China hits back in the chip war, imposing export curbs on crucial raw materials

[Daniel Nenni]

Beijing will impose export controls on two rare elements essential for manufacturing semiconductors, in apparent retaliation after the United States and Europe restricted chip exports to China.

Gallium and germanium will be subject to export controls starting August 1 “to protect national security and interests,” China’s Ministry of Commerce said in a statement Monday.

Exporters of these raw materials will need to apply for “special permission from the state” to ship them out the country, the statement said.

Gallium and germanium are used in a variety of products, including computer chips and solar panels. Both are on the European Union’s list of critical raw materials, which are deemed “crucial to Europe’s economy.”

China is by far the world’s biggest gallium producer and a leading global producer and exporter of germanium, according to the U.S. Geological Survey.

The measure is the latest development in the global battle to control chipmaking technology, which is vital for everything from smartphones and self-driving cars to advanced computing and weapons manufacturing.

Beijing’s move comes just days after the Dutch government announced new restrictions on exports of some semiconductor equipment, drawing an angry response from Beijing, according to Reuters. The new rules mean that ASML (ASML), Europe’s largest tech firm, will need to apply for export licenses for products used to make microchips.

Japan and the United States have also taken steps to limit Chinese companies’ access to chips and chipmaking equipment. Italy last month imposed several curbs on Pirelli’s biggest shareholder, Sinochem, to block the Chinese government’s access to sensitive chip technology.

An editorial Monday in a prominent state-owned newspaper China Daily hinted that Beijing’s new policy was retaliation for similar moves by Washington and its allies.

Critics of the decision “could ask the US government why it holds the world’s largest germanium mines but seldom exploits them. Or they could ask the Netherlands why it included certain semiconductor-related products… in its export control list,” the editorial said.

China’s announcement of the new export curbs comes on the eve of a visit by US Treasury Secretary Janet Yellen to Beijing from July 6 to July 9. Yellen will meet with senior Communist Party officials, according to a statement from the Treasury.

China hits back in the chip war, imposing export curbs on crucial raw materials

Beijing will impose export controls on two rare elements essential for manufacturing semiconductors, in apparent retaliation after the United States and Europe restricted chip exports to China.

www.yahoo.com

 

[Daniel Nenni]

An eye for an eye will leave us blind.

 

[Mooredaddy]

This is a losing battle for China. Rare earths aren’t rare, just economically unprofitable because of Chinese dominance and Chinas willingness to do the extremely dirty work of processing them with no pollution controls which gives them a price advantage. If China knee caps its own exports that will just open up the market for other producers to step in at the higher prices taking Chinas share. You can get rare earths elsewhere, there just has to be an economic reason to do so. China cutting them off is just ceding their own market share.

 

[hist78]

This is a losing battle for China. Rare earths aren’t rare, just economically unprofitable because of Chinese dominance and Chinas willingness to do the extremely dirty work of processing them with no pollution controls which gives them a price advantage. If China knee caps its own exports that will just open up the market for other producers to step in at the higher prices taking Chinas share. You can get rare earths elsewhere, there just has to be an economic reason to do so. China cutting them off is just ceding their own market share.

The problem is that CCP/PRC doesn't have too many better options to retaliate those semiconductor sanctions or embargoes.

 

[tonyget]

This is a losing battle for China. Rare earths aren’t rare, just economically unprofitable because of Chinese dominance and Chinas willingness to do the extremely dirty work of processing them with no pollution controls which gives them a price advantage. If China knee caps its own exports that will just open up the market for other producers to step in at the higher prices taking Chinas share. You can get rare earths elsewhere, there just has to be an economic reason to do so. China cutting them off is just ceding their own market share.

（1）According to the US own estimation，it will take them up to 15 years to open a new rare earth mine，so no alternative in short terms

（2）I remember Japan claims to have find rare earth mine under sea，every once in a while，but they never actually do anything. The problem of expensive raw material price is that，your down stream products which rely on these material will become more expensive，thus uncompetitive，unless you move your finished product production to the same location where raw material is being produced，which in this case is China.

（3）China restricts raw rare earth material exports，but not processed products. It is a very common practise nowadys，see Indonesia's ban on nickel and consequently battery producer now have to start to produce battery in Indonesia. In the future，GaN players will probably have to setup plant in China，or buy substrate from Chinese manufactures（which they are doing it already，Infineon signed purchase agreement with SICC and TanKeBlue，ST signed purchase agreement with Sanan）

 

[Xebec]

An eye for an eye will leave us blind.

Don’t worry the governments will just print more eyes

 

[benb]

Quartz will probably be the next thing the US restricts. And that is getting serious, try to operate a fab without diffusion. After that, silicon.

 

[Tanj]

（1）According to the US own estimation，it will take them up to 15 years to open a new rare earth mine，so no alternative in short terms

Gallium and Germanium are not rare earths. They are just very low volume (a few hundred tons) materials that few have invested in producing, since the market is small. China sure has an eye for wanting control of that kind of thing.

They do have refining capacity outside of China. I suppose we will soon find out if any of those can scale up. Much of the gallium consumptions will be in China for diodes used in lighting (which may be on the list next?) so the amount of Ga needed to be scrounged may be modest.

Someone should build a stockpile of small specialized commodities from China. Probably beats stockpiling bitcoins. Just a few months of each would blunt any actions, and these things do not add up to huge sums of money. Which is really the only reason they have undiversified sources.

 

[Tanj]

Don’t worry the governments will just print more eyes

Seems that bureaucrats can behave like pointed sticks.

 

[Barnsley]

The problem is that CCP/PRC doesn't have too many better options to retaliate those semiconductor sanctions or embargoes.

Can ask the folk "吃苦" - (Eat Bitter)

Pampered youth need a taste of old style!

 

[tonyget]

Gallium and Germanium are not rare earths. They are just very low volume (a few hundred tons) materials that few have invested in producing, since the market is small. China sure has an eye for wanting control of that kind of thing.

They do have refining capacity outside of China. I suppose we will soon find out if any of those can scale up. Much of the gallium consumptions will be in China for diodes used in lighting (which may be on the list next?) so the amount of Ga needed to be scrounged may be modest.

Someone should build a stockpile of small specialized commodities from China. Probably beats stockpiling bitcoins. Just a few months of each would blunt any actions, and these things do not add up to huge sums of money. Which is really the only reason they have undiversified sources.

The US has been talking about securing critical minerals for many years already，but so far very little progress has been made

 

[M. Y. Zuo]

Raw gallium supply doesn't seem possible to second source in the short-medium timeframe. Processing is spread across the world from what I understand but they practically all completely rely on the Chinese supply of raw gallium.

I'm not sure if it would take 15 years to replace like another user mentioned, but definitely at least 5 years without some sort of Manhattan project-like speed up.

Then again I'm not the world expert on gallium production, maybe there's some trick to be found. Germanium is much more readily available, the only likely effect will be a large increase in market price.

In any case it's a smart move from Beijing to restrict these instead of rare earths, since there are plenty of high quality rare earth deposits spread across the world, and actually not too expensive or complex to develop either if your willing to accept massive environmental damage.

 

[Tanj]

This is a good summary: https://www.reuters.com/markets/com...erials-germanium-gallium-produced-2023-07-04/

 

[Daniel Nenni]

What people are saying about China's chipmaking export controls

The gallium and germanium export controls that China has recently implemented have a direct impact primarily on the field of compound semiconductors, such as GaAs substrate suppliers Sumitomo, Freiberger and AXT, as well as U.S. GaN substrate suppliers including Cree and II-VI. However, under...

www.yahoo.com

"Gallium and Germanium are not like the rare earths where there is almost no alternative suppliers. These are metals that can be gotten in other ways, by-product of coal mining. The effect of restriction would yes be an increase in price, but not at all as painful for the rest of the world as chip restrictions are for China."

 

[Tanj]

The effect of restriction would yes be an increase in price, but not at all as painful for the rest of the world as chip restrictions are for China."

It is not clear that the refining and high-purity facilities outside China match the demand outside China. If not, then it likely takes time (perhaps years) to replace that. Sure, the ores are widely found, but the refining is not trivial.

 

[Daniel Nenni]

Well, I just did some basic research about how these rare elements are extracted from the earth and what is left behind. It's not a surprise China is dominant as they have very loose environmental and worker safety controls. We went through this same thing when Russia invaded Ukraine and, like US Marines, the semiconductor ecosystem will: adapt, improvise and overcome, absolutely.

Gallium and germanium are extracted from different sources and processes. Here's an overview of their extraction methods:

Gallium Extraction:
Bauxite Residue: Gallium is primarily extracted as a byproduct during the processing of bauxite ore for aluminum production. Bauxite residue, also known as red mud, is a waste product left after extracting alumina from bauxite. Gallium is leached from the bauxite residue using sulfuric acid, and further purification steps are carried out to obtain gallium metal or gallium compounds.

1. Zinc Ores: Gallium can also be obtained as a byproduct during the processing of certain zinc ores, such as sphalerite (ZnS). Gallium occurs in small quantities in these ores and can be extracted through a similar leaching process using acids, followed by purification steps.

Germanium Extraction:
Zinc Ores: Germanium is primarily extracted as a byproduct of zinc ore processing. Zinc ores, such as sphalerite, often contain small amounts of germanium. The ores are processed through various steps, including crushing, grinding, and flotation, to concentrate zinc. During this process, germanium is also concentrated and can be extracted from the zinc concentrates.

1. Coal Ash and Flue Dust: Germanium is also found in some coal deposits. When coal is burned in power plants or industrial processes, the ash and flue dust generated can contain germanium. Germanium can be extracted from coal ash or flue dust through a series of chemical processes, including leaching with acids or alkalis, solvent extraction, and further purification.

After extraction, both gallium and germanium typically undergo additional purification steps to obtain high-purity metals or compounds suitable for specific applications. The extracted gallium and germanium can be further processed and used in various industries, including electronics, optoelectronics, and materials science.

 

[SPQR54]

Gallium is present in bauxite at 10g to 150g per metric ton. By comparison Al is about 250kg per metric ton of bauxite. The real problem is then the extraction process from the byproducts of Al mining. Very dirty process with a relatively low yield. Some are looking into it as it can be a way to valorise all the red mud that gets stored close to Al production facilities. On top of Ga there is also Sc and a few other elements. All depends on the market price of these elements, if high enough the process becomes economic viable, otherwise just buy from China.

 

[Paul2]

The problem is that CCP/PRC doesn't have too many better options to retaliate those semiconductor sanctions or embargoes.

China has extremely good entrenched positions in fast moving products few will be able to substitute it in, and it's surprise they retaliated in such token manner.

They can for example close down roller bearings, and car spare parts and instantly shut down much of American car industry, along with other machinery.

They can withhold pharmaceutical precursors, and it will be a small humanitarian crisis, with no other global pharma players (South Asia) being able to compensate for the reasons they themselves largely rely on China feed stock.

On-shoring even 10% of the capacity China has in machine parts will take many years.

The consumer items are just a peak of the iceberg really, past which most government planners can't see.

And the ultimate disruptor — fasteners is a real nuclear option for the industry. They are used in immense volumes, they require complex machinery to manufacture in high volume, and China has lead in both fasteners themselves, and fastener production machinery. In some speciality automotive fasteners, China is a 100% monopoly.

 

[Paul2]

All depends on the market price of these elements, if high enough the process becomes economic viable, otherwise just buy from China.

And then China will just dump it on the market, and shut down whatever nascent production there will be. This has already happened with neodymium for magnets, and ceria for optics.

 

[hist78]

China has extremely good entrenched positions in fast moving products few will be able to substitute it in, and it's surprise they retaliated in such token manner.

They can for example close down roller bearings, and car spare parts and instantly shut down much of American car industry, along with other machinery.

They can withhold pharmaceutical precursors, and it will be a small humanitarian crisis, with no other global pharma players (South Asia) being able to compensate for the reasons they themselves largely rely on China feed stock.

On-shoring even 10% of the capacity China has in machine parts will take many years.

The consumer items are just a peak of the iceberg really, past which most government planners can't see.

And the ultimate disruptor — fasteners is a real nuclear option for the industry. They are used in immense volumes, they require complex machinery to manufacture in high volume, and China has lead in both fasteners themselves, and fastener production machinery. In some speciality automotive fasteners, China is a 100% monopoly.

PRC hesitated to impose some drastic measures to retaliate US, Japan, South Korea, Taiwan, and European countries because it will hurt PRC itself more severely and speed up the decoupling from PRC even faster.

Using the fastener you mentioned as an example. In 2021 US number one fasteners supplier was Taiwan, not PRC. US fasteners imported from Taiwan was at least two times of the value of from PRC.

Source: https://www.fastener-world.com/data/pdf_download/FW_193_E_202.pdf

On the other hand, many PRC fasteners factories are subsidiaries of or controlled by Taiwanese, Japanese, and German companies who also operate factories in other countries. A fasteners export embargo imposed by PRC will lead those multinational companies to move their productions to other factories in other countries. Those orders won't go back to PRC easily.

Taiwan's labor cost is much higher than PRC's. In 2021 Taiwan's GDP per capita was 2.6 times of PRC's but still managed to export much more fasteners (in value) to US than PRC did. It means more high value and sophisticated fasteners are made in Taiwan than in PRC.