China Implements Export Controls on Gallium and Germanium Related Items, Affecting Beijing Tongmei’s IPO Plans
In early July, the Ministry of Commerce and the General Administration of Customs announced that China would be imposing export controls on items related to gallium and germanium. This decision is in accordance with the country’s “Export Control Law”, “Foreign Trade Law”, and “Customs Law” and is aimed at safeguarding national security and interests. The State Council has approved this measure.
One company that will be significantly impacted by this export control policy is Beijing Tongmei Crystal Technology Co., Ltd. The company, which is currently seeking an IPO on the Science and Technology Innovation Board, is primarily involved in the research, development, production, and sales of gallium arsenide substrates, germanium substrates, and other related products. Gallium arsenide substrates and germanium substrates accounted for a significant percentage of the company’s main business revenue in 2019, 2020, and 2021, with overseas business contributing a significant portion as well.
AXT Inc., an American semiconductor wafer manufacturer, also announced on their official website that their Chinese subsidiary would be applying for a license to continue exporting gallium and germanium substrate products from China. AXT is the controlling shareholder of Beijing Tongmei, holding 85.51% of the company’s shares. The Chinese subsidiary of AXT is currently in the process of applying for an IPO on the Science and Technology Innovation Board.
Beijing Tongmei has been a key player in the global gallium arsenide substrate market, ranking fourth in market share in 2019. Germanium substrates, on the other hand, have been primarily used in the field of space satellite solar energy. Before 2014, Beijing Tongmei and Umicore were the only two companies capable of mass-producing germanium substrates. With AXT relocating the production base of germanium substrates to China, Beijing Tongmei gradually withdrew from the US aerospace market.
The export control policy on gallium and germanium-related items will significantly affect the future development of Beijing Tongmei. These items account for a substantial portion of the company’s revenue, and the company heavily relies on a limited number of suppliers for the raw materials required for production. In response to this, the market prices of gallium and germanium metals in China have rapidly increased since the announcement of the export control policy.
However, despite the challenges posed by the export control policy, it is expected that China’s gallium and germanium reserves will account for a significant percentage of the global reserves, ensuring a steady supply. Nonetheless, the company’s production and operation environment will face uncertainties, and fluctuations in raw material prices may have a negative impact.
The IPO process of Beijing Tongmei on the Science and Technology Innovation Board has been pending for nearly 12 months. The registration process is currently being reviewed by the China Securities Regulatory Commission, with a focus on issues related to trade secret disputes and the company’s sales model and income. These disputes may affect the listing process and further delay the IPO.