BEIJING: China will step up anti-corruption efforts in state-owned companies and the financial sector to increase their economic contributions, state news agency Xinhua reported on Wednesday (Sep 27), citing a politburo meeting chaired by President Xi Jinping. The remarks from the politburo, a top decision-making body of the ruling CommunistContinue Reading
The Ukrainian counteroffensive continues but it appears to be less intense. Ukraine has not made any significant progress so far, and in some cases, its forces have been pushed back.
The Russians have published some numbers on Ukrainian losses in September to date. Ukraine has lost more than 17,000 soldiers so far this month, Russian Defense Minister Sergey Shoigu told a ministry board meeting.
According to him, Kiev lost three Western-made tanks, including two German Leopards and a British Challenger.
The numbers also include the loss of seven US-made Bradley fighting vehicles, 77 US M777 howitzers, 51 self-propelled howitzers made in Germany, France, Poland and the United States.
The Russians say they destroyed a British-made Stormer air defense system. The Stormer is a military armored vehicle manufactured by the British company Alvis Vickers, now known as BAE Systems Land & Armaments, that uses laser-guided interceptors. It is supposed to destroy slow-flying aircraft, especially helicopters, and drones.
Some US Abrams tanks have arrived in Ukraine ahead of schedule. The head of Ukraine’s military intelligence Kyrylo Budanov, chief of the Main Directorate of Intelligence of the Ministry of Defense of Ukraine (GRO), says that the Abrams tanks should be reserved for special operations and not used for general combat because they will be destroyed.
Meanwhile this week, one of the Leopard tanks destroyed by the Russians had a three-man German crew. Two of the three crewmen were killed outright. The third crewman survived for a while and told the Russians he was a mechanic. It is far from clear why Germans were manning the tank. Is this a pattern for the future?
Russia also bombed a number of Ukrainian airfields and destroyed two MIG-29 aircraft and several aircraft hangers.
Russia also attacked Odesa port, destroying grain storage facilities and loading docks. Russian air bombardments of Ukrainian military and civil assets appeared to be fairly intense and continuing.
The Ukrainian claim that they killed Russian admiral Viktor Sokolov, Black Sea Commander, and 34 others when a Stormshadow missile hit the Russian admiralty HQ in Sevastopol. The claim appears to have been false.
The admiral appeared (by video) in a Russian commander’s meeting headed by Russian Defense Minister Shoigu. (He was not the only Navy commander to appear by video link.)
The Ukrainians are saying it was a fake video. However, it appears that their claims about the admiral’s death and the other “victims” were grossly exaggerated. The Russians say only one person died in the attack. The admiralty building was badly damaged and the area was blocked because of the ensuing fire.
The United States has come up with a lengthy statement of “priority reforms” presented at the Multi-Donor Coordination Platform for Ukraine held in Brussels. The US Embassy in Kiev released a copy to Ukraine.
It carries a number of proposals to combat corruption, part of it focused on defense procurement and part on the management of energy companies including Ukrenerg and Naftogas, and to establish supervisory boards (loaded with Americans) for Ukroboronprom (which manufactures 125mm ammunition), NABU (the anticorruption bureau of Ukraine) and SAPO (Special anticorruption prosecutors office), including independence from the Prosecutor General, aimed at blocking undue political influence on investigations.
One of the most startling proposals is to limit the scope of activity of the Ukrainian SBU (Security Service of Ukraine), which is Ukraine’s equivalent of the old Soviet KGB. The proposal is to limit SBU to counterintelligence, anti-espionage and fighting terrorism and cyber-terrorism.
The language is very broad and unclear. SBU is being used by Zelensky to suppress the opposition and carry out frequent arrests of anyone opposing the government for any reason.
It has also been used to launch attacks against the Russian Orthodox Church leaders and members, some of whom are being accused of selling weapons. SBU is also being used to enforce draft dodging. Presumably, the idea is to restrict it, but only a little.
It is unlikely that any of these rather limited “reforms” will be implemented. The fact that it was presented at a low political level in Brussels, and only as a draft proposal, indicates the Biden administration is not seriously trying to curb corruption in Ukraine.
Stephen Bryen is a senior fellow at the Center for Security Policy and the Yorktown Institute. This article was originally published on his Substack, Weapons and Strategy. Asia Times is republishing it with permission.
Earlier this year, China updated its anti-espionage law amid an intensifying rivalry with the US and growing distrust of the Western-led international order.
The law broadens the scope beyond what it originally sought to prohibit – leaks of state secrets and intelligence – to include any “documents, data, materials, or items related to national security and interests.”
The law also empowers authorities with new surveillance powers. These include the ability to access people’s emails or social media accounts on electronic devices.
The Chinese government is clearly using the new catch-all provision to cast a wider net to identify “spies.” It is targeting not only Westerners working in China, but also Chinese nationals who work for foreign companies or organizations or interact with foreigners in any way.
The law is more than just theoretical – it has teeth. Last month, a new national campaign was launched with rewards of up to 500,000 renminbi (US$68,400) for anyone reporting suspicious individuals or suspected espionage activities.
Red banners have started appearing on Chinese streets, proclaiming
Implement the new anti-espionage law, mobilize collective efforts to safeguard national security.
Posters with a hotline number for reporting suspicious individuals can now be found on public transport, as well.
These visible signs serve as reminders that spies could be anywhere, potentially feeding sensitive information to foreign entities that pose threats to China’s national security and interests.
The new law has sent a chill through multinational corporations, Chinese companies and other organisations.
State-owned companies or those affiliated with the government are distancing themselves from multinationals offering legal, investment and consultancy services, fearful of being associated with foreign entities.
Multinationals themselves were once welcomed with open arms to help accelerate China’s economic and technological development. Now, they find themselves entangled in a complex web of regulations governing the cross-border transfer of data and other information. Many are considering decoupling their data and IT systems from China.
From an individual standpoint, anyone with foreign affiliations, including those who have returned from overseas, feel as if they are on a kind of community “watch list” upon arrival in China.
Some Chinese firms indicate in recruitment drives for new employees they will not consider applicants who have returned from certain overseas regions. The perception is they may have been exposed to foreign forces who use money, friendship or even romance to coerce them into becoming an undercover agent or informant.
An invisible net has been cast over every stratum of Chinese society. Many Chinese people will no doubt become more hesitant in their interactions, cautious in their communication and skeptical in their collaborations. This will only further encourage people to retreat into silence or resort to coded language in both face-to-face conversations and social media.
And those perceived as having divergent political or ideological views will especially be under scrutiny. This includes private businesspeople, entrepreneurs and those working in non-government sectors who openly voice political or ideological values that go against the Communist Party.
The expansive nature of the law evokes memories of the Cultural Revolution, an era in which little trust existed in society and even among family members.
An unsettling divide is emerging today between those in governmental circles and everyone else. Having a foreign diploma or other affiliation was once seen as a positive, offering one a different perspective and international experience. Now, however, it could be seen as a liability or even a crime.
The first iteration of the anti-espionage law was enacted in 2015 and was aimed at bolstering national security and generally protecting against espionage activities detrimental to the country’s interests.
The updated law comes in a changed world. The rivalry between the US and China has escalated in recent years in trade, technology, defense and influence over global institutions. Both nations are actively engaging in intelligence operations to understand each other’s capabilities, intentions and vulnerabilities.
Because the new law is so expansive and ambiguous, however, the implementation and enforcement could be difficult. And it could diverge significantly from the initial objectives of lawmakers.
When laws are ambiguous, it leaves ample room for interpretation and potential exploitation. The lack of clarity with the revised anti-espionage law could give rise to witch hunts, leaving people vulnerable to accusations that lack substantial evidence.
The ripple effect could extend beyond China’s borders, affecting academic exchanges, technological cooperation and diplomatic relations.
If collaboration with the outside world becomes secondary to perceived threats, it could also deter both foreign investment and domestic private enterprises in China, stifling economic growth.
At a time when the Chinese economy is grappling with domestic challenges and an increasingly hostile global environment, this could hasten the “decoupling” from China that many in the West are already advocating for.
Marina Yue Zhang is Associate Professor, University of Technology Sydney
This article is republished from The Conversation under a Creative Commons license. Read the original article.
The broadside Moody’s Investors Service just fired at the US dollar and interest rates dramatizes why the next few months could be uniquely chaotic for global markets.
It stands to reason that the one major credit rating company still holding Washington in AAA esteem is anxious to announce a downgrade.
Twelve years after S&P Global downgraded the US, Fitch Ratings last month followed suit. Fitch’s move was about more than America’s national debt careening toward US$33 trillion.
It was also a response to the “steady deterioration in standards of governance” as politicians play games with raising Washington’s statutory debt limit.
Now, Moody’s warns that the dysfunction surrounding a government shutdown on October 1, the latest manifestation of extreme polarization, may be the reason to cut Washington’s rating to Aa1.
Investors seem way ahead of credit rates as US yields move higher. Rates on 10-year Treasury bonds are at a 16-year high this week, a dubious milestone that’s slamming European and Asian markets. Benchmarks from Japan to South Korea to Australia plunged.
On Tuesday alone, MSCI’s gauge of global stocks plunged 1.24%, an outsized move for the benchmark. By Wednesday, the index was falling for a ninth day as it approaches its longest losing streak in more than a decade.
The Cboe Volatility Index, Wall Street’s so-called fear gauge, flashed its most intense warnings since May, when US inflation hit a 41-year high.
Adding to the disorientation is the dollar’s curious durability. The more investors fret about the state of global finance, the more the dollar rises. The yen’s move toward 150 to the dollar, a psychologically important level, has markets bracing for currency intervention by Japanese authorities.
The US Federal Reserve, meanwhile, is making it clear it’s not done hiking rates. When Minneapolis Fed President Neel Kashkari on Tuesday assigned 40% odds that rates will still go “meaningfully” higher, traders figure policymakers are telegraphing more austerity to come.
Already, 11 Fed tightening moves in 18 months are working their way through global markets. The specter of more hikes could wreak havoc in debt markets, equity bourses and property sectors everywhere.
Europe is uniquely poorly positioned to withstand the coming financial storm. Rising yields will hit real estate values from Tokyo to Seoul to Bangkok.
A major challenge for Asia is figuring out which financial shoes might drop next as well as how and where the tremors will be felt.
The US government shutdown for which Republican lawmakers are agitating would furlough hundreds of thousands of federal workers and suspend vast swaths of public services, crimping US economic growth.
“A shutdown would be credit negative for the US sovereign,” Moody’s analysts wrote in a note this week. They argue that “it would underscore the weakness of US institutional and governance strength relative to other AAA-rated sovereigns that we have highlighted in recent years.”
In particular, Moody’s adds, “it would demonstrate the significant constraints that intensifying political polarization put on fiscal policymaking at a time of declining fiscal strength, driven by widening fiscal deficits and deteriorating debt affordability.”
Economists at Wells Fargo write that “should a shutdown transpire, there could be a negative impact of the US dollar, albeit one that is likely to be modest and short-lived.”
Gita Gopinath, first deputy managing director at the International Monetary Fund, warns of “tougher global financial conditions.” As the “fight to bring inflation back to target continues,” Gopinath says, “we expect global interest rates to remain high for quite some time,”
Furthermore, she notes, “there are reasons to think that rates may never return to the era of ‘low for long.’ This possibility is reflected in US 10-year Treasury bond yields, which have surged” to the “highest level since the global financial crisis.” In this environment, Gopinath says, “financing conditions for emerging markets can be expected to remain challenging.”
Analyst Gennadiy Goldberg at TD Securities says “overall, we view the shutdown as one of the many headwinds the economy faces this fall.” Analyst Michael Pond at Barclays tells Bloomberg that a government shutdown “will likely lead to some heightened uncertainty,” given how vulnerable Asia’s export-led economies are to “hot money” flows.
Shutdown risks are coinciding with surging oil prices and a massive strike by Detroit auto workers, both of which are exacerbating inflation risks. As such odds are Fed Chairman Jerome Powell’s team will hit the monetary brakes even harder.
Count Jamie Dimon, CEO of JPMorgan Chase, among those who believe Fed rates – in the 5.25%-5.5% range now – could go significantly higher as inflation remains elevated.
“I am not sure if the world is prepared for 7%,” Dimon told the Times of India. “I ask people in business, ‘Are you prepared for something like 7%?’ The worst case is 7% with stagflation. If they are going to have lower volumes and higher rates, there will be stress in the system. We urge our clients to be prepared for that kind of stress.”
What’s more, Dimon referenced Warren Buffett’s famous observation that “only when the tide goes out do you discover who’s been swimming naked.” As Dimon notes of more assertive Fed tightening moves, “that will be the tide going out.”
“Investors,” says analyst Paul Nolte at Murphy & Sylvest Wealth Management, “are beginning to realize that a higher for longer interest rate environment is a likely outcome and are slowly adjusting to the new normal. Higher-for-longer has been the mantra of the Fed for a few months. It is only recently that the markets have been taking them at their word.”
The irony, of course, is that the worse things get for the US fiscal outlook, the more investors flock to the dollar. That’s luring capital away from China, Japan, South Korea and other top Asian economies at the worst possible moment for Beijing, Tokyo, Seoul and beyond. Counterintuitively, big losses in US sovereign securities are increasing the dollar’s appeal.
Even before Moody’s stumbled onto the scene, global investors faced the specter of a third straight year of losses in the $25.5 trillion Treasury debt market. All the red ink reflects investor concerns about liquidity amid the most aggressive Fed tightening cycle since the mid-1990s and extreme volatility as inflation flares up across the globe.
Yet from an interest rate differential standpoint, says Nomura Inc strategist Andrew Ticehurst, the dollar’s legacy safe-haven status, America’s steady growth and high yields make for an “unusual and powerful combination” at a moment when the potential for sudden risk-off pivots abound in markets.
Another reason this appears to fly in the face of both political and financial reality: US President Joe Biden’s dismal approval ratings. As Congressional Republicans and Democrats lock horns, Biden’s low-40s support rate leaves the White House little hope of cajoling lawmakers not to shut down the government, gamble with Washington’s credit rating or pursue reforms to increase US innovation and productivity to tame inflation.
The same goes for Biden’s latitude to protect the roughly $3.2 trillion of US Treasury securities held by top Asian authorities. Those foreign exchange reserves could find themselves in harm’s way as Moody’s joins S&P and Fitch in closing the books on America’s AAA era.
Japan would be the biggest loser with its more than $1.1 trillion of US government debt. China holds $821 billion and Korea has $116 billion. Along with losses on state savings, surging US rates could devastate Asia’s biggest trade-reliant economies, each of which is navigating their own domestic debt troubles.
In China, it’s property markets and a titanically large shadow-banking sector. In Japan, it’s the most crushing debt load in the developed world made worse by a fast-aging population. In Korea, it’s record household debt undermining broader consumption dynamics.
Here, the dollar’s trajectory – and how its rally defies gravity as bonds sell off – is adding to Asia’s headaches.
Economist Jeongmin Seong at the McKinsey Global Institute says that “many Asian countries accumulated substantial foreign exchange reserves after the Asian financial crisis of the late 1990s.” In 2022, he notes, Asia accounted for 40% of global capital flows, four times the level in 2000.
“But there may be pockets of vulnerability to any sudden outflow of capital,” he explains. “In Indonesia and Vietnam, for instance, foreign direct investment accounts for 20% and 14% of total investment, respectively.”
Episodes of runaway dollar strength tend to end badly for Asia. Look no further than the region’s 1997-98 financial crisis, which was precipitated by the US Fed’s aggressive 1994-1995 rate hike cycle.
Episodes of yen volatility pose their own threat. Worries about surging Japanese government bond yields are rippling through global credit markets as the Bank of Japan hints at an exit from quantitative easing. That poses outsized risks because 24 years or zero-to-negative rates morphed Japan into the globe’s premier creditor nation.
These funds are then invested in higher-yielding assets from Brazil to South Africa to Indonesia. This giant “yen-carry trade” often explains why sharp yen moves often slam markets everywhere.
IMF economist Thomas Helbling says Asia is highly exposed on account of debt levels. “Asia’s increased borrowing in recent decades has augmented the region’s exposure to rising interest rates and heightened market volatility,” Helbling explains. “Borrowing by the region’s governments, companies, consumers and financial firms is well above levels prior to the global financial crisis.”
Trouble is, Helbling says, “highly leveraged companies face greater risk of default as monetary policies and financial conditions remain tight. Even with resilient economic growth, interest payments may exceed earnings as borrowing costs rise, reducing firms’ ability to service their debts.” Generally speaking, he adds, “corporate debt in Asia is concentrated in firms with low-interest coverage ratios.”
McKinsey economist Seong says that “some Asian economies, government, household, and corporate debt has risen by even more than the Organization for Economic Cooperation and Development average.”
Seong points out that nonfinancial corporate debt in China is 150% and in Japan, South Korea and Vietnam it is more than 120%. In 2021, Korea’s household debt reached 106% and Australia’s was 119%, against an OECD average of 60%. “Carrying this amount of leverage will be costly if interest rates continue to rise,” Seong notes.
On the property side, “there’s is a risk of a fall in asset prices, including real estate,” Seong says. Between 2015 and 2021, the average nominal housing price rose by 50% in China, 34% in Australia, and 17% in South Korea. Price inflation in cities is even higher. In Seoul, for example, the price-to-rent ratio increased 2.5 times in the 2015-2021 period.
At home, Biden also must ensure the stability of banks as Fed rate hikes continue. Mohamed El-Erian, advisor at Allianz, worries higher borrowing costs may cause havoc in real estate markets. “We’ve got to be really careful,” El-Erian warns. “The housing market is central to the economy.”
At the same time, the fallout from the collapse of Silicon Valley Bank in March “is casting doubt on America’s ability to maintain its leadership of the global monetary system,” notes economist Diana Choyleva at Enodo Economics. It’s up to Washington “to take decisive steps to shore up confidence, including extending dollar credit lines to a clutch of Asian countries.”
As Choyleva stresses, “it is in Asia that the United States’ global financial hegemony is being most keenly contested – by China.”
It’s hard not to think Washington’s shutdown showdown is doing Beijing’s work for it.
Follow William Pesek on X, formerly known as Twitter, at @WilliamPesek
On Monday (Sep 25), the Indonesian government announced that it will no longer allow social media platforms to double as e-commerce sites, in order to prevent the misuse of data.
“(Social media) can only (be used to) facilitate the promotion of goods or services (but) direct transactions … (and) direct payments are no longer allowed; (social media) can only be used for promotion,” said Trade Minister Zulkifli Hasan after a closed meeting on electronic commerce issues.
Under the Revised Ministry of Trade Regulation, a minimum import transaction of US$100 will also be imposed on goods purchased from abroad.
While the ban has caught the disappointment of buyers, some sellers at physical stores in Indonesia have celebrated the move.
Textile seller Iyal Suryadi told CNA that the sale of goods online has reduced his income.
“In the local market where we sell our goods, sometimes we only sell one or two pieces of cloth in a week … If it continues like this, don’t even think about growing (the business); just being able to survive is good,” he said.
He added that the prices of items sold on TikTok Shop “do not make sense”.
“They sell goods at factory prices directly to consumers, not to distributors or resellers. It is true that we have entered the free market, but let’s not go too far.
“The government must act if it does not want the country’s economy to be destroyed. The reason is that the money in this country revolves around the small people like us, not the rich,” said Mr Suryadi, who owns a shop at Pasar Cipeundeuy located in Subang, West Java.
Similarly, Mr Raden, a seller at Tanah Abang market in Jakarta, agreed that TikTok Shop has hurt his sales due to the cheap prices offered on the social media platform.
However, he told CNA that he disagrees with the new ban and suggested that the sale of items through social media be restricted instead.
“(This is) because there are merchants here who also sell through TikTok. They are forced to sell on TikTok because the physical market is starting to be abandoned by buyers,” said Mr Raden, who goes by one name.
“In my opinion, TikTok shops should not be banned but restricted. (Instead), foreign products should be stopped and domestic products should be sold.”
In response to the ban, TikTok Indonesia said that it will abide by the laws and regulations of the country.
“However, we also hope that the government will consider the effect (of the ban) toward the livelihood of six million local sellers and around seven million creator affiliates that use TikTok Shop,” a TikTok Indonesia spokesperson was quoted as saying by Tempo on Tuesday.
The platform, owned by China’s ByteDance, reportedly said that it has received complaints from local sellers and has asked for certainty from the authorities regarding the newly issued regulation.
According to Tempo, TikTok said that social commerce emerged as a solution to the problems faced by micro, small and medium enterprises (MSMEs), adding that it believes that TikTok Shop was established to support local sellers to collaborate with local creators in order to boost traffic for their online shops.
TikTok has been hit with allegations that its TikTok Shop service is implementing predatory pricing by selling imported goods at significantly lower prices, thus leading to major profit losses for MSMEs who struggle to compete with such prices.
In its news release, PUB described the water price increase as a 2.5 per cent hike per year since the last full revision of prices in 2018.
Asked why it did not implement smaller and more frequent increases instead of a large hike over a shorter period, PUB pointed to how water prices cover operating costs year-on-year as well as future investments on a long timeline, which make it more unlikely for recurrent adjustments to prices.
Based on data of average household water consumption from July 2022 to June 2023, Housing Board one- and two-room flats currently pay S$25 a month, while five-room flats pay S$48. These are before the Goods and Services Tax (GST).
After the full price increase, they will pay S$29 and S$57 a month respectively, PUB estimated.
HDB households and non-HDB households will see an average increase of S$7 and S$8 a month respectively.
Based on the latest survey by the Department of Statistics, water bills account for less than 2 per cent of an average household’s expenditure.
And utility bills for businesses, which also include electricity and gas, comprise less than 5 per cent of their costs, according to a Ministry of Trade and Industry (MTI) survey.
In recognition that businesses would eventually pass on the price hike to consumers, PUB said it would work with MTI and relevant authorities to advise against profiteering.
With the increase in water prices along with other cost of living concerns – such as rising public transport fares – the government will provide financial support especially for lower- and middle-income households, said PUB.
Deputy Prime Minister and Minister for Finance Lawrence Wong will also announce additional cost-of-living support measures for Singaporean households on Thursday, the Ministry of Finance said.
PUB said that one-, two- and three-room households can apply for e-vouchers under the Climate Friendly Households Programme, to offset the costs of installing water-efficient shower fittings. The programme will expand to include more water fittings in the coming year.
Companies meanwhile can tap on PUB’s Water Efficiency Fund for support in implementing water conservation projects.
Funding to expand AI-powered multilingual platform
Launches Text2Social to generate engaging social media posts
NexMind, an AI-powered multilingual digital marketing platform, announced yesterday that it had secured seed funding from Silicon Valley-based venture capital firm 500 Global. NexMind empowers professionals across industries with advanced SEO tools to create search-optimized content in 17…Continue Reading
Comprises team of 50+ climate change and sustainability professionals
Focus areas include traceability, supply chain decarbonisation, circular business models & tax incentives
The EY organisation recently launched the EY Center for Sustainable Supply Chains. Based in Singapore, the Center provides tailored service offerings that help organizations at every stage of their supply chain…Continue Reading
At the G7 Hiroshima Summit in May 2023, leaders declared in a statement on economic resilience and economic security that they would strengthen supply chains for critical goods, including semiconductors, through global partnerships.
This commitment reaffirms Japan’s efforts – starting in 2021 – to revitalize its domestic semiconductor industry, reduce its dependence on other countries for critical goods and build a resilient supply chain.
Two key elements of Japan’s semiconductor strategy for 2023 include strengthening domestic manufacturing capability and fostering research and development (R&D) for next-generation semiconductor technology through international collaboration.
This ambitious approach aims to transform Japan’s semiconductor industry and demonstrates the government’s determination to revive its semiconductor ecosystem.
The Japanese government aims to increase domestic semiconductor manufacturing capacity by providing subsidies to companies engaged in the production of advanced semiconductors.
Given that semiconductors are used in everything from cellphones to defense systems, expanding Japan’s domestic capability will be crucial for reducing the risk of dependence on unreliable sources of supply as well as the risk of becoming overly reliant on a few countries.
In 2021 and 2022 the government set aside more than 1 trillion yen (close to US$7 billion) for semiconductor manufacturing plants. Without this, Japanese and foreign firms would likely choose more attractive locations to manufacture semiconductors.
In May 2023, top executives of seven foreign semiconductor companies met with Prime Minister Fumio Kishida to exchange views on expanding investment in Japan. This step is expected to further secure the semiconductor manufacturing base.
Semiconductors were also designated “specified critical materials” to strengthen the ability of Japanese industry to manufacture legacy semiconductors and produce the required manufacturing equipment and materials.
This resulted in a total budget of 368.6 billion yen (US$2.8 billion). These support measures aim to maintain Japan’s presence in the global semiconductor ecosystem and induce additional private-sector investment.
Beyond financial support, the Japan Investment Corporation (JIC)—a government-affiliated fund overseen by the Ministry of Economy, Trade and Industry—has taken a significant step by acquiring the chip materials-producing firm JSR through a takeover bid of approximately 900 billion yen ($6.4 billion).
JSR holds a roughly 30% share of the global market for photoresists that are required to manufacture semiconductors. The acquisition will enable JSR and JIC to restructure Japan’s semiconductor materials industry through large-scale mergers and acquisitions to increase the competitiveness of Japan’s semiconductor materials companies.
While industrial policy alone will not be enough to reinvigorate Japan’s domestic semiconductor industry, the government can work to ensure its industrial policies contribute to the success of the industry.
This work will require close engagement with semiconductor companies and other stakeholders, an examination of the successes and failures of industrial policy efforts and the modification of policies as needed.
The Japanese government’s semiconductor strategy also emphasizes strengthening Japan’s next-generation semiconductor technology base through international collaboration. Other technology-driven nations — including European countries, the United States, South Korea and India — are launching policies to build resilient supply chains for semiconductors.
This is an opportune time for Japan to pursue collaboration with other countries.
In December 2022, Japan established the Leading-edge Semiconductor Technology Center (LSTC), which is supported by public research institutions in Japan and serves as an R&D hub for scientists worldwide.
At the LSTC, researchers will explore new technologies for next-generation semiconductors based on the needs of domestic and foreign industries. It is expected that the National Semiconductor Technology Center and the Interuniversity Microelectronics Centre (IMEC) will collaborate with the LSTC on advanced semiconductor technologies.
Separately, Japan’s National Institute of Advanced Industrial Science and Technology is working with domestic and overseas semiconductor companies on a project to launch a pilot line of 2-nanometer chips.
It is also working with the Taiwan Semiconductor Manufacturing Company (TSMC) to develop an advanced 3D semiconductor packaging technology. These collaborative projects showcase the Japanese government’s ambition to catch up to global leaders that are currently 10 years ahead of Japan in chip manufacturing technology.
The Japanese government has also established Rapidus, a mass-production center for next-generation semiconductors, in collaboration with IBM and IMEC. Rapidus received 330 billion yen ($2.3 billion) in financial support from the Japanese government over 2022 and 2023. It aims to start producing 2-nanometer semiconductors in 2027.
But because Rapidus has not built and operated a fabrication facility to date, it will likely take time to realize its potential. It also remains to be seen whether Rapidus’s business model, which is based on R&D sustained by sales revenue, will work.
A cautionary tale is that, from the 1970s to the 2000s, multiple joint research projects similar to the LSTC were undertaken by the Japanese government. These government initiatives initially benefited Japan’s semiconductor industry.
But in the long term, Japanese semiconductor companies became less diverse due to the standardization of their technology and the leveling up of technology among their companies.
This lack of diversity among Japanese semiconductor manufacturers made it difficult for companies to adapt to changes in a competitive environment.
To apply the lessons learned from past government initiatives, the LSTC will need to be led by a diverse set of Japanese semiconductor companies, operate flexibly and not be too bound by specific research goals.
The Japanese government’s new semiconductor policy aims to play a significant role in reviving Japan’s semiconductor ecosystem. To implement the strategy successfully, the government must continue to pursue further investment and long-term policies aimed at building a resilient global supply chain.
At the same time, the government will also need to work closely with stakeholders and remain flexible in adjusting its policies. In addition to financial support, the Japanese government is taking a multifaceted approach to strengthen the competitiveness of its semiconductor industry.
International cooperation, the establishment of R&D centers and human resource development are all on the table. These efforts are expected to help the Japanese semiconductor industry build a stronger position and contribute to economic resilience at home and abroad.
Hideki Tomoshige is Research Associate for the Renewing American Innovation Project at the Center for Strategic and International Studies (CSIS), Washington DC.
This article was originally published by East Asia Forum and is republished under a Creative Commons license.
The Trans-Caspian Gas Pipeline is back on the drawing board, but it is unlikely to provide any gas to Europe. After the failure of the second attempt to realize the project in the late 2010s – due in part to the domestic political influence exercised by the inherited Soviet-era monopoly Georgian Oil and Gas Corporation (GOGC) – it seemed as though the TCGP had swung and missed again.
The one previous attempt to construct it was in the late 1990s. It fell afoul of two circumstances.
The first was the agreement on the Blue Stream pipeline, which provided gas to Turkey (which the TCGP might have done) from Russia under the Black Sea. The second was the unexpected discovery of large volumes of gas instead of oil in Azerbaijan’s offshore Shah Deniz deposit. These volumes made it unnecessary to rely on gas from Turkmenistan to fill a pipeline from Azerbaijan westward to Europe.
It is worth mentioning the attempt to construct such a large-volume pipeline in the late 2000s. This was the Nabucco project, which would have run from the South Caucasus to the Baumgarten gas hub in eastern Austria. This gas, however, was planned to come mainly, if not exclusively, from offshore Azerbaijani sources that had recently been discovered and others (such as Shah Deniz) that were projected for expansion.
It is a sign of the difficulties of trans-Caspian gas that the TCGP was not considered as part of this scheme, which included the European Union’s attempt to create a Caspian Development Corporation (CDC) to aggregate demand from European gas companies.
However, that demand turned out not to exist, because the major European companies that were concerned had other suppliers – including Gazprom – and the CDC institutional design was poorly done.
Now for some time there has been talk once more of a TCGP. This is not, however, the shore-to-shore fully fledged 31 billion cubic meters per year (bcm/y) pipeline originally envisaged 25 years ago. It is a smaller, shorter pipeline from Turkmenistan’s offshore gas-production platforms to Azerbaijan’s offshore gas-production platforms.
First proposed soon after Turkmenistan’s first president Saparmurat Niyazov died in 2006, with a volume of 10bcm/y, it might have become part of the just-mentioned project in the late 2000s.
Turkmenistan has never endorsed this project. If Turkmenistan had ever wanted to build this smaller pipeline, it could have done so any time in the last 15 years. For reasons both of policy and prestige, however, it has held out for the full-fledged shore-to-shore 31bcm/y pipeline.
However, diplomatic and other disagreements between Turkmenistan and Azerbaijan, Russia’s military dominance of the region, and the lack of a treaty defining the legal status of the Caspian Sea all combined to block the project.
It is this project that has now resurfaced over the past year or two, under the sponsorship of an initiative organized by the former (2014-19) US ambassador to Turkmenistan Allan Mustard, who has formed the private Florida-based company TransCaspian Resources Inc for the purpose.
The estimated volume for this smaller pipeline would be 8-10bcm/y. The offshore Turkmenistan deposit is developed by the Malaysian firm Petronas and is no longer “stranded” but is instead piped onshore into the Turkmenistan domestic gas distribution system.
Turkmen President Serdar Berdimuhamedov completed a working visit to Hungary this summer, where an agreement in principle on gas imports was reached. However, Hungarian Foreign Minister Péter Szijjártó insisted that this concerned construction of the original shore-to-shore 31bcm/y pipeline. This implies a reanimation of the old Nabucco project with its pipeline to Austria.
That shore-to-shore pipeline is the one about which Szijjártó made his public statement. It would require whole new infrastructure from Azerbaijan to Europe running parallel to the existing Southern Gas Corridor. Work would also have to be done in Southeastern and Central Europe for the gas to reach consumers.
Turkmenistan already completed some years ago the East-West Pipeline (EWP) across the south of the country from its major gas deposits there. Some technical work remains to be done in order to prepare it for gas transit, for example most likely the installation of compressors.
The EWP nevertheless itself exists and its terminus is not far from the coast of the Caspian Sea. The construction of the fully fledged shore-to-shore TCGP itself is technically easily, as it is only 300 kilometers long and can be laid across a well-known shallow underwater ridge between the two countries. It would be the way for Europe to receive 31bcm/y of gas from Turkmenistan.
It is therefore telling that only days after Hungary’s non-binding memorandum of understanding with Turkmenistan for future gas imports, Szijjártó also signed similar MoUs with Azerbaijan and Turkey for similar quantities of gas imports. These countries are much closer and already export gas to Europe. Their domestic petrochemical industries are well developed and highly technically competent, in contrast with Turkmenistan’s.
It is expected that this autumn Berdimuhamedov will visit Brussels, where the EU leadership will seek to persuade him in favor of the shorter and lower-volume American “platform connection” project. One should not expect anything to come from this. It is Azerbaijan that will supply Europe’s gas from the Caspian Sea region for the foreseeable future, and in increasing quantities.