Excessive-priced drones and Japan’s hidden AI champion

1 July 2025

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Hiya, that is Kenji in Tokyo.

Since Donald Trump started his second time period as US president in January, most of us residing on this a part of the world have in all probability bought into the behavior of checking very first thing within the morning what he mentioned, wrote or did whereas Asia was sleeping. This will have already led a few of us to develop a form of immunity to being shocked by his phrases and actions.

However the shock attack against three nuclear sites in Iran by the US on Sunday morning absolutely got here as a impolite awakening for lots of people, because it clearly escalated the battle between Israel and Iran, deepening the disaster within the Center East — and doubtlessly for all the world.

Whereas a ceasefire was proclaimed by Trump and later confirmed by Iran and Israel, the “12-day battle”, because it’s being known as, has solely underscored the necessity to improve safety, together with on the financial entrance.

Quite a few boards and symposia discussing financial safety have been held right here lately, reflecting a rising sense of urgency amongst politicians, bureaucrats, teachers and enterprise leaders.

Certainly one of these was on June 20, hosted by the College of Tokyo with consultants from Rand. The discussion board centered on securing a essential mineral provide chain, underneath the premise of a trilateral alliance between Japan, South Korea and the US Fabian Villalobos, senior engineer and professor of coverage evaluation from the American non-profit analysis institute, mentioned essential minerals — together with uncommon earths predominantly managed by China — kind the “bedrock of the worth chain” for each civilian and army functions.

He mentioned he’s usually requested, “What’s a very powerful mineral?” However to him, that’s the “fallacious query to ask”, as a result of if any piece of the availability chain goes lacking, all the system turns into dysfunctional.

We’ve lately seen this within the auto business, the place American and Japanese makers had been compelled to halt production lines as China’s curbs on uncommon earth exports kicked in. This isn’t the primary time China’s export restrictions have prompted disruptions in world provide chains, both.

Potential bottlenecks of a distinct nature, in the meantime, could emerge from a wholly totally different supply: the truth that very important tech elements and supplies are managed by a small variety of lesser-known firms in Japan.

Drone-flation

Chinese language authorities rules adopted in September requiring export permits for dual-use items have greater than tripled the price of drone elements shipped to the US, in accordance with a report by Nikkei’s Itsuro Fujino.

The evaluation of Chinese language customs information reveals that the general export quantity of infrared units, a key drone half enabling visibility at the hours of darkness, fell roughly 30 per cent between final September and April, whereas the export worth rose practically 50 per cent. The worth per unit doubled throughout this era, stemming primarily from a tightened supply-demand stability. Exports to the US, which is the most important vacation spot, dropped roughly 60 per cent by quantity whereas the unit worth jumped 3.5 instances.

“Right now, China has captured 90% of the U.S. marketplace for industrial drones.” This assertion comes from a 2024 report from the workplace of then-senator Marco Rubio, now the secretary of state, on the Chinese language manufacturing sector. Rubio is unquestionably nicely conscious that Beijing may use drones as efficient leverage in commerce negotiations.

Important threads

Column chart of ￥bn showing Nittobo is riding the AI boom

Nitto Boseki, or Nittobo, for brief, might not be a family title, regardless of having a historical past that stretches again greater than a century. However its merchandise are so essential for the AI provide chain that executives from Nvidia, AMD and Microsoft have been coming to Japan to pay it a go to.

In a collaborative work by Nikkei Asia’s Lauly Li and Cheng Ting-Fang in Taipei and Ryohtaroh Satoh in Tokyo, they clarify how this comparatively little-known AI-enabler is presently the only company in the world capable of present the highest-end glass fabric, a fabric important for making high-powered AI servers.

Japan boasts a number of examples of seemingly obscure materials makers that underpin the worldwide tech provide chain. Nittobo, nonetheless, has a very fascinating historical past. It was one of many “high 10 cotton-spinners” in Japan earlier than second world battle and helped lead the nation’s financial reconstruction within the postwar period. As competitors from different Asian economies pushed all the business to the nook, Nittobo turned probably the most profitable examples of an organization remodeling itself away from a sundown business, whereas a lot of its friends perished. The boseki in its title, which means cotton-spinning, is a reminder of that historical past of adaptation.

Low altitude, lofty ambitions

China is betting on its military of civilian drones to assist it drive new sources of growth, writes the Monetary Instances’ William Langley.

The nation dominates the manufacturing of economic drones, accounting for 70-80 per cent of worldwide provide, in accordance with analytics supplier Drone Trade Insights.

There have been about 2.2mn drones registered with the Civil Aviation Administration of China by the tip of final 12 months, deployed to do all the pieces from controlling crowds to preventing fires.

However Beijing’s ambitions go a lot additional than that. The CAAC expects the market measurement of the low-altitude financial system — which refers to airborne actions occurring lower than 1,000 metres above floor — to develop fivefold to Rmb3.5tn by 2035.

Which means discovering new makes use of of the expertise from non-public firms. The logistics and meals supply sectors are early adopters, with Meituan and its rivals already using unmanned plane on some routes.

The nation’s farms are additionally massive customers. A few third of commercial drones are additionally utilized in agriculture or forestry, in accordance with 2022 figures from the Guanyan Tianxia Information Heart.

However some within the extremely aggressive UAV business say that it will likely be tough to interchange the shopping for energy of massive authorities and army consumers, whereas strict export controls have restricted their potential attain abroad.

Double discuss

Executives of two European tech firms lately sat down with Nikkei Asia to debate their respective methods.

Marc Biron, chief government at Belgian chipmaker Melexis, defined how his firm is leveraging its manufacturing capability in “neutral” Malaysia to navigate geopolitical headwinds.

Talking to Norman Goh in Kuala Lumpur, Biron mentioned his firm’s facility in Kuching, Sarawak, has been transport chips to each the US and China as a “deliberate hedge” in opposition to mounting world commerce fragmentation.

Biron is relying on Malaysia’s neutrality which he likens to Switzerland. “That neutrality permits us to fabricate for Asia, China and the US, from a single base.”

In the meantime, Cheng Ting-Fang spoke with Jos Benschop, government vice-president of expertise at ASML, on the event of the next generation of cutting-edge lithography machines that might be superior sufficient to serve the chip business’s wants from 2035 and past.

The world’s largest semiconductor gear maker is partnering with Carl Zeiss for this farsighted improvement push.