Japan's Chip Subsidies Spark Controversy Over Funding Source

The Japanese government's substantial financial support for the development of advanced chips by Rapidus, a key player in Tokyo's ambitions to revive domestic semiconductor production, is facing criticism from opposition lawmakers, who allege budgetary "misappropriation" and a lack of transparency.

According to a report by Nikkei Asia, the controversy centers on the funding source for the ¥10 trillion ($63.6 billion) seven-year aid package announced in November, with the first ¥1.3 trillion allocated in the supplementary budget enacted earlier this month. Prime Minister Shigeru Ishiba, seeking to avoid issuing deficit-covering bonds, stated that the funds would be drawn primarily from unspent COVID-19 relief money.

However, opposition lawmaker Satoshi Honjo, citing Finance Ministry data, revealed that ¥986.6 billion of the ¥1.3 trillion came from funds originally intended for small and medium-sized businesses during the pandemic. These funds were initially financed through deficit-covering bonds, leading Honjo to accuse the government of misappropriation.

"This is nothing more than misappropriation," Honjo said in a budget committee meeting.

Ishiba defended the budgeting, claiming that the unused COVID relief funds had been returned to the national treasury.

Kazumasa Oguro, a professor of economics at Hosei University, while acknowledging the government's adherence to "fiscal democratic principles," warned about the high-risk nature of the semiconductor industry and the potential for companies receiving government support to fall short of earnings targets.

The government is planning to implement mechanisms for periodic reviews by third-party experts to assess the progress of chip projects and determine the continued need for support.

Rapidus, established in 2022 with private investment from eight companies, including Toyota Motor and Sony Group, requires significant additional funding for mass production. The government has pledged ¥920 billion in aid, with an additional ¥4 trillion needed to initiate mass production.

The government plans to provide support through various means, including investments and loan guarantees.

"We need to be careful about the ratio [of government investment] compared to the private sector, as this could affect the customer acquisitions, including overseas," warned a senior official in the Ministry of Economy, Trade and Industry.

The controversy highlights concerns about the transparency and accountability of special funds established under government ministries, which allow for flexible spending over multiple budget years but are often criticized for lacking sufficient oversight and potentially leading to wasteful expenditures. At the end of fiscal 2023, ¥18 trillion remained in such funds, representing an eightfold increase since the start of the COVID-19 pandemic.