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Mint
3 days ago
- Business
- Mint
China strong-armed Japan over rare earths. It's a lesson for the US.
TOKYO—The U.S. found out this year that China could use its chokehold on rare-earth minerals as a coercive tool when Beijing imposed export controls. For Japan, it was déjà vu: It had been the victim 15 years earlier. Tokyo vowed in 2010 to be ready for next time and over the years put hundreds of millions of dollars into Australian supplies. Yet as of last year, it was still relying on China for some 70% of its imports of rare earths, which are widely used in electronics, cars and weapons, according to the government-owned Japan Organization for Metals and Energy Security. When China restricted rare-earth exports in April, some of Japan's automakers again got hit. Japan's experience drives home lessons for the U.S., where the Pentagon recently agreed to take a stake in Las Vegas-based MP Materials so it can mine and refine rare earths on American soil. Tokyo found that partially reducing dependence still leaves Beijing with plenty of leverage. At the same time, complete independence costs billions of dollars, not millions. After the crisis passed and China resumed exports to Japan, the urgency to diversify supplies waned. That points to the danger of complacency in the U.S. After it was hit by Chinese rare-earth export controls earlier this year, the U.S. recently got Beijing to reopen the spigot as part of a trade deal. If costs don't matter, cutting reliance on China might be feasible, but businesses can't swallow high costs, said Kazuto Suzuki, a professor at the University of Tokyo's Graduate School of Public Policy. People in Japan 'understood that there was a vulnerability, but everyone still relied on China because the conclusion was that there weren't other options," Suzuki said. Four decades ago, a Japanese scientist named Masato Sagawa invented the most powerful type of permanent magnets containing a rare-earth element called neodymium. The breakthrough underlies the magnets widely used today. By early this century, it was China, not Japan, that had come to dominate supplies of the 17 rare-earth elements as well as the refining of the metals and manufacture of magnets containing them. In 2009, 85% of Japan's rare-earth imports came from China. Beijing realized it had a diplomatic tool and used it in 2010, when a Chinese trawler collided with Japanese patrol vessels near islands controlled by Japan and claimed by China. Japan detained the captain and crew, sparking a diplomatic clash. Japanese users of rare earths reported severe delivery disruptions, although Beijing denied doing anything. The captain was released under Chinese pressure, and tensions eased after a few months. But Japan sought alternative suppliers. 'We're going to pursue a variety of risk hedges," said Japan's foreign minister at the time. 'It isn't good to lean too much on one country." Tokyo's biggest initiative from that era was a deal with Australia's Lynas Rare Earths that, in hindsight, helped somewhat but didn't go nearly far enough or contribute quickly enough to undercut China's dominance. The government body now called the Japan Organization for Metals and Energy Security, or Jogmec, as well as trading company Sojitz provided Lynas a $225 million loan to secure rare earths for Japan. The Lynas project didn't help Japan with securing a subset of rare-earth elements known as heavy rare earths, which are generally less common than the light ones. The heavy elements include dysprosium and terbium, which are commonly used alongside neodymium, a light rare-earth element, in strong permanent magnets. The rare-earth elements tend to be intermingled. Miners are reluctant to invest in specialized equipment for processing the relatively small quantities of heavy rare earths that they extract alongside the light elements. Meanwhile, in the field of rare-earth magnets that Japan had once led, it actually deepened its dependence on China after the 2010 showdown. Japan's biggest companies formed partnerships with Chinese magnet makers in the 2010s, reasoning that they could protect themselves from political blackmail if they had friends in China with secure supplies. Among the deals was a joint venture formed in 2013 by Tokyo-based TDK with China's state-backed Rising Nonferrous Metals Share. The Japanese companies had production know-how that made them attractive partners at the time in China. Afterward, China's dominance grew. In 2013, Japan's share in the global neodymium-magnet market was at 23% while China held about three-quarters. By 2021, Japan's share fell to 15% while China's rose to about 84%, according to government figures based on data from research firm Fuji Keizai. It took more than a decade for Japan to do something about the gap in its policy. In 2023, the Japanese government body, Jogmec, and Sojitz invested an additional 200 million Australian dollars, equivalent to around $130 million today, in Lynas. The company recently started to produce dysprosium and terbium, up to 65% of which is headed to Japan under the deal. Separately, Jogmec and energy firm Iwatani said in March they would invest 110 million euros, equivalent to $129 million, in a subsidiary of France's Carester to support a project that could supply a fifth of Japan's demand for dysprosium and terbium. Japan now says it wants to beef up production of neodymium magnets, develop magnets using smaller amounts of rare earths and step up recycling.
Japan Forward
01-05-2025
- Business
- Japan Forward
Japan's Semiconductor Renaissance – Is it for Real?
Back in the 1980s, Japan produced more than 50 percent of the world's semiconductors. But today, Japanese semiconductors account for less than 10% of the global semiconductor market. What happened? And can Japan regain its semiconductor mojo? In an article recently published by the National Bureau of Asian Research (NBR) titled "The Japanese Semiconductor Renaissance – Will It Be Successful?" Kazuto Suzuki confidently asserts, "Japan is in the midst of a semiconductor renaissance." Evidence of that seems to be everywhere these days. Take, for example, the February 2024 start of operations at the first Japan Advanced Semiconductor Manufacturing (JASM) plant in Kumamoto and the start of trial production of 2-nanometer logic semiconductors at a new Rapidus Corporation foundry in Chitose City, Hokkaido, in April. Suzuki, a professor of Science and Technology Policy at the University of Tokyo's Graduate School of Public Policy and director of the Institute of Geoeconomics, offers a word of caution. He says Japan will need to learn from past mistakes and overcome significant challenges if it hopes to become a major semiconductor powerhouse again. Many observers point to the 1986 US-Japan Semiconductor Agreement as the prime reason for the rapid decline of Japan's semiconductor sector. That agreement came about because of accusations that Japan had engaged in unfair trade practices, which allegedly devastated United States competitors. There was no denying that in the postwar years, the Ministry of International Trade and Industry (MITI) had fostered Japan's semiconductor sector through various incentives. For example, starting in 1978, the MITI led the very-large-scale integration (VLSI) project. Working with major tech firms like NEC, Toshiba, Hitachi, and Fujitsu, Japan surged ahead in developing cutting-edge technologies, particularly dynamic random-access memory (DRAM) chips. By 1983, Japan had surpassed the US in terms of DRAM production, and Japanese companies were not stinting on investment to boost production yields and reduce costs. Indeed, the semiconductor agreement certainly drained much of Japan's momentum. Contributing further to the decline in the 1990s was something more internal: the very corporate culture that had once powered Japan to become the world's second-largest economy by 1968 had begun to hold it back. Toshimitsu Motegi, the former Minister of Economy, Trade and Industry (second from right), visits the planned site for Rapidus' factory in Chitose, Hokkaido, on June 18, 2023. (© Kyodo) Dr Suzuki points out that one of the biggest reasons Japan's semiconductor strategy failed was its attachment to the integrated device manufacturer (IDM) model. Under this vertical system, each of the country's giant electronics makers handled everything — from design to manufacturing and packaging — within its own keiretsu group. Manufacturing semiconductors is a capital-intensive business that requires huge investments on an ongoing basis. In the 1990s, independent, dedicated fabrication plants (fabs) emerged, including foundries that supplied semiconductor companies that designed but did not produce their own chips. In fact, the "fabless" model pioneered by Taiwan's TSMC (Taiwan Semiconductor Manufacturing Company), established by Morris Chang in 1987, revolutionized the semiconductor industry. (TSMC held a roughly 65% share of the global semiconductor foundry market in 2024.) This new model wreaked havoc on Japanese firms that stuck to the IDM approach. Taiwan Semiconductor Manufacturing Company (TSMC) headquarters Suzuki adds that competing Japanese semiconductor makers only half-heartedly took part in a government-backed "all Japan" consolidation effort. As a result, none were left with the resources to make the massive, ongoing investments needed to stay competitive in cutting-edge chip production. In other words, the Japanese semiconductor industry fell victim to structural problems largely of its own making. Only belatedly did Japanese companies finally abandon their fixation on IDM and opt to become part of an international division of labor based on cooperation. Increasingly, having access to the most advanced semiconductors seems a national priority, especially with the enormous and ever-growing demands of artificial intelligence (AI). But the absence of a strong semiconductor manufacturing base leaves Japan vulnerable to supply disruption. Suzuki writes that the Japanese government now views its new semiconductor strategy as an effort to ensure "strategic autonomy" as part of its economic security policy. The government has provided ¥1.2 trillion JPY (approximately $7.74 billion USD) to JASM for its first and second factories in Kumamoto and ¥920 billion ($5.94 billion) to Rapidus. JASM is a majority-owned subsidiary of TSMC and Sony Semiconductor Solutions Corporation, from which it receives much of its funding. Rapidus, however, finds itself in a more precarious financial position. Eight companies have invested in it, but the total amount of investment to date is only ¥7.3 billion ($47.1 million). The Development Bank of Japan and three major banks intend to invest ¥25 billion ($161.29 million) into Rapidus. However, the question is whether that investment will be sufficient, considering the enormous amount of money needed to keep a foundry going even before it begins mass production. Much may depend on the amount of support the Japanese government is willing to offer. Mass production of 2-nanometer chips may require up to ¥5 trillion ($32.26 billion). Former Prime Minister Fumio Kishida's administration was eager to provide guarantees for investment in Rapidus with an eye to attracting more private investment as well as skilled labor. Legislation to enable the provision of such guarantees through revision of the Act on Facilitation of Information on Information Processing and other rules is now pending in the Diet. Suzuki warns, "The (Shigeru) Ishiba cabinet will need to commit with the same level of passion as the previous administration." Then, too, there is the question of how to recruit the human capital needed if Japan's semiconductor sector is to prosper once again. There is, in fact, a global shortage of qualified people with the necessary skills. The weak yen and relatively low salaries in Japan complicate efforts to recruit foreign talent. Meanwhile, there are already indications of softening demand for older chips, leading to underutilization of existing factories. And no one knows what effect tariffs, trade wars, and a possible recession might have on this already complicated situation. Author: John Carroll
