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Japan should offer tax breaks in the next fiscal year and spur ¥10 trillion ($88 billion) in investment over the next decade to revive domestic chipmaking, the top adviser on a government semiconductor panel has said.

Roughly $7 billion in supplementary spending approved by the government this week should be just the start of its efforts to reverse decades of decline in the industry, said Tetsuro Higashi, the former chief of Tokyo Electron Ltd. and leading chip expert advising Prime Minister Fumio Kishida’s administration.

Tetsuro Higashi | BLOOMBERG
Tetsuro Higashi | BLOOMBERG

“I expect this level of funding to continue at least for the next few years,” Higashi said in an interview Monday. “Without initial investment from the government, we won’t be able to reach a point where private companies will put in the money. The government will have to play a central role until things are established.”

Higashi called for a combined ¥10 trillion of investment over a decade from the government and the private sector, echoing a target suggested a week earlier by Akira Amari, a senior member of the ruling Liberal Democratic Party.

Kishida has reportedly said more than ¥1.4 trillion of public-private investment will be made available for domestic semiconductor production.

Chip shortages that have disrupted global manufacturing during the pandemic have prompted nations to shore up domestic production and supply.

The U.S. is committing $52 billion to the task and attracting leading chipmakers Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. to set up new facilities within its borders.

China has made semiconductor sovereignty a key pillar of its development goals. And TSMC and Samsung have set the pace of investment high by devoting hundreds of billions of dollars to improving and expanding their capabilities over the next few years.

After years of underinvestment and losing market share to regional rivals, Japan made reviving its chip industry a national project this year, aiming to boost the annual revenue of domestic semiconductor companies roughly three times, to ¥13 trillion, by 2030.

Marking a change from its previous practice of relying on domestic companies alone, Japan has pledged to cover half the cost of building TSMC’s recently announced $7 billion fabrication facility in western Japan. Collaboration with the Apple Inc. chipmaker is seen as essential for revving up Japan’s chipmaking capacity in the next several years, Amari has said.

The next step for Japan is to make extra funding for chipmaking part of its regular budget rather than a one-off event, said Higashi. “People won’t take the government seriously” until they see a substantial long-term commitment to the project, he said.

Exempting research and development costs from corporate income tax and cutting water and utility costs for chipmakers would also be worth consideration, according to Higashi.

It will take a decade or so for Japan to reach the front line of modern chipmaking — a goal that will dictate the fate of many aspects of its economy, from automated driving to health care, Higashi said. Within that timespan, he wants to see mass production of 2- and 3-nanometer chips in Japan.

“Unless Japan secures its industrial foundation, we will have to rely on others for chip intellectual property and they will take away all added value,” he said. “Various industries need to be mindful of that possibility.”

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