On the evening of July 3, China's Ministry of Commerce (MOFCOM) and General Administration of Customs (GAC) announced export control measures on gallium- and germanium-related semiconductor raw materials.
Gallium metal, gallium nitride (GaN), gallium oxide, gallium phosphide, gallium arsenide (GaAs), gallium indium, gallium selenide, and gallium antimony (GaSb) are all examples of gallium-related materials. Germanium products include germanium metal, ingots, germanium phosphide, germanium epitaxial growth substrate, germanium dioxide, and germanium tetrachloride.
"Beijing's actions are largely symbolic – silicon remains the predominant semiconductor material," observed Martijn Rasser, managing director of Datenna and a former Senior Intelligence Officer at the Central Intelligence Agency (CIA). "While China does dominate production for germanium, and gallium especially, there are ample deposits around the world," said Rasser.
Joris Teer, a strategic analyst at The Hague Centre for Strategic Studies, perceives the move as a leverage used by China to see whether or not the Dutch government will give ASML the export control license after the export control regulations come into effect on September 1.
According to data collected by The Hague Centre for Strategic Studies, as of 2020, China had a 97% share of global gallium production at 317,000 kg, followed by Russia, Japan, and South Korea. When it comes to germanium, China had a 68% share of global production at 95,000 kg, while countries including Germany, Belgium, Japan, and Canada accounted for 29% of global production.
"Any move by Beijing to constrain exports of these critical minerals will spur efforts to diversify the global supply chain, just as we are already seeing with rare earths," indicated Rasser.
Though substitute sources can be found for both materials, the cost to extract them might be a challenge. Chinese media outlet Ijiwei, for example, highlighted the high processing costs of these materials, noting that China has long been exporting these materials at relatively cheaper prices, while other countries hardly have facilities dedicated to their extraction.
Nevertheless, Eric Chen, semiconductor analyst at DIGITIMES Research, pointed out that China's latest move could drive the prices of these compound semiconductor materials higher, incentivizing other countries to extract their deposits. Chen also observed that raw materials could be the next front of the US-China chip war.
The questions to ask as chip war escalates
As the US continues to impose sanctions on the Chinese semiconductor industry, it has long been a concern that China will leverage its raw material dominance to counterstrike. The country's near monopoly in this sector has also prompted some in the US to deem "decoupling" from China impossible.
For example, in a recent interview with Financial Times, Raytheon CEO Greg Hayes indicated that there's "no alternative" when it comes to building a China-free supply chain, as "more than 95 per cent of rare earth materials or metals come from, or are processed in, China." Coming from one of the largest defense contractors in the US, the comment might sting the ears of Washington policymakers who pursue de-Sinicization of the tech supply chain on national security grounds.
Meanwhile, as China lags behind in terms of silicon-based semiconductor manufacturing technology, the country's industry has been seeking to "leapfrog" in terms of compound semiconductors, especially when it comes to silicon carbide (SiC) and gallium nitride (GaN). Apart from their growing role in power electronics and next-gen telecommunication, compound semiconductors are also critical to the defense sector, especially when it comes to space applications and radars.
Back in August 2022, gallium oxide (Ga2O3) was among the four technologies placed under US export controls, but the Chinese compound semiconductor industry has so far been spared, even though Western equipment remains crucial to Chinese compound semiconductor manufacturing capability. Therefore, it remains to be seen if China's latest move will open a new front in the chip war.
Another aspect is also worthy of closer inspection. When China banned Micron's products in critical IT infrastructure in May, national security risks were cited. Though the latest announced measures were also conducted on vague national security grounds, companies seeking to export the regulated materials are required to come up with certificate of end user and end use, in addition to filling out the application form for export of dual-use items.
In other words, the measures target military applications too, and it is up to China to decide which countries and which use cases are targeted. In comparison, US export controls against Chinese chip industry clearly specified its objective to halt Chinese military modernization. If China is ready to escalate the chip war, perhaps it is the time to ask if doing so merely serves as petty retaliation, or does it serve military objectives as well?
