China restricts exports of two little-known metals important to the semiconductor industry. This shows that Beijing still holds important chips in the technology war with the West. Xie Huanchi/Xinhua via Getty Images
China will restrict exports of gallium and germanium, two metals important for chip making, starting August 1.
The authorities justified this step with the “protection of national security and interests”.
The export restriction is seen as a retaliatory measure by Beijing in the chip war with the West.
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China and the US are increasingly locked in a chip war that escalated in October. China’s recent move to restrict exports of two little-known metals has sent the semiconductor industry into a tailspin.
In a message on Monday China’s Commerce Ministry and Customs Bureau said they plan to control exports of two metals – gallium and germanium – and some of their compounds from August 1 to “protect national security and interests.” Exporters could apply for export licenses if they want to continue exporting the products from China, the release said.
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Gallium and germanium are used in the manufacture of chips, electronics and solar products, so news of the export ban is seen as Beijing’s retaliation in the technology war with the West.
The announcement comes just days after the Netherlands restricted sales of high-end chipmaking equipment abroad – a move apparently aimed at China.
The Biden administration also wants to restrict Chinese companies’ access to US cloud providers, the reported Wall Street Journal on Tuesday, citing people familiar with the situation. As early as October, the US began restricting sales of advanced semiconductors and chip-making equipment to China.
“This is a shot across the bow to remind countries like the United States, Japan and the Netherlands that China can retaliate and to deter them from imposing further restrictions on Chinese access to high-value chips and tools.” analysts at Eurasia Group, a risk consulting firm, wrote in a note obtained by Business Insider on Tuesday.
As US Treasury Secretary Janet Yellen travels to Beijing on Thursday for a three-day visit, Chinese authorities could use export restrictions as leverage in the talks, analysts said.
As Reuters reported on Tuesday, industry representatives worldwide are now assessing their risks in connection with export controls. There are only a few alternatives for both gallium and germanium and they only occur in trace amounts in nature.
Instead, they are created commercially in large quantities as by-products of other industrial processes. About 80 and 60 percent of the world Gallium- respectively germanium production according to the Critical Raw Materials Alliance, a European industry association, are in China.
“There is no major global shortage of either gallium or germanium. China dominates the production of these two metals not because they are rare, but because the country has been able to keep production costs relatively low and producers in other countries have not been able to match the country’s competitive costs.” , wrote Ewa Manthey, commodity strategist at Dutch bank ING, in one message from Tuesday.
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She added that extracting the two metals can be costly and technically challenging, so very few plants outside of China are capable of producing gallium and germanium.
Manthey expects prices for the two metals to rise in the short term, although other producers — including in North America and Europe — are likely to ramp up production over the longer term if prices remain elevated.
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