An important Chinese trade policy adviser claimed on Wednesday that China’s export restrictions on metals used in semiconductors are “just a start” as Beijing intensifies its tech war with Washington just days before Treasury Secretary Janet Yellen’s arrival.

Investors bet that higher prices for gallium and germanium, which Beijing’s export restrictions target, may improve earnings, and shares of certain Chinese metals businesses rose for a second session.

Germanium is utilised in plastics, high-speed computer circuits, night-vision equipment, satellite imagery sensors, and other military uses. Satellites, LEDs, radio transmission equipment, and radar all require gallium.

Companies are trying to obtain supply, and costs have increased as a result of China’s surprise declaration that export restrictions on select gallium and germanium materials, which are also used in EVs and fibre optic cables, will go into effect on August 1.

Wei Jianguo, a former vice minister of commerce, told the China Daily newspaper on Wednesday that if other nations put more pressure on China, “well-thought-out heavy punch” measures would be “just a start” and that they should be prepared for more.

“If restrictions targeting China’s high-technology sector continue then countermeasures will escalate,” added Wei, vice commerce minister 2003-2008 and now vice chairman of China Center for International Economic Exchanges, a state-backed think tank.

Analysts said the controls were clearly timed to send a message to the Biden administration, which has been targeting China’s chip sector and pressuring allies like Japan and the Netherlands to follow suit. The controls were announced on the eve of the United States’ Independence Day and just before Yellen visits Beijing starting on Thursday.

Analysts refer to a ban on shipments imposed 12 years ago as a result of a dispute with Japan as evidence that restrictions on rare earth exports may follow China’s action, which has also sparked concerns.

The majority of rare earths, a class of metals used in EVs and military hardware, are produced in China.

Analysts have labelled China’s action on Monday, which comes after a ban on some important domestic businesses from buying from American memory chipmaker Micron in May, as its second and more significant countermeasure in the protracted U.S.-China tech spat.

It was described as a “practical way” of informing the United States and its allies that its efforts to prevent China from acquiring more sophisticated technology were a “miscalculation” by the state-run Global Times state media tabloid in a separate editorial that was published late on Tuesday.

An inquiry for additional comments was not answered by the Chinese ministry of trade.

When asked about the metal export restrictions, Wang Wenbin, a spokeswoman for the Chinese foreign ministry, said on Wednesday that the government’s actions were reasonable and legal. He stated at a routine press conference that some member states of the European Union also limit exports of some connected commodities.

“Our action is not targeted at any specific country,” Wang said.

Gallium export restrictions by China are seen by some larger chip manufacturers as more of a warning shot about the potential economic harm that nation may cause.

Others have already issued warnings that China could, for instance, ban graphite shipments if it truly wanted to hurt international automakers.

According to Benchmark Mineral Intelligence, China produces 61% of the world’s natural graphite and 98% of the finished product used to build EV battery anodes.

Under the condition of anonymity, a source at a significant western chip producer said China’s gallium move appears more like “a message that they can hit back rather than intending a real punch.”

NXP Semiconductors, a chipmaker, stated that it was assessing how the regulations may impact its company.

Some businesses, notably Swiss sensor manufacturer AMS Osram, saw their share prices decline due to supply shortage worries.

Expectations of increased demand helped Teck Resources, the largest producer of germanium in North America, and MP Materials, a rare earth miner, increase their stock prices.

The revelation has already prompted producers to start responding.

State-owned miner Gecamines of the Democratic Republic of the Congo said its new plant, which will open in September, may help close the production gap in germanium, while Russia said it was prepared to increase output to fulfil domestic demand.

Umicore, a Belgian company, expressed confidence in its ability to keep up with client demand.

Following a number of limits in recent years, Washington is now exploring new limitations on the export of microchips to China.

Sales of chip manufacturing equipment to China are also anticipated to be further restricted by the US and the Netherlands as part of their efforts to stop the Chinese military from utilising their technology.

State media said that President Xi Jinping addressed leaders at the Shanghai Cooperation Organisation conference almost the day after China disclosed the measures, urging them to avoid decoupling and breaking supply networks.

On Wednesday, shares of Chinese metals firms such as Yunnan Lincang Xinyuan Germanium Industry Co and Yunnan Chihong Zinc & Germanium Co rose for a second session as local media reported that an increase in germanium prices would support the companies’ revenue growth.

According to Shanghai Metal Exchange Market statistics on Refinitiv Eikon, gallium at 99.99% purity was trading for 1,775 yuan ($245) per kg on Tuesday, unchanged from the day before but up 6% and 4%, respectively, week over week and year over year. However, it was 46% lower than it had been during the same time last year.

According to Refinitiv statistics, the price of China’s germanium ingot on Tuesday was 9,150 yuan per kg, which was flat for the day and the week. It decreased 4% from month to month while increasing 4.6% from year to year.

(Adapted from ThePrint.in)

Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy