Beijing jabs in US-China tech fight with chip material export curbs

Beijing’s decision to impose export controls on critical raw materials used in manufacturing semiconductors, communication equipment and solar panels could complicate the US-led efforts to shift critical supply chains away from China, experts said on Monday, as it seeks to gain leverage in negotiations with Washington over access to core technology.

“If China chooses to weaponise these supply chains, it will greatly complicate the calculus in the US, EU and Asia in terms of reducing dependence on China,” an effort that is just beginning, said Paul Triolo, a senior associate at the Center for Strategic and International Studies, a think tank in Washington.

He added that it would take “considerable time and investment to recreate even a portion of critical mineral supply chains”, stressing that Beijing “almost certainly sees these controls as a potential bargaining chip, which it could use to attempt to convince the US and Western governments to roll back elements of recent export controls on semiconductors and semiconductor manufacturing equipment”.

Starting on August 1, exports of gallium, germanium and several other industrial compounds will be subject to restrictions in order to “safeguard national security and interests”, China’s Ministry of Commerce and Administration of Customs announced on Monday. Exporters will be required to have approval from the State Council, China’s cabinet, for the listed items.

The announcement came just hours after US Treasury Secretary Janet Yellen’s plans to visit Beijing this week were made public.

“While in Beijing, Secretary Yellen will discuss with [People’s Republic of China] officials the importance for our countries – as the world’s two largest economies – to responsibly manage our relationship, communicate directly about areas of concern and work together to address global challenges,” the Treasury Department said on Sunday.

Calling the measure retaliation for the United States’ October 2022 ban on the export of some cutting-edge semiconductor technology to China, experts said that although Beijing’s curbs “will likely have an impact on a large number of countries”, Washington was “the main target”.

“The US is the No 1 target of the export control imposed on gallium and germanium,” said Aadil Brar, a visiting scholar at Taipei’s National Chengchi University.

“Germanium goes into major military technology as well. China is targeting the US’s restrictions on selling semiconductor chips to Chinese companies. It’s a clear retaliation against US actions on semiconductors,” he said, pointing that since it would be difficult for President Joe Biden’s administration to cancel the restrictions leading up to the 2024 elections, “this is likely to escalate the tech war in the medium term”.

China is the world’s largest producer of the two elements, with more than 95 per cent of the global gallium output and 67 per cent of germanium production.

According to a recent US Geological Survey and Department of the Interior report, between 2018 and 2021, 53 per cent of US gallium imports came from China, followed by Germany and Japan at 13 per cent each, Ukraine at 5 per cent and others at 16 per cent.

“In 2022, gallium metal imports increased by an estimated 34 per cent from those in 2021 owing to increased imports from Canada, China, Slovakia and the United Kingdom,” the report said.

For germanium imports, China accounted for 54 per cent followed by Belgium, Germany, Russia and others at 27, 9, 8 and 2 per cent respectively between 2018 and 2021. The report added that in 2022, zinc concentrates containing germanium were produced at mines in Alaska and Tennessee.

Brar said the US has significant deposits of germanium but has strict control on its extraction. “Now the US and EU would start seriously looking at alternative sources, but replacing China immediately would be difficult,” he said.

Thorsten Benner, director of the Global Public Policy Institute in Berlin, said that Beijing’s actions were a “very useful reminder” of the “urgency of de-risking from China on critical resources” even if that means “higher costs and/or engaging in unpopular pursuits of mining and refining at home”.

Last week, the Netherlands announced new export controls on advanced chip manufacturing, following Washington’s lead to hobble China’s advance in chip-making technology.

Meanwhile, the state-owned China Daily described Beijing’s move as “just and righteous”.

“Those doubting China’s decision could ask the US government why it holds the world’s largest germanium mines but seldom exploits them,” it said. “Or they could ask the Netherlands why it included certain semiconductor-related products, such as lithographic machines, into its export control list.”

It concluded: “It is they that challenge the world supply chain, and the blames that belong to them should never be shifted to China as it’s defending its own legal national interests in this rather uncertain world.” South China Morning Post