How does the Japanese government determine the amount of subsidies appropriate to attract investment from private companies?

Question

https://www.tomshardware.com/news/japanese-government-ups-micron-euv-fab-subsidies-to-dollar129-billion

The Japanese Ministry of Economy, Trade, and Industry is increasing its subsidies for Micron's fab in Hiroshima from $320 million to $1.29 billion, according to a Nikkei report. The increase ensures that the company builds its fab on time. For the Japanese government, the grant is a part of a broader plan encompassing several billion yen invested in various chip companies designed to enhance Japan's semiconductor prowess.

How does the Japanese government determine the amount of subsidies appropriate to attract investment from private companies? Is there a sort Cost-Benefit Analysis being performed before, and who does it and how does the government appoint people to perform the task? Are they private companies or government workers?

Answer 1

I can't say much about present practice but will give some historical context.

The predecessor of METI was MITI and it has been well studied. In the early postwar decades it played a critical role in Japan's industrial development. For a deeper view in depth up to 1975, see Chalmers Johnson's classic book MITI and the Japanese miracle..

Referring primarily for the period around 1960s-1980s economist Masahiro Okuno-Fujiwara has writen:

To put it succinctly, policy decisions in Japan reflect the interests of insiders (usually only producers—consumers are excluded). Moreover, decisions are not made on some abstract philosophical basis, nor are they made according to clearly spelled-out rules. Instead, they are made on a practical basis by negotiation among insiders; the policies that are most easily implemented, and that cause the least political conflict, tend to be adopted.

So if the past is any indication, I suspect these subsidies are available for any reasonable project proposed by any well-established player in the market. However I haven't found any direct data on how things are done currently so I don't want to overstate the relevance of that general analysis to this particular case. It will be interesting to see if anyone comes up with any sources that answer the question more directly.

Answer 2

Well, finding details in English about Japanese laws and regulations can be pretty difficult. They do have such a page regarding FDI incentives, however the subsidies in question here are "special" and approved through a separate fund:

A sweeping budget of ¥2 trillion ($13.385 billion), spread over two years, is reserved explicitly for subsidies related to semiconductor investments.

Since these largely go to big corporations (who have plenty of personnel), there's probably not a lot of concern in making this info too easily available otherwise. Some of the articles on this mentioned that the METI negotiated the various subsidies with the companies in question.

I was also able to find out the name of one these laws enabling the special subsidies of semiconductors, batteries etc. It's the "Economic Security Promotion Act". The EU actually has more detailed page on it (in English, I mean). E.g. this what that law covers:

The guidelines set four conditions for an item to qualify for government support: it has to be essential for the survival of the people, is currently overly reliant on external supplies, might be subject to supply disruptions, and is needed to ensure stable supplies.

In-between, 11 goods (semiconductors, rare earths, medical supplies, fertilisers, ship parts, liquefied natural gas, aircraft parts, cloud applications, antimicrobials, storage batteries, industrial robots and machine tools) have been qualified as 'specifically designated important supplies'.

Businesses supplying these products will submit plans to diversify sources and stockpile goods, and can then ask for financial support from the government.

It also spells out who is authorized to make the decisions regarding the allocation of those funds:

Major decisions are prepared and taken by the 'Council of Experts on Economic Security Legislation' established on 25 July 2022. Members of this Expert Council have been recruited from think-tanks, universities, business associations and big companies. The Council meets regularly, and its meetings are steered by the Minister in charge of economic security, currently Takaishi Sanae.

Actually, I am slightly wrong about that. The 2 trillion yen for semiconductors comes from a slightly earlier program from 2021 (the New Direction of Economic and Industrial Policies, see p.8 here), and is under the authority of METI, not of the new ministry.