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By Tim Kelly and Jane Lanhee Lee

TOKYO/OAKLAND, Calif (Reuters) -IBM Corp and Rapidus, a newly formed chip maker backed by the Japanese government, on Tuesday announced a partnership that aims to manufacture the world’s most advanced chips in Japan by the second half of the decade. 

The agreement co*es as U.S.-China relations remain tense, especially over chips. Washington has restricted Beijing’s access advanced semiconductor technology and asked its allies, including Japan, to do the same. Japan, which long ago lost its lead on chip manufacturing, particularly advanced semiconductors, is rushing to catch up and ensure its carmakers and information technology co*panies do not run short of the key co*ponent.

“It will take several trillions of yen,” to get pilot production up and running, Rapidus president Atsuyoshi Koike  said at a news conference in Tokyo. He didn’t say where the money would co*e from, or where in Japan it would build a foundry. 

Last month Japan’s industry and trade ministry said it would invest an initial 70 billion yen ($500 million) in Rapidus, a venture led by tech firms including Sony Group Corp and NEC Corp. Although that is small in the world of chip manufacturing, where plants can cost tens of billions of dollars, sources say more investments are on the way.

International Business Machines Corp’s director of research, Dario Gil, said the two co*panies would work together to manufacture IBM’s 2-nanometer-node chips, unveiled last year.

A “nanometer,” or one-billionth of a meter, in the chip industry refers to a specific technology rather than the measurement. In general, the smaller the number that precedes the word “nanometer,” the more advanced the chip.

Asked whether Japan could leapfrog to manufacturing such advanced technology when its most advanced plant today makes a 40-nanometer chip, Gil said, “It’s not like you’re starting from scratch.”

As part of their agreement, Rapidus scientists and engineers will work alongside IBM Japan and IBM researchers at the Albany NanoTech co*plex in New York state.

(Reporting By Jane Lanhee Lee in Oakland, Calif., and Tim Kelly in TokyoEditing by Matthew Lewis and Gerry Doyle)