China Announces Export Controls on Two Critical Tech Metals
The Lede: China has announced limits on the export of germanium and gallium, which are vital for the production of semiconductors and other important technology products
What We Know:
- Beginning on August 1, the Chinese Ministry of Commerce will require exporters to obtain specific licenses in order to sell the metals germanium and gallium. The ministry cited the protection of national security and interests. To apply for these licenses, exporters will be required to identify importers and end users, and disclose the final use of the metals. Buyers anticipate that licenses will take up to two months to obtain.
- Japan warned against potential violations of World Trade Organisation (WTO) rules and other international agreements. The U.S. semiconductor wafer maker AXT announced that its Chinese subsidiary Tongmei would be immediately applying for permits to continue exporting the two metals from China. Buyers in Europe, Japan, and the U.S. have reportedly inquired a manager at a China-based germanium company to potentially stockpile the metal ahead of the export controls.
- This follows the recent announcements of export bans of semiconductors by the U.S. and chipmaking machinery by the Netherlands as well as other restrictions from Japan.
The Background: Germanium and gallium are not naturally found, but formed as by-products of refining other metals. Germanium is formed in the process of zinc production and Gallium is formed in processing bauxite and zinc ores. Germanium is transparent to infrared radiation and has uses in solar products, fiber optics, and night-vision goggles. Solar panels using germanium can be used in space applications. Gallium is used in the manufacture of the gallium arsenide chemical compound, which is a key material in semiconductors and also has uses in making radio frequency chips for mobile phones and satellite communications. According to the Critical Raw Materials Alliance, China produces 60% of the world’s germanium and 80% of gallium. One company in Europe has the capability to produce gallium arsenide while the rest are in Japan and China.
Likely Outcomes:
- Although the Chinese government will require new licenses to export the two critical metals, implementing these export controls does not necessarily imply export cutbacks. Announcing the new rules signals that China is ready for the possibility of throttling exports if economic and trade tensions with Beijing and Western countries worsen, particularly with respect to the semiconductor industry. In the near term, China may threaten to cut off its exports of germanium and gallium or ease restrictions in the case of easing tensions.
- Countries and firms that rely on China’s export of these metals may start to look for alternative sources to mitigate against the risk of Beijing exercising real restrictions. Countries and firms that may develop the capacity to produce either or both metals are likely to consider venturing into manufacturing them. There are also potential substitutes for germanium and gallium that may be pursued in the case that exports are blocked or if the price of the metals rises to a prohibitive level.
Quotables:
"This is just the beginning of China's countermeasures, and China's tool box has many more types of measures available. If the high-tech restrictions on China become tougher in the future, China's countermeasures will also escalate. Any attempt to promote decoupling through hegemonism, including suppressing Chinese enterprises, will ultimately be a stone thrown at one's own feet.” – Wei Jianguo, former Chinese Vice Minister of Commerce
“China has hit the American trade restrictions where it hurts. Gallium and germanium are just a couple of the minor metals that are so important for the range of tech products, and China is the dominant producer of most of these metals. It is a fantasy to suggest that another country can replace China in the short or even medium term.” – Peter Arkell, chairman of the Global Mining Association of China
“[It’s] a warning shot, not a death blow, but these latest measures are more limited in scope, and while the new rules require Chinese exporters to first obtain a license, no language automatically bars export to specific countries or end-users.” – Anna Ashton, Xiaomeng Lu, and Scott Young, analysts at the Eurasia Group
Good Reads:
China slaps export curbs on chipmaking metals in tech war warning to U.S, Europe (CNBC)
What are Gallium and Germanium? China curbs exports of metals critical to chips and other tech (CNBC)
China move to curb exports of two chipmaking metals escalates supply worries (Strait Times)
Former vice-minister of commerce: China has more tools for countermeasures against US export controls (China Daily)