A domestically developed artificial intelligence chip is displayed during the 2019 World Artificial Intelligence Conference held in Shanghai on Thursday. More than 300 Chinese and foreign companies participated in the conference to demonstrate their latest achievements in AI. Photo: VCG

Japan's invitation to Taiwan Semiconductor Manufacturing Company (TSMC) to build a chip manufacturing plant in Japan is neither pragmatic nor attractive to the world's biggest chipmaker, analysts said, noting that the Chinese mainland, where TSMC's major clients are located, would be a much more ideal place for expansion.

A Yomiuri Shimbun report Sunday said Japan is eyeing TSMC and other global chipmakers to build an advanced chip manufacturing plant jointly with domestic chip equipment suppliers.

Tokyo is planning to offer several hundred billion yen, or the equivalent of several billion US dollars, to overseas chipmakers who join the project, the report said.

The purported plan lacks reliability as it would prove ineffective, Han Xiaomin, general manager of Jiwei Consulting in Beijing, told the Global Times Sunday.

Advanced companies such as TSMC would locate plants in markets such as the US and China, where their main clients are if they have plans for new facilities, Han said. 

Wafer-fab technologies featuring the 7-nanometer process and beyond are in the hands of CPU manufacturers such as Intel and AMD, CPU maker Nvidia, mobile chipmakers like Qualcomm, Hisilicon and MediaTek, and mining chip manufacturers, he said, noting that none of them are from Japan. 

"It doesn't make economic sense to build factories in Japan," Han said, and even if the Japanese government provides support in financing, it would still be doomed.

Analysts also noted the policy will not generate leverage for the Japanese government due to relatively higher operating costs, including leases, electricity and labor. 

New investments, instead of being set aside for factories, are more likely to be funneled into plans to expand the memory chip capacities of Sony or Kioxia, he said. 

The annual capacity of factories managed by TSMC and its subsidiaries exceeded 12 million 12-inch equivalent wafers in 2019. Except those based on the island of Taiwan, all its facilities are located in the Chinese mainland or the US.

In 2016, TSMC Nanjing Company Limited was established, managing a 12-inch wafer fab and a design service center.

In May, TMSC said it plans to build a semiconductor facility in Arizona worth $12 billion. The factory, which is expected to start construction in 2021, will be focused on producing so-called 5-nanometer chips, the latest semiconductor technology.

The investment incentive rolled out by the Japanese government aims to make up for their lag in chip production, as local manufacturers are unable to produce chips smaller than 10nm, Fu Liang, a Beijing-based telecom industry expert, told the Global Times Sunday, noting that such  a policy will help the local semiconductor industry fast track development. 

"Japan aims to get a windfall on the heels of TSMC's souring ties with the Chinese mainland over its potential supply cut to Huawei. On the other hand, they want to take advantage of TSMC's desire to look for new clients to replace Huawei," Fu said.

After September 14, TSMC does not plan to ship any wafers to Huawei, the company said in a letter to the Global Times on Friday, referring to a recent statement made by company Chairman Mark Liu at an investors' conference Thursday.

TSMC finds itself in a dilemma between one of its biggest clients, Huawei, and the US government, which outlined a proposal to amend chip export rules that could hinder TSMC's sales to Huawei, the world's biggest supplier of telecommunications equipment.

Analysts said the ban could be a blow to both firms - Huawei may see an impact next year when its microchips stockpile runs out, and TSMC's sales would also suffer, which could possibly drop by 30 percent in the fourth quarter.

But Fu believes such a policy is more of a commercial move, instead of being politically motivated to join the US-led blockade of key components to Huawei.

Moreover, it would make more sense for TSMC to build factories in the Chinese mainland, instead of Japan, analysts said.