India needs to set up credible supply chains

The technology supply chain battle between China and the US just shifted up a gear. The US has been imposing trade sanctions for years that have restricted the supply of US technology (hardware and software) to Chinese companies and that has had a dramatic impact on a number of companies, particularly Huawei.

Now, China’s Ministry of Commerce has, “in order to safeguard national security and interests…, decided to implement export controls on items related to gallium and germanium,” it announced on July 3. Companies in China will need an export licence to ship the metals or products containing the materials with effect from August 1. The restrictions apply to eight gallium-related products (gallium antimonide, gallium arsenide, gallium metal, gallium nitride, gallium oxide, gallium phosphide, gallium selenide and indium gallium arsenide) and to six germanium products (germanium dioxide, germanium epitaxial growth substrate, germanium ingot, germanium metal, germanium tetrachloride and zinc germanium phosphide). The move is notable because the metals are used in the production of compound semiconductors, some 5G antennas, optical cables and other technology products.

In a contradictory move, one day after his nation imposed limits on exports of the two key metals, Xi Jinping called on nations to spurn decoupling and the cutting of supply chains. “We want to work with nations to reject the moves of setting up barriers, decoupling and severing supply chains,” Xi said in a virtual speech to Shanghai Cooperation Organization leaders. “We should make the pie of win-win cooperation bigger, and ensure that more development gains will be shared more fairly by people across the world,” he said, according to a text of the comments released late Tuesday by the official Xinhua News Agency.

While China is the leading producer of both metals – 60% of the world’s germanium and 80% of gallium, according to industry association the Critical Raw Materials Alliance (CRMA) – the export restrictions will be disruptive rather than disastrous, as the metals can be mined elsewhere. China is currently the leading producer because it has traditionally offered the metals at low prices, so restrictions might push up prices and cause some supply chain issues, especially in the near term. Countries such as Canada, Belgium, Japan and Germany also have the ability to manufacture germanium. Gallium is also produced in Russia, South Korea, Ukraine and Germany. The decision could therefore end the dragon’s dominance in this sphere. The decision has certainly underscored the urgent need for the world business community to diversify their supply sources.

However, that is a scenario the U.S. and allied countries have long been worried about — not just for these two fairly obscure metals, but f0r the many minerals produced and processed in China in large quantities.

This move comes shortly before U.S. Treasury Secretary Janet Yellen is set to visit China. Beijing on its part has said that the decision has been taken to protect the country’s national security.

This move is seen as a response to news that suggested the US is gearing up to impose new restrictions on the export by companies, such as Nvidia and AMD, of AI chipsets to China. In September, U.S. officials had asked Nvidia to stop exporting two top computing chips for artificial intelligence work to China. Nvidia had said it would offer a new advanced chip called the A800 in China to meet export control rules. The company also tweaked its flagship H100 chip early this year to comply with regulations. But the new curbs is considering to ban the sale of even A800 chips without a special US export license.

The US also might even seek to restrict access by Chinese companies to public cloud platforms run by US companies, such as Amazon Web Services (AWS), Microsoft Azure and Google Cloud.

India.
Gallium is actually a by-product of alumina, and the metal is not found in its pure form in India. Hindalco Industries Ltd at Renukoot in Uttar Pradesh and National Aluminium Co. Ltd at Damanjodi, Odisha, had obtained this element in the past but its production has never been in focus. But in the case of germanium, the country is fully dependent on import.

In FY22, the cost of importing these and other minerals in the same category, such as rhenium, titanium, and vanadium, was $15.07 million for India, and China accounted for 41 per cent of it. In FY23, India’s import declined to $12.21 million but China’s share increased to 51 per cent.

In India, according to Critical Minerals for India, gallium has high economic importance and supply risk but germanium has only high supply risk.

As India now aims to become a global hub for semiconductors, it needs to set up credible supply chains of critical raw materials while boosting its own production.

The need for these items is set to rise globally. It is therefore prudent for the world business community to look at other reliable sources, and possibly invest more in India to build new supply chains.

CT Bureau