Tech war: China’s move to impose controls on gallium and germanium is a mixed blessing for country’s exporters
- The export controls are widely seen as Beijing’s retaliation against the US and its allies for imposing chip restrictions on China
- While China has a quasi-monopoly over extraction of raw gallium, Chinese companies are more exposed when it comes to processing the rare metal
China’s decision to impose export controls from next month on gallium and germanium, important materials used in semiconductor manufacturing, is a targeted measure aimed at improving national security but it may also bring about industry disruption, Chinese experts say.
In a move widely seen as Beijing’s retaliation against the US and its allies for imposing chip restrictions on China, the country’s commerce ministry and customs administration announced that exports of the critical metals and related products will be subject to government approval from August 1.
In taking the step Beijing is leveraging its quasi-monopoly position in low-quality gallium. China is responsible for over 90 per cent of the world’s output of the rare metal.
Chen Feng, deputy general manager at Beijing Jiya Semiconductor Material, which produces 60 tons of gallium annually, said Beijing has made the “right move” given the metal’s strategic importance for national security. At the same time, Chen said the new export regime may affect the business of Chinese gallium extractors and exporters.
While China has a quasi-monopoly over the extraction of raw gallium, Chinese companies are at a disadvantage when it comes to processing the rare metal into middle or end products, Chen added.
“Gallium materials need to be purified and componded into semi-insulated material, but there is still a considerable gap between China and the world’s leading companies in terms of producing the high purity materials and stability of composition,” said Chen.
He added that Germany’s Freiberger Compound Materials, US chip wafer maker AXT and Japan’s Sumitomo Electric are strong players in gallium processing. AXT, which has manufacturing facilities in China, said on Monday it would seek permits to keep exporting gallium and germanium substrate products from China.
A year earlier, the Bureau of Industry and Security within the US Commerce Department, the export control arm of Washington, added gallium oxide to its export control list, as devices containing such materials can “significantly increase military potential”. Gallium oxide is also covered by China’s export control list.
According to the United States Geological Survey, current global reserves of gallium metal are about 279,300 tons. China has the largest portion of these reserves at 68 per cent. The country accounted for 98 per cent of worldwide primary low-purity gallium production in 2022.
Analysts also said that China’s export controls may push up global prices of gallium and related products. A report released by brokerage Sinolink Securities, noted that foreign suppliers may struggle to secure sufficient quantities of gallium materials given the limited alternatives outside China.
Lucy Chen, vice-president of Taiwan-based Isaiah Research, said the move will “directly impact” the downstream semiconductor sector, including suppliers of gallium substrates like Sumitomo, Freiberger and AXT.
“Under Chinese export controls, the costs of gallium and germanium may increase,” Chen said. She added that this could have “ripple effects” on related areas like radio frequency products, power amplifiers and communications devices.
News of the export controls sent shares in major Chinese germanium metals production companies higher on Tuesday, with investors betting that the move will benefit the domestic chip materials sector.
Shanghai-listed Chihong Zinc and Germanium, a state-owned enterprise, saw its shares surge 6.1 per cent. The company, with an annual germanium production capacity of 60 tons, said on Tuesday it exports “a very small volume” of germanium products in the infrared field, and the controls are expected to have little impact on its financial performance.
Yunnan Germanium, which has over 40 years of experience in the mining, processing and development of germanium, said it will “actively communicate” with relevant departments regarding the latest export restrictions, and is currently unable to assess the impact. Shares of the Shenzhen-listed company surged 10 per cent.
