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In a final blow to China's semiconductor sector, Tokyo has announced that if chip businesses relocate to Japan, they would be compensated handsomely

Semiconductors are tiny chips that have become essential to human civilisation. What are they, and why are governments all over the globe frantically attempting to develop local manufacturing capabilities?

Let's just say that these microchips might spell the end for China's Communist Party. As a result, the free world cannot be desperate or excited enough to try to establish semiconductor manufacturing facilities within their borders in order to suffocate the paper dragon's supply chain. Semiconductors, which are usually constructed of silicon, are a vital technical asset in today's globalised society.

Semiconductors are the fulcrum of the work in powering smart electronic gadgets, from vehicle batteries to laptops to cellphones to home appliances to game consoles and everything in between. As of 2018, the worldwide semiconductor business was valued at roughly $481 billion, with companies from South Korea, Taiwan, and the United States dominating. Japan is now making a major push to become the world's next semiconductor giant, and China is trembling.

What is Japan Up To?

Japan is currently playing the wait-and-see game. This cat, also known as the Maneki-Neko, is a popular Japanese figure that is thought to bring good luck to its owner. Japan is making a concerted push to entice semiconductor companies from across the world to establish operations in the nation. According to Bloomberg, Japan is aiming to cover half of the startup expenses of semiconductor plants established in the nation in order to entice American firms and boost chip supply.

On Friday, Japan's Prime Minister made a daring move by unveiling a major fiscal stimulus plan worth 56 trillion yen ($490 billion), a portion of which would be spent to entice semiconductor makers to the nation. Japan is preparing to fund a new $7 billion semiconductor facility proposed by Taiwan Semiconductor Manufacturing Co. and Sony Group Corp. in western Japan. The government is anticipated to provide TSMC with an initial subsidy of up to $400 billion. "TSMC has been a key concern for our national economic security recently," Prime Minister Fumio Kishida remarked on Friday. But the story does not end there. It's critical that we entice American chipmakers and take other steps to expand private-sector opportunities."

Japan is ready to cover half or more of the costs spent by semiconductor businesses who choose to relocate their headquarters to Tokyo. There is currently no legislative structure in place to support the establishment of new semiconductor manufacturers. As a result, Prime Minister Kishida's government plans to submit a bill to the extraordinary Diet session before the end of the year to revise related laws concerning support for companies developing technologies for the 5G high-speed, high-capacity communication standard, in order to allow subsidies into the microchip sector.

How China Will Suffer

Semiconductors are an essential product for China, as they are for any other country. China has also pushed for domestic semiconductor production in recent years, particularly after the Trump administration damaged its electronics industry by prohibiting the sale of American-designed models to China. Huawei and SMIC were reduced in size when the Trump government placed them on a no-buy list and refused to supply them semiconductors.

As a result, China is facing its own semiconductor dilemma. Its electronics and car industries rely largely on imports to stay alive. Because of the high demand for semiconductors, China has engaged in industrial espionage and talent poaching to make up for the shortage. Beijing's situation is only going to become worse as semiconductor supply chains move to Japan.

How Quad and India Are Adding Fuel to Fire

The Narendra Modi administration of India is in advanced negotiations with Taiwan about bringing a semiconductor facility worth an estimated $7.5 billion to India to provide anything from 5G gadgets to electric automobiles, giving a jolt to the One China policy.

At the first-ever in-person Quad meeting in September, Japan, Australia, and the United States, together with India, agreed to put a stop to China's global dominance fantasies with a single move: reorganizing semiconductor supply chains. According to Nikkei, the four countries are expected to confirm that "resilient, varied, and secure technology supply chains for hardware, software, and services" are critical for their common interests.

On the semiconductor battlefield, Japan has given China a decisive and last blow. In order to entice semiconductor makers, China will have to match Japan's financial pledges. China, on the other hand, is experiencing a public relations problem. No sane semiconductor maker would consider moving manufacturing to China. Matching Japan's financial help to semiconductor producers will be a new difficulty given China's dire economic situation. China has been vanquished in general.

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