Why China limits the export of germanium and gallium
Chip war between US and China: Beijing introduced restrictions on two critical metals such as germanium and gallium, and their derivatives, which are essential for the production of semiconductors that power flagship industries such as the military.
In a new act of the ongoing US-China technology war, Beijing's Ministry of Commerce has just introduced restrictions on two critical metals such as germanium and gallium and their derivatives, which are essential for the production of semiconductors ranging to power leading industries such as the military. But according to some analysts, the move could turn out to be a boomerang. Here because.
The decision of the Ministry.
The decision by the Chinese Ministry of Commerce dates back to Monday to impose limits and controls on the export of gallium, germanium and some derivative metals such as gallium nitrate and gallium arsenide, all fundamental materials for making chips and semiconductors essential for industries ranging from consumer electronics to military.
As CNBC points out, the new regulation requires exporters to apply for a license to transfer those materials out of China, with a provision effective from August 1st. Whoever requests these licenses must expressly identify the importer and specify the type of use for which the exported material is intended.
The Ministry, Asia Nikkei points out, has clarified that the licenses will be granted or denied after a scrupulous evaluation process that introduces an element of political discretion that could reduce or increase the extent of these limitations.
While the trade ministry communicated that the new restrictions were introduced to "protect China's national interests and security", the foreign spokesman Mao Ning declared the following day, during the usual press conference, that the restrictions do not target specific countries, which are fair and are not aimed at undermining the security and stability of global production chains.
What are gallium and germanium.
Gallium and germanium are not metals that are found in nature, but are formed through the refining of other metals, namely zinc for germanium and zinc ores and bauxite for gallium.
Gallium and germanium are used to produce the wafers with which the so-called "compound" semiconductors are made, different from the more conventional ones that use silicon-based wafers. Compound semiconductors are a vital building block of a variety of emerging industries including electric cars, renewable energy and military technology.
Germanium is also used on a large scale in optical fibers, in infrared technology and in satellite solar cells; it is also crucial for military applications used to spot targets in dark conditions.
Gallium, on the other hand, is used to obtain gallium arsenide which, in addition to being essential for "compound" semiconductors, is used to make chips for mobile and satellite telecommunications.
A near Chinese monopoly.
Worldwide, the production of germanium and gallium is largely in the hands of China, with a share which, according to data from the Critical Raw Materials Alliance cited in another article by CNBC , reaches 60% in the first case and 80% In the second.
However, according to research by the EU Commission referred to by Asia Nikkei , the Chinese shares are even more substantial, reaching as much as 90%. The productions recorded in countries such as Russia (5% of global germanium), Japan (2%) and the USA (2%) are absolutely irrelevant. Russia and Ukraine each control about 2% of global gallium production.
The other countries that play a role, albeit marginal, in the production of germanium are Belgium, Canada, Germany and, for gallium, Japan, South Korea and Germany.
In financial terms, however, the import flows appear far from conspicuous: according to data cited by CNBC, in 2022 the US purchased 5 million dollars of gallium and 220 million of gallium arsenide.
Transactions for germanium, on the other hand, appear to be more substantial: according to data from S&P Global Market Intelligence referred to by CNBC , in 2022 the US imported quantities of it for a value of 60 million dollars, which represent just half of EU imports (130 millions).
According to the analysts of Eurasia Group, also quoted by CNBC , the Chinese quasi-monopoly can be explained by "economies of scale (deriving from) extensive and increasingly integrated mining (which), together with state subsidies, have made it possible to export the minerals costs that operators from other countries cannot compete with. thereby perpetuating (China's) market dominance in many critical commodities."
It is also why the White House, in a June 2021 report on global supply chains recalled by Asia Nikkei , identified the two materials as a vulnerability as well as a major national security problem.
An own goal?
China's new move was seen as the latest act in its technological showdown with the US for dominance of advanced technology such as artificial intelligence and quantum computing as well as military supremacy.
According to Christopher Ecclestone, owner of Hallgarten & Co., however, that of Beijing could be an own goal, as, causing a probable sudden increase in prices, “it will make it more attractive to extract these metals in the West. (Thus) for a short time (the Chinese will benefit) from a higher price – adds Ecclestone quoted by Bloomberg – but then the Chinese market dominance will evaporate, just as happened previously with other minerals such as tungsten and rare earths”.
The same conviction of the analysts of Eurasia Group, according to which “China's past attempts to exploit its dominance by limiting exports have reduced global availability and raised global prices. But the latter in return have stimulated foreign competition by making the extraction companies based outside China competitive".
This is why, according to the Economist , Beijing will not push too hard with the new rules – it has introduced a discretionary process for this very reason – also in order not to damage its exporters who make money by selling metals and minerals to customers such as America.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/perche-la-cina-limita-lexport-di-germanio-e-gallio/ on Thu, 06 Jul 2023 06:44:18 +0000.