Curbs on Chipmaking Metals 'Just The Beginning', China Warns

China’s export curbs on metals used to make computer chips will be expanded if Western nations continue to limit access to high-tech products, a former senior official has warned.

Former vice commerce minister Wei Jianguo told the China Daily that countries should brace for more bans if they continue to impose trade barriers on China.

The trade adviser, who served as vice commerce minister in 2003-2008 and is now vice chairman of state-backed think tank China Center for International Economic Exchanges, described the curbs on gallium and germanium announced on Monday as a “well-thought-out heavy punch” and “just a start”.

“This is just the beginning of China’s countermeasures, and China’s tool box has many more types of measures available,” Wei said. “If the high-tech restrictions on China become tougher in the future, China’s countermeasures will also escalate.”

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Xi calls for stable supply chains

The comments by Wei echo sentiments by President Xi Jinping and Premier Li Qiang, who have urged countries to reject decoupling or ‘de-risking’ and said that cutting of supply chains will fragment global economic dealings.

A day after China unveiled the curbs, Chinese President Xi Jinping repeated a call for “stable and smooth functioning of regional industrial and supply chains” in a virtual address to leaders attending the Shanghai Cooperation Organization summit, according to state media reports.

China’s abrupt announcement of controls from August 1 on exports of 14 gallium and germanium products, also used in electric vehicles (EVs) and fibre-optic cables, has sent companies scrambling to secure supplies and bumped up prices.

Shares in some Chinese metals companies rallied for a second session, with investors betting that higher prices on gallium and germanium, which Beijing’s export restrictions target, could boost revenues.

Germanium is used in high-speed computer chips, plastics, and in military applications such as night-vision devices as well as satellite imagery sensors. Gallium is used in building radars and radio communication devices, satellites and LEDs.

Announced on the eve of US Independence Day and just before Yellen’s planned visit to Beijing on Thursday, analysts said it was clearly timed to send a message to the Biden administration, which has been targeting China’s chip sector and pushing allies such as Japan and the Netherlands to follow suit.

Ban on rare earths elements could be next

China’s move has also raised concerns on whether restrictions on rare earth exports could follow, they said, pointing to how it curbed shipments 12 years ago in a dispute with Japan. China is the world’s biggest producer of rare earths, a group of metals used in EVs and military equipment.

Analysts have described Monday’s move as China’s second, and so far the biggest, countermeasure in the long-running US-China tech fight, coming after it banned some key domestic industries from purchasing from US memory chipmaker Micron in May.

The Global Times state media tabloid, in a separate editorial published late on Tuesday, said that it was a “practical way” of telling the US and its allies that their efforts to curb China from procuring more advanced technology was a “miscalculation”.

The Chinese commerce ministry did not respond to a request for further comment.

Shares of metals producers rise

Washington is considering new restrictions on the shipment of high-tech microchips to China, following a series of curbs over the past few years.

The United States and the Netherlands are also expected to further restrict sales of chipmaking equipment to China, part of efforts to prevent their technology from being used by China’s military.

Shares in Chinese metals companies such as Yunnan Lincang Xinyuan Germanium Industry Co and Yunnan Chihong Zinc & Germanium Co surged for a second session on Wednesday, with local media reporting that a rise in germanium prices would boost revenue growth for the firms.

Gallium at 99.99% purity in China was trading at 1,775 yuan a kg on Tuesday, unchanged day-on-day, but up 6% week-on-week and 4% year-on-year, respectively, Shanghai Metal Exchange Market data on Refinitiv Eikon showed. It was, however, 46% lower from the same period a year ago.

China’s germanium ingot was priced at 9,150 yuan per kg on Tuesday, also flat on the day and on the week, Refinitiv data showed. It was down 4% month-on-month and up 4.6% year-on-year, respectively.