China Limits Export of Vital Semiconductor Chip Ingredients – Here’s How It Will Affect the Global Fight For Chip-Making Supremacy

In the fight for global chip supremacy, China has imposed a restriction on the export of rare metals used to manufacture chips. This move, which China attributes to national security concerns, has escalated the ongoing technology war between the country, the US, and Europe.

China Retaliates with a Metal Curb

In recent years, China and the US have increasingly engaged in geopolitical wars, especially around technological advancements. Each of these economic giants is looking to dominate the tech industry in areas such as Artificial Intelligence(AI) and quantum computing.

China took a shot at the US by declaring a limitation on the export of gallium and germanium which are fundamental in the chip-making process. The former is a soft silver metal used to produce compound semiconductor wafers for electronic circuits, semiconductors, and light-emitting diodes.

Germanium is used in the manufacturing of semiconductor chips as well as other advanced technology such as fiber optics used to transmit data and information. The curb has been extended to include the metals’ compounds such as gallium arsenide, gallium selenide, phosphorus germanium zinc, and others.

According to the statement, the ban is expected to take effect on 1 August after which exporters will require licenses from the Ministry of Commerce to continue exporting the metals. Additionally, exporters will be required to provide a report of their buyers and the applications for which they intend to use the minerals.

The Chinese government also declared punishment to any exporter who exports without a license or an excess over the approved amount or even to an unapproved region.

The Future of Chip-Making

According to the UK Critical Minerals Intelligence Centre, China accounts for about 94% of the global supply of gallium. The country also supplies 83% of the world’s germanium, making it a major player in the chip-making industry.

Despite the massive market share, the metals are not necessarily difficult to find outside of China. China’s dominance in the area has been fueled by its ability to provide the metals at extremely low prices such that other countries can barely compete.

As such, the limited supply of the metals in the global market will increase the price possibly luring other countries to begin production. Other nations that produce gallium include Japan, South Korea, Russia, and Ukraine. Russia, the United States, Canada, Belgium, and Belgium all manufacture germanium.

Eventually these countries may be able to produce the metals at a similar price as China, potentially destroying its advantage in these 2 mining industries.

“When they stop suppressing the price, it suddenly becomes more viable to extract these metals in the West, then China again has an own-goal,” explained Christopher Ecclestone, principal at Hallgarten & Co.

“For a short while they get a higher price, but then China’s market dominance gets lost – the same thing has happened before in other things like antimony, tungsten, and rare earths,” he said.

China’s decision to restrict critical mineral exports (germanium and gallium) will hit key sectors in the European Union’s effort to decarbonize its economy. This also demonstrates the limits of western aspirations to shift supply chains beyond the reach of policymakers in pic.twitter.com/PHO2YyUN28

— Francesco Sassi (@Frank_Stones) July 4, 2023

According to a Reuter report, representatives of Taiwan’s foreign ministry and South Korea’s industry ministry said that the Chinese restrictions would not have much of an immediate impact.

However, the South Korean industry ministry noted that a possible expansion of the restrictions to include additional materials cannot be ruled out.

The Global Chip Supremacy Battle

China’s move comes after the US and its allies stepped up their efforts to cripple the country’s technological rise. In October, the U.S. introduced broad regulations with the intention of halting the export of crucial semiconductors. The country is further looking to restrict the export of powerful computing chips used for AI developments in a bid to slow the country down in its AI endeavors.

Whereas the US and China are often portrayed as racing to have global dominance with AI, "Chip War" effectively makes the case that the race to have global dominance with semiconductors could be even more significant. And that part of the story is by no means over. (End thread.)

— David Wood (@dw2) June 29, 2023

Earlier this year, the Chinese government forbade the use of equipment from US chipmaker Micron Technology Inc. in some of its crucial industries. The country claimed that it discovered “relatively serious” cybersecurity threats.

Since then, the US has lobbied some of the key chip-making countries such as Japan and the Netherlands to implement restrictions of their own on exports to the country. To that end, the Dutch government announced restrictions on Friday that will stop ASML Holding NV from selling some of its equipment to China.

ASML Holding NV has a near-monopoly on the machinery required to create the most cutting-edge semiconductors. By so doing, not only do these countries prevent the supply of ready-made chips to China, but they also inhibit the country’s ability to manufacture its own.

Japan is also gearing up to make a move by acquiring a major industry player. The government through a state-back investor, JIC, bought out JSR, a critical link in the global semiconductor supply chain, for $6.4 billion.

According to JSR’s CEO, Eric Johnson, the partnership is meant to accelerate the company, not at all a government ownership. However, analysts speculate that the action may have been taken by the Japanese government in an effort to influence the private sector to prioritize national strategy over financial reason.

All in all, the global war over technology is far from over. The rest of the world is expected to feel the effects of these curbs concerning semiconductors seeing as they power everything from smartphones to cars and refrigerators and are critical to advancing artificial intelligence.

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