China’s export restrictions on semiconductor materials have raised concerns about chip production

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Chinese export controls on key semiconductor materials are affecting supply chains and raising fears of shortages in Western production of advanced chips and military optical hardware.

Beijing’s restrictions on shipments of germanium and gallium, which are used for semiconductor applications and components of military and communications equipment, have seen prices of the minerals in Europe nearly double over the past year.

China introduced the restrictions, which it says protect its “national security and interests”, last year in response to US-led controls on sales of advanced chips and chip-making equipment.

Subsequent export restrictions and controls have highlighted Beijing’s dominance of the global supply of dozens of crucial resources.

The country produces 98 percent of the world’s gallium supply and 60 percent of Germanium, according to the US Geological Survey.

“The situation with China is critical. We depend on them,” said one person who works at a major consumer of semiconductor materials.

Analysts said the controls made it clear that President Xi Jinping’s government is willing to target Western economic interests to counter controls on China’s access to cutting-edge chips and other advanced technologies.

The person at the affected company said that while some large shipments of Chinese gallium are still being made, total exports have fallen by about half since the controls were implemented.

“If China reduces gallium exports as it did in the first half of the year, then our reserves will be used up and there will be shortages,” they said.

Jan Giese, senior manager of minor metals at Tradium, a Frankfurt-based trader, said the gallium and germanium his group was able to obtain through China’s new export license program was “a fraction of what we have bought in the past”.

“These export controls put this extra stress on everything outside of China and another level of complexity to markets that are already difficult to navigate,” Giese said.

The two materials are critical to the production of advanced microprocessors, fiber optic products and night vision goggles, so Beijing’s continued export curbs could disrupt the production of such goods.

Beijing also announced export restrictions this month on antimony, a mineral used in armor-piercing munitions, night vision goggles and precision optics. The move followed China’s imposition of controls on exports of graphite and technologies used in the extraction and separation of rare earths.

Germanium prices have risen 52 percent since early June to $2,280 a kilogram in China, according to data provider Argus.

“The Chinese aren’t even offering germanium overseas now,” said Terence Bell, manager of Vancouver-based Strategic Metal Investments, a minor metals trader.

Under the gallium and germanium controls, each individual shipment needs approval, which takes between 30 and 80 days and makes long-term supply contracts unviable because of the uncertainty, traders said. Applications must specify the purchaser and intended use.

Cory Combs, associate director at Beijing-based consultancy Trivium China, said Beijing’s main motivation was to “send signals” that it could fight back against US-led pressure on vital Chinese companies and industries.

“Ultimately, the biggest reason (for controls) is that if they ever want to block exports to a certain place, they can deny licenses,” he said.

Traders blamed Chinese stocks for the rise in the price of germanium, which is used to make advanced chips, fiber optic cables, solar panels and military thermal cameras.

Giese said the amount of germanium stockpiled was a matter of market speculation, but “what is almost certain . . . is that the total volume in question represents a significant share of China’s annual production’.

China’s foreign ministry declined to comment.

Trivium’s Combs said Beijing saw export controls in part as a way to secure its own supply of materials used in clean energy technologies at the heart of the country’s industrial modernization.

China was using the restrictions to help its efforts to catch up with the U.S. and other leaders in semiconductor technology, said the person at the company, which is a big user of semiconductor materials.

“Assuming the global situation and the US-China relationship remains as it is, then I see no motivation for China to relax export controls,” the person said.