Controversy Surrounds Government Funding for Semiconductor Initiative

The decision to fund semiconductor projects with government money often sparks controversy due to the immense initial investments required and uncertain profitability. The case of Rapidus is no different. This company is seeking about $32 billion to establish a 2nm-capable semiconductor fabrication plant. Recent reports from Nikkei highlight debates among opposition lawmakers about the sources of this funding, particularly concerning the decision to allocate pandemic relief funds to this project.

In a recent announcement, the government unveiled a seven-year initiative aimed at injecting at least $63.6 billion into enhancing Japan’s semiconductor and AI industries. For the initial phase, approximately $8.2 billion has been earmarked, with a significant portion directed towards Rapidus. It has come to light through opposition lawmakers that nearly $6.2 billion of this funding was sourced from unused pandemic relief reserves originally intended to support small and medium enterprises. This reallocation has sparked criticism regarding the lack of transparency and potential for fiscal irresponsibility.

So far, Rapidus has accumulated $46.45 million in private sector investments and up to $5.855 billion in governmental support. However, an additional $25.452 billion will be needed to begin mass production by 2027. The government’s strategy involves a combination of direct investments and loan guarantees, attempting to balance public and private funding sources. Despite these plans, the government faces ongoing scrutiny from critics.

Prime Minister Shigeru Ishiba has defended the funding reallocation, asserting that the funds were properly returned to the treasury before their redistribution, thus adhering to legal and fiscal standards. Critics, however, point out that these funds originate from deficit-covering bonds, which increase the national debt without a solid repayment plan, particularly given the uncertain future of Rapidus.

Yet, if not through these means, how should such a critical strategic project be financed? This project is pivotal for reinstating advanced semiconductor manufacturing within Japan. Notably, the surplus in Japan’s relief funds has grown to $114.42 billion as of fiscal 2023, up from $12.71 billion pre-pandemic in 2019. The government has committed to regular evaluations by third parties to ensure that the funds for the Rapidus project are used efficiently and transparently.

Concerns are also echoed by officials from the Ministry of Economy, Trade, and Industry, who caution against excessive government involvement that might deter potential international clients for Rapidus. They suggest that visible government backing could raise doubts about the financial independence and stability of the venture.