According to data from a consultative council of the Japanese government, subsidies provided to the semiconductor industry by the Japanese government over the past three years have totaled JPY3.9 trillion (US$25.7 billion), equivalent to 0.71% of GDP. This percentage is higher than recorded by the US, Germany, France, the United Kingdom, and other European and American countries.
Reports from various Japanese media outlets, including Nikkei, Jiji Press, and TBS, indicated that the Fiscal System Council, a consultative body of Japan's Ministry of Finance, deliberated on the subsidy policies of several countries for the semiconductor industry during a meeting held on April 9, 2024.
The JPY3.9 trillion of subsidies allocated to the semiconductor industry over the past three years include the most recent announcements, including JPY1.2 trillion for TSMC's two wafer fabs in Kumamoto Prefecture, as well as three subsidies totaling nearly JPY1 trillion for Rapidus, a new Japanese foundry focused on developing 2nm chip mass production technology
In terms of absolute figures, the US has provided approximately JPY7.1 trillion yen in subsidies to the semiconductor industry over the past five years, which is over 80% higher than Japan's contribution. However, when considering subsidies as a percentage of GDP, Japan's allocation stands at 0.71%, whereas the US's is only 0.21%. Other countries such as Germany, France, and the United Kingdom allocate 0.41%, 0.2%, and 0.04% respectively, all lower than Japan's percentage.
These statistics suggest that the Japanese government is more proactive than its European and American counterparts in subsidizing the semiconductor industry and bolstering a domestic chip supply chain to mitigate geopolitical conflict risks.
Green transformation bonds as a funding source
However, data from the aforementioned consultative meeting reveals that the Japanese government's subsidies lack specific sources of funding upon announcement. Out of the JPY3.9 trillion allocated, only slightly more than JPY 500 billion has identifiable funding sources, primarily stemming from the issuance of green transformation (GX) bonds.
The green transformation bonds aim to generate JPY20 trillion over a decade, with repayment sources including carbon taxes imposed on businesses. A portion of the semiconductor subsidies provided by the Japanese government originate from these bonds.
In contrast, European and American countries typically designate clear funding sources for new expenditure items. For instance, the US Inflation Reduction Act (IRA) plans to allocate US$437 billion over a decade, with specified funding sources such as taxes on large corporations.
During the Ministry of Finance's consultative meeting, several experts advocated for preliminary discussions on securing transparent funding sources, formulating a medium-to-long-term plan, and enhancing predictability to enable private companies to strategize effectively before subsidizing the semiconductor industry. They suggested moving away from relying solely on annual supplementary budget bills approved by the Diet, aiming instead to attract stable private capital investment in the semiconductor sector.
Other experts emphasized that semiconductor development should not hinge solely on government subsidies. They proposed adjusting the roles and risks shared between the government and the private sector to encourage proactive private-sector investment.
All the meeting participants unanimously agreed on assessing the effectiveness of the substantial semiconductor subsidies. Their perspectives will be integrated into the Basic Policy on Economic and Fiscal Management and Reform scheduled for June 2024.
