China strikes back: export restrictions on computer chip raw materials

This article was last updated on July 4, 2023

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Chinese government announces export restrictions on computer chip raw materials

From August 1, anyone who wants to export two important raw materials for computer chips, among other things, from China must request permission from Beijing. This has been announced by the Chinese government. The message comes just days after the Dutch government announced restrictions for the export of ASML’s chip machines to China.

It concerns the raw materials gallium and germanium. Both are important in the chip industry. In practice, the decision means that exporters must apply for a license to ship these raw materials from China. In addition, they must provide information about the buyers and the applications.

No less than 97 percent of all gallium and 68 percent germanium in the world is mined in China. Both raw materials are important for the production of chips and thus end up in a wide variety of products, from pacemakers and fighter planes to solar panels and laptops.

China’s control over raw materials

“The technologically advanced democracies may dominate the chip chain, but China controls the raw materials,” said Joris Teer, a China specialist at The Hague Center for Strategic Studies. He conducts research into dependence on Chinese raw materials. “Critical raw materials are the backbone of the global economy and our vital industries.”

Weapon against rivals

The question is how the Chinese government will deal with license applications after August 1. “If the export licenses are really no longer issued, this will have far-reaching consequences,” emphasizes Teer.

He does not see Beijing’s step as a direct reaction to the Dutch cabinet decision of last Friday about ASML, but thinks it’s a response to US-initiated efforts to prevent China from learning to build advanced chips itself. The new export restrictions for ASML were probably the last straw. “China’s intervention is part of a trend: major powers are increasingly using bottlenecks in the world economy as a weapon against their rivals.”

For example, ASML was never allowed to export its latest chip machine to China: the Dutch government stopped this under pressure from the Americans. The US also announced restrictions on its own chip sector in October.

ASML’s latest restrictions, which stipulate that some versions of older machines can no longer be shipped to China, take effect one month after the Chinese rules, on September 1.

The two raw materials can also be found elsewhere in the world. For example, Japan, South Korea, Russia, and Ukraine for gallium and Canada, Belgium, the US, and Russia for germanium. However, China has kept the price low and mining the raw materials is expensive, analysts say.