the numerous projects currently under way in Japan would likely not have materialised,” a conference at the Brookings Institution’s Centre for Asia Policy Studies noted in its wrap-up this spring.
There are sceptics in Japan. The Rapidus plant has drawn criticism over its ambitious timeline and its inability to attract more private-sector investment.
But Amari argues there is no alternative.
“Not taking on semiconductors now means you will be in the loser group from the start,” he said.
“Japan will never choose that.” — ©2024 The New York Times Company
