In the technology dispute with the US, China has the following trump card: after the US restricted the export of high-performance chips to China, the People’s Republic is now making it more difficult to export certain raw materials that are important for the production of chips. As announced by the Beijing Ministry of Commerce, companies must apply for a license to export gallium and germanium products from August 1.
This is to protect the strategic interests and security of the People’s Republic. According to insiders, the authorities are planning a meeting with the affected companies for Thursday to discuss the implementation of the measures.
“This looks like retaliation after the US banned chip exports,” said Hargreaves Landsdown brokerage analyst Susannah Streeter. However, John Strand, founder of consultancy firm Strand Consult, warned against panic reactions. Unlike other so-called rare earth metals, there are certainly suppliers outside of China for gallium and germanium. Admittedly, restrictions drove up prices. “But for the rest of the world, they aren’t nearly as painful as the U.S. restrictions on chip exports to China.” The head of the mining association in China, Peter Arkell, sees it differently: “China has hit US trade restrictions where it hurts.”
Limited impact
South Korea and Taiwan say they expect only a limited impact from Chinese export controls for the time being. With Samsung and TSMC, two of the world’s largest chip manufacturers are located in these two countries. Japan and the European Union (EU) are examining the possible effects on their own economies. The EU also expressed concern that the restrictions were inconsistent with the need to protect world peace. She also announced that Chinese partners had canceled scheduled meetings with EU foreign policy chief Josep Borrell at short notice. There were initially no comments from the German Ministry of Economic Affairs.
Bernhard Rohleder, CEO of Bitkom, saw China’s announcement as a wake-up call to step up efforts for the digital sovereignty of Europe and Germany. “This also includes the supply of basic materials and rare earth metals.” With the “Chips Law”, the EU has already launched a program to promote the establishment of semiconductor factories. This should double the world market share of chip production to about 20 percent in 2030.
Buyers buy hamsters
But the announcement is already causing a stir in the industry: according to a manager of a Chinese germanium producer, several customers from Japan, Europe and the US have already contacted him. They wanted to bunker as much raw material as possible before the August 1 deadline, because they expected the processing time of export applications to take up to two months.
Due to the increased demand, germanium prices recently rose by almost ten percent to the equivalent of 1380 dollars (1266 euros) per kilogram. The shares of some Chinese mining companies such as Yunnan Lincang Xinyuan or Yunnan Chihong also rose to ten percent.
Germany and the Netherlands are particularly affected
According to news site Caixin, Japan, Germany and the Netherlands will be among the largest buyers of gallium products in 2022. When it comes to germanium, Japan, France, Germany and the US lead the way. These metals are mainly used in computer chips, telecommunications, solar panels and electric cars.
When asked, the German chip manufacturer Infineon stated that it generally sources its raw materials from different regions. “Currently, we don’t see any major material supply impacts that would impact our production capabilities.”
US sanctions against China’s IT industry
In recent months, the US has, among other things, restricted the export of high-quality chips and machines for their production. The Washington government is also considering restricting Chinese companies’ access to certain offerings from US cloud providers, according to the Wall Street Journal. At the same time, there is increasing pressure on Western telecom companies to stop using components from Chinese manufacturers such as Huawei in their mobile networks for security reasons.
The People’s Republic had already responded to this elsewhere: it banned certain companies and organizations from using chips from the American manufacturer Micron. A visit to China by US Secretary of State Antony Blinken a few weeks ago did not lead to lasting easing of relations. US Treasury Secretary Janet Yellen is expected to visit China this week. “The risk of tensions between the US and China escalating is not small,” analysts at investment bank Jefferies warned. If there is no easing, further rare earth export controls should be expected.
Source: Krone
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
