China’s Export Controls on Semiconductors are Just the Beginning

February 17, 2023

A central processing unit (CPU) semiconductor chip is displayed among flags of China and U.S., in this illustration picture taken February 17, 2023. REUTERS/Florence Lo/Illustration/File photo

China’s recent export controls on metals used in semiconductor production are just the first step in a larger strategy, according to an influential trade policy adviser. This move comes amidst an intensifying tech rivalry between China and the U.S., with U.S. treasury secretary Janet Yellen planning a visit to Beijing. The announcement of these controls has sparked investor interest in Chinese metals companies, as they anticipate higher prices for targeted metals such as gallium and germanium.

Germanium is a crucial component in high-speed computer chips, military devices like night-vision goggles, and satellite imagery sensors. Meanwhile, gallium is essential for building radars, radio communication devices, satellites, and LEDs. China’s restrictions on the export of gallium and germanium, which are also used in electric vehicles and fiber optic cables, have caused companies to scramble for supplies and led to price hikes.

This announcement by China, strategically timed before Yellen’s visit and U.S. Independence Day, is seen as a message to the Biden administration, which has been actively targeting China’s chip sector and rallying allies to impose similar restrictions. Analysts have also raised concerns about potential restrictions on rare earth exports, given that China is the largest producer of rare earth metals used in EVs and military equipment.

Former Vice Commerce Minister Wei Jianguo emphasized that China’s export controls are just the beginning, warning that further measures will be taken if pressure on China’s high-technology sector continues. Wei described the controls as a “well-thought-out heavy punch” aimed at those who seek to curb China’s acquisition of advanced technology. The Chinese commerce ministry has not provided any additional comments on the matter.

As China tightens its grip on the semiconductor industry, the United States and the Netherlands are also considering new restrictions on the shipment of high-tech microchips and chipmaking equipment to China. These efforts are part of a larger plan to prevent China’s military from gaining access to advanced technology. China’s President Xi Jinping echoed the need for stable and smooth industry and supply chains in a recent virtual address to leaders.

Following the announcement of China’s export controls, shares in Chinese metals companies like Yunnan Lincang Xinyuan Germanium Industry Co and Yunnan Chihong Zinc & Germanium Co have surged, with local media predicting a growth in revenue due to the higher prices of germanium. The current trading data shows a steady increase in gallium and germanium prices in China.