China to restrict exports of materials vital for semiconductor manufacture

Semiconductor trade war ratchets up another step

China, by far the largest producer by of gallium and germanium metals used in a wide range of electronics products, is to curb their export, citing security and economic interests

The Chinese government is to restrict the export of gallium and germanium metals and compounds, materials that are essential for the manufacture of semiconductors, electronic components and communications equipment.

The move is the latest in an escalating trade war between the US and other western countries and China, which is seeing restrictions placed on an increasing number of IT products and services, as both sides seek to control key parts of the semiconductor supply chain.

The Chinese Ministry of Commerce and the General Administration of Customs said on Monday that the export of eight gallium-related items and six germanium-related items would require government approval from 1st August. The government said curbs are necessary to protect its economic and security interests.

They come after moves by the US to restrict the export of certain AI-optimised chips and semiconductor manufacturing technology to China, and by the Netherlands, which recently introduced restrictions on the sale of ultraviolet lithography equipment for chipmaking to the country, and after China announced a security review into US chipmaker Micron.

China protested against the Dutch government's licencing requirements, which came after pressure from the US, arguing that the semiconductor industry requires international cooperation.

Its limits on exports of gallium and germanium could have far-reaching consequences for several strategic industries around the world, including the manufacture of microelectronics, fibre optics and solar panels.

While the markets for the two elements are relatively small in financial terms (the global gallium ore market size was only $280.7 million in 2022; the germanium market was $245.5 million), the nature of those industries mean the impact will be disproportionate

China is by far the largest source of gallium, producing more than 95% of the world's gallium supply in 2022 and more than 80% of the germanium. While alternative sources are available, they lack the scale of the Chinese operations, which will likely cause prices to rise significantly.

Russia, Ukraine, South Korea and Japan also produce gallium, although the first two are currently problematic as reliable sources. Germanium is also produced in Germany, Kazakhstan, Finland, Canada and the US. China's restrictions will likely see output increasing from these countries as a result. Extracting the materials from electronic scrap will also rise in importance.

The new curbs by China come as the US is reportedly preparing new restrictions on Chinese companies using US cloud services as well as further sanctions on American companies supplying AI chips to Chinese clients.