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[Text/Observer Network Zhang Jingjuan] The Financial Times reported on the 26th that China’s export controls on key semiconductor materials are impacting the supply chain and exacerbating concerns about insufficient production of advanced Western chips and military optical hardware.

In July last year, in order to safeguard national security and interests, China's Ministry of Commerce and General Administration of Customs issued an announcement, deciding to implement export controls on gallium and germanium-related items from August 1, 2023.

The report said that such restrictions have caused the prices of the two mineral resources to nearly triple in Europe over the past year. "These restrictions and subsequent export controls highlight China's dominance in the global supply of dozens of key resources."

China is by far the world’s largest producer of gallium and the world’s leading producer and exporter of germanium, producing 98% and 60% of the global supply, respectively, according to the U.S. Geological Survey.

"The relationship with China is vital, and we rely on them (for supply)," said a person working for a company that purchases a large amount of semiconductor materials. Since China implemented export controls last year, gallium exports have fallen by nearly 50% overall. "If China continues to reduce gallium exports as it did in the first half of this year, our reserves will be exhausted and there will be a shortage."

Some analysts believe that these regulatory measures show that China is retaliating against US and European restrictions on the export of chips and other technologies to it, with the goal of sacrificing Western economic interests.

Jan Giese, senior manager of minor metals at Frankfurt-based trader Tradium, said the gallium and germanium his company obtains through Chinese applications accounts for only a small fraction of its past purchases, and "these export controls add another layer of complexity to an already difficult market to navigate."

As important rare metals, gallium and germanium are widely used in semiconductor materials, new energy and other fields.

Gallium is known as the "new food of the semiconductor industry". Gallium compounds are high-quality semiconductor materials and are widely used in the optoelectronics industry and microwave communication industry. They are used to manufacture microwave communications and microwave integration, infrared optics and infrared detection devices, integrated circuits, light-emitting diodes, etc.

Among gallium-related products, gallium nitride (GaN) is one of the most representative third-generation semiconductor materials and is currently the most advanced semiconductor material in the world. GaN has broad application prospects in mobile phone fast charging, 5G communications, power supplies, new energy vehicles, LEDs, and radars.

Notably, the U.S. military relies on GaN’s properties to efficiently transmit the power of its most advanced radars under development. GaN is also being used in a replacement for the Patriot missile defense system made by RTX (Raytheon Technologies).

Germanium is also an important semiconductor material, and has extensive and important applications in semiconductors, aerospace measurement and control, nuclear physics detection, fiber optic communications, infrared optics, solar cells, chemical catalysts, biomedicine and other fields.

The Financial Times believes that given the importance of these two materials to the production of advanced equipment, if China continues to restrict exports, it may affect the production of related products.

Germanium prices in China have surged 52% since early June to $2,280 a kilogram, according to data provider Argus.

"The Chinese aren't even selling germanium overseas anymore," said Terence Bell, manager of Vancouver-based minor metals supplier Strategic Metal Investments.

Traders said that under export control regulations for gallium and germanium-related items, each shipment needs to be approved, which takes 30 to 80 days, and long-term supply contracts are not feasible due to uncertainty. Applicants must indicate the buyer and intended use.

Cory Combs, associate director of Beijing-based consulting firm Trivium China, believes that China's move is just "sending a signal" that they will fight back against US-led pressure on Chinese companies and important industries. "If they really want to cut off exports to a certain place, they can simply not issue export licenses."

An employee of the company said, "If the international situation and Sino-US relations remain the same, I don't think China has any motivation to relax export controls."

In addition to gallium and germanium, China also announced on the 15th of this month that in order to safeguard national security and interests and fulfill international obligations such as non-proliferation, it has decided to implement export controls on antimony and superhard materials related items.

As a strategic metal, antimony is not only used in the production of batteries and photovoltaic equipment, but is also widely used in military equipment such as ammunition, infrared-guided missiles, nuclear weapons, and night vision goggles. China dominates the mining and supply of antimony ore, while the United States has been a major buyer of antimony ore in recent years, and its military industry is heavily dependent on antimony. The mining strategist of Hallgarten & Company, an American investment institution, believes that this will bring real pressure to the US and European armies.

Regarding the export control measures on antimony and other items, the spokesperson of the Ministry of Commerce of China emphasized that such export control is an internationally accepted practice. China has learned from international practices and implemented export control on relevant items according to its own needs, aiming to better safeguard national security and fulfill international obligations such as non-proliferation. The relevant policies are not targeted at any specific country or region. Exports that comply with relevant regulations will be permitted.

The spokesperson said that the Chinese government firmly maintains world peace and stability in neighboring regions, ensures the security of global industrial chains and supply chains, and promotes the development of compliant trade. At the same time, it opposes any country or region using controlled items from China to engage in activities that undermine China's national sovereignty, security, and development interests.

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