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Extractive summaries and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Week 305 | July 14-20, 2023

China just fought back in the semiconductor exports war. Here’s what you need to know.

By Zeyi Yang | MIT Technology Review | July 10, 2023

Listen to the Extractive Summary of the Article

China has been on the receiving end of semiconductor export restrictions for years. Now, it is striking back with the same tactic. On July 3, the Chinese Ministry of Commerce announced that the export of gallium and germanium, two elements used in producing chips, solar panels, and fiber optics, will soon be subject to a license system for national security reasons. That means exports of the materials will need to be approved by the government, and Western companies that rely on them could have a hard time securing a consistent supply from China. 

The move follows years of restrictions by the US and Western allies on exports of cutting-edge technologies like high-performing chips, lithography machines, and even chip design software. The policies have created a bottleneck for China’s tech growth, especially for a few major companies like Huawei.

But even though they immediately sent the price of gallium and germanium up, China’s new curbs are not likely to hit the US as hard as American export restrictions have hit China. These two raw materials, though they are important, still have relatively niche applications in the semiconductor industry. And while China dominates gallium and germanium production, other countries could ramp up their own production and export enough to substitute for the supply from China.

The Chinese government may be seizing stronger control of the supply chain for now, but the added uncertainty of the licensing regime will cause foreign importers of gallium and germanium to look elsewhere for a more reliable supply. Most people agree that these export restrictions may not be beneficial to China in the long run.  As this may force suppliers to diversify their supply of gallium, germanium, and other critical minerals.

Gallium and germanium, while important, don’t represent the worst pain China could inflict on the raw materials front. “It’s giving the global system a little pinch, showing that we have the capability to cause a bigger pain sometime down the road,” says Lu. 

That could come if China chooses to clamp down again on the export of rare-earth elements. Or the materials used in making electric-vehicle batteries—lithium, cobalt, nickel, graphite. Because these materials are used in much greater quantities, it’s more difficult to find a substitute supply in a short time. They are the real trump card China may hold at the future negotiation table.

3 key takeaways from the article

1. China has been on the receiving end of semiconductor export restrictions for years. Now, it is striking back with the same tactic. On July 3, the Chinese Ministry of Commerce announced that the export of gallium and germanium, two elements used in producing chips, solar panels, and fiber optics, will soon be subject to a license system for national security reasons. 
2. That means exports of the materials will need to be approved by the government, and Western companies that rely on them could have a hard time securing a consistent supply from China. 
3. Gallium and germanium, while important, don’t represent the worst pain China could inflict on the raw materials front.  That could come if China chooses to clamp down again on the export of rare-earth elements used in making electric-vehicle batteries. It’s more difficult to find a substitute supply in a short time.

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Topics:  China, Rare Earth Metals, Global Economy