China’s decision to officially implement export regulations on gallium and germanium-related products has raised concerns over its potential impact on the global supply chain and semiconductor industry.
The move, starting from August 1, 2023, requires Chinese companies to obtain an export license for these metals and any products containing them.
China’s Export Regulations Spark Supply Chain Concerns
Many experts view this move as a retaliation against restrictions imposed on China’s semiconductor sector by the US, Japan, and the Netherlands in recent quarters.
Gallium and germanium are crucial components used in various high-tech industries, particularly in the production of semiconductors.
According to researchers, China has significant control over global gallium and germanium production, accounting for 94% or more of gallium production and approximately 60% of global germanium output.
This newfound export regulation has the potential to impact Japan’s chipmaking industry, which heavily relies on China for 40% of its gallium supply.
The announcement of these export curbs in early July had an immediate effect, leading to a nearly 20% surge in gallium prices in the US and Europe.
While China justifies these regulations as a matter of national security, they are widely perceived as a response to the restrictions imposed on China’s high-tech sector by other nations.
The impact of these regulations will be felt keenly in Japan, the world’s largest consumer of gallium.
Over 40% of Japan’s gallium is sourced from scrap and other sources, with 60% imported, and 70% of these imports coming from China.
Consequently, around 40% of Japan’s gallium supply relies on the People’s Republic of China.
Japanese companies are closely monitoring the situation and considering diversifying their suppliers to mitigate potential supply disruptions.
Mitsubishi Chemical Group, a major producer of compound semiconductors, assures that it has sufficient stock in Japan to weather any immediate supply issues.
Similarly, companies like Sumitomo Chemical and Nichia Corp., makers of gallium nitride substrate and LEDs respectively, express similar sentiments.
Read more: China’s Military Reorganization: Uncovering Corruption Or Weakness
Export Control Strategy and Potential Global Ramifications
Despite these regulations, China’s Ministry of Commerce insists that the quality and quantity of gallium and germanium exports will remain unaffected.
Exports will continue as long as exporters comply with national security protocols and regulatory criteria.
For now, Japanese companies have not experienced any disruptions in raw material procurement or other business activities.
This move by China follows a previous decision in 2019 by the Japanese government to restrict chipmaking materials exports to South Korea, eliciting strong opposition from China.
The backdrop of curbs on advanced semiconductor exports from the US and Japan, former Chinese vice minister of Commerce Wei Jianguo warns that these export controls on gallium and germanium could be the beginning of further retaliatory actions.
China may leverage its dominance in certain commodities as a tool for economic and diplomatic pressure in the future.
Gallium and germanium, while not rare, have been kept at low prices due to China’s cheap refinement process, making extraction in other regions less economically viable.
The new export restrictions could initially lead to price rises and supply disruptions in certain components.
However, in the long run, these regulations may incentivize companies in other countries to mine these metals, potentially challenging China’s market supremacy.
Interestingly, the US Pentagon has recently announced plans to recover gallium from waste electronics, demonstrating the growing importance of these metals in strategic industries.
Read more: US Eyes Pacific Missile Upgrades Amid China Concerns
