Global supply chains are facing growing concerns as China restricts exports of vital materials for the semiconductor industry, threatening the production of advanced chips and military optics in the West.
China has imposed export restrictions on germanium and gallium, key materials used in semiconductors, military equipment and communications, causing prices of these metals to double in Europe over the past year.
According to a report published by the Financial Times, China took this step as part of a strategy to protect its “national security and interests”, in response to the restrictions imposed by the United States on the sales of advanced chips and chip manufacturing equipment.
Chinese market control
The restrictions highlight China’s huge dominance in the market for these vital resources. According to the newspaper, China produces about 98% of the world’s gallium supply and 60% of germanium, making many Western countries heavily dependent on these materials from China.
“The situation with China is very critical, we depend on them very much,” a semiconductor industry worker told the newspaper.
Industry analysts say the restrictions show Chinese President Xi Jinping’s government is prepared to target Western economic interests in response to pressure on access to advanced technology.
Impact of restrictions on production
Since the restrictions were implemented, gallium exports from China have fallen by about half, according to the Financial Times, raising concerns of a supply shortage.
The quantities acquired through China’s new export licensing programme are “a fraction of what we were buying before,” said Jan Geis, director of secondary metals at Frankfurt-based Tridium.
“If China continues to cut gallium exports as it did in the first half of the year, our reserves will be used up and we will face a supply shortage,” said another spokesperson for one of the affected companies.
Complexity of markets and high prices
These restrictions, according to the newspaper, have increased complexity in global markets that are already suffering from difficulty in movement, and germanium prices have jumped by 52% since the beginning of last June, reaching $2,280 per kilogram in China.
“The Chinese are no longer offering germanium for sale overseas,” said Terrence Bell, director of Vancouver-based Strategic Metal Investments.
China’s strategic motives
Observers see the restrictions as part of China’s strategy to secure its own supplies of materials used in clean energy technologies that lie at the heart of the country’s industrial modernization strategy.
China is using these restrictions to help its efforts to catch up with the US and other leaders in semiconductor technology, Cory Combs, associate director of Trivium China, told the Financial Times.
Under current circumstances, and with relations between the United States and China still tense, there does not appear to be much incentive for China to ease restrictions on these exports in the near future, according to a spokesman for one of the affected companies.
