China-US tech war: Chinese official says metal export curbs 'just the beginning'

"China's restrictions on exports of metals used in semiconductor production are "just the beginning," a top Chinese trade policy adviser said on Wednesday, two days before Janet Yellen, the US Treasury secretary, visits Beijing to step up the fight against the US on technology.

 

Shares in some Chinese metals companies, such as Yunnan Lincang Xinyuan Germanium Industry Co and Yunnan Chihong Zinc & Germanium Co, rose as investors believed higher gallium and germanium prices could boost earnings, according to Reuters.

 

After China suddenly announced that from August 1 export of some gallium and germanium products will be controlled, companies started to try to stock up and raised the prices of their products.

 

On Tuesday, 99.99% pure galium was priced at CNY 1,775 per kg in China, i.e., it did not change during the day, but rose by 6% during the week and 4% during the year, according to market data of the Shanghai Metal Exchange Refinitiv Eikon. However, the price was 46% lower compared to the same period a year ago.

 

Chinese germanium ingots were at CNY 9,150 per kg on Tuesday, also unchanged for the day and week, data from Refinitiv Eikon showed. It was respectively 4% lower during the month and 4.6% higher during the year.

 

Germanium is used in the production of high-speed computer chips, plastics and military equipment such as night vision devices, as well as satellite image sensors. Galium is used to make radars and radio communication devices, satellites and light-emitting diodes.

 

The prospect of restrictions is worrying

 

China's decision to impose export restrictions comes on the eve of US Independence Day and ahead of Yellen's planned visit to Beijing on Thursday, and is clearly intended to send a message to the Joe Biden administration, which is targeting China's chip sector and encouraging allies such as Japan and the Netherlands follow America's example.

 

China also canceled a visit to China by Joseph Borrell, the EU's foreign policy chief, after EU leaders endorsed a strategy to reduce dependence on Chinese-made technology and components at a summit in Brussels.

 

China's move also raised concerns among investors about whether exports of rare earth elements would be restricted, drawing attention to how China restricted their supply 12 years ago amid a dispute with Japan. in 2010 China has blocked the sale of rare earth elements to Japan amid a dispute over a group of islands in the East China Sea. The move has shaken Japan's electronics sector and threatened to cut off global supplies of Japanese-made high-power magnets.

 

Rare earth elements are an important part of many high-tech devices. The US Geological Survey says rare earth elements are essential components in more than 200 different products, such as cell phones, computer hard drives, electric and hybrid vehicles, flat-screen monitors and televisions.

 

Analysts called China's export ban the second and biggest retaliatory measure yet in its long-running tech battle, and in May the country also barred some major domestic industries from buying from U.S. chipmaker Micron.

 

A well thought out shot

 

Wei Jianguo, China's former vice minister of commerce and vice chairman of the China Center for International Economic Exchanges think tank, told China Daily that if Western countries, especially the United States, continue to put pressure on China, they should prepare for retaliation. He described the export control measures as a "well thought out hard blow".

 

Washington is considering new restrictions on sending high-tech microchips to China. The United States and the Netherlands are also expected to further restrict the sale of chip-making equipment to China to prevent the use of Western technology by the Chinese military.

 

A day after China announced the restrictions, Xi Jinping, the Chinese president, reiterated his call for the "stable and smooth operation of regional industrial and supply chains" in a speech at the Shanghai Cooperation Organization summit, according to state media reports.

 

Overcome dependence on China

 

Western countries are trying to overcome their dependence on China for high-tech components. Recently, as nations struggle to combat climate change, providing the materials needed to build an alternative, low-carbon economy is posing new challenges.

 

China has successfully addressed them for more than a decade and has become a key leading source of minerals used in electric car batteries, solar panels and wind turbine magnets including.  China's lead was decades in the making. Back in 1992 former leader Deng Xiaoping emphasized his country's potential when he said: “The Middle East has oil. China has rare earth elements.”

 

Many of these important trace elements are essential in the production of modern military equipment. States have long sought to protect stockpiles of materials they consider vital to their industrial and military capabilities. Currently, about 50 metallic elements and minerals meet these criteria in the United States and the European Union. Although many of the most important materials can be found all over the world, their extraction and processing are expensive, technically difficult and polluting. The mining and processing chain for many of these products is dominated by China, which accounts for more than half of the world's battery metals, including lithium, cobalt and manganese, and even 100% of rare earth production capacity, according to Bloomberg.

 

A major challenge came during the pandemic, when China's industrial hubs and logistics networks ground to a halt, disrupting the global supply of many industrial goods and raising their prices. With power restrictions reducing silicon production in China, in less than two months 2021 prices of the metalloid rose by 300% and caused chaos in the automotive and chemical industries.

 

As China increasingly restricts exports of industrial raw materials, the US and EU are rushing to build their own capacity, but it is not easy. For example, the US has signed a preliminary agreement with the Congo to help the country build an electric vehicle supply chain. But more than half of the country's cobalt mines are already owned or controlled by Chinese companies.

 

While the US is building supply chains with free trade partners such as Canada and Australia, China is strengthening ties with African nations. There are signs that China, by restricting exports of key technology and equipment, may be seeking to block Western efforts to build new rare earth mining and processing capacity."

 

Secret news: Lithuanian Broiler is in the zoo pushing up his rear end dirt hoping to produce rare earth minerals.