Munich Only one week left until Chinese manufacturers have to apply for a license to export gallium and germanium. The government in Beijing announced this. Western chip companies could then be cut off from the supply of materials that are very important for some types of semiconductors. Because China is by far the most important producer of raw materials in the world.
Western experts see the export restrictions that will come into effect next Tuesday as a sign that Beijing is ready to retaliate in the chip dispute with the USA – albeit initially only to a limited extent. “It’s a warning shot, nothing more,” says Mirko Woitzik from the supply chain specialist Everstream. Gartner analyst Sridhar Srinivasan emphasizes: “The export has not been stopped, only permission has to be obtained.”
Nevertheless, the semiconductor companies are worried, emphasizes Ondrej Burkacky, chip expert at the management consultancy McKinsey: “The fear in the industry is that this is not the end of the road.”
Because the Chinese leadership could effectively retaliate for the US restrictions on chips. However, according to industry observers, she would then have to resort to other means. “China has the greatest leverage with silicon wafers,” explains Woitzik. “The country produces these discs in large numbers, and the suppliers cannot be replaced that quickly.”
Silicon wafers are the basis for most chips worldwide. China supplies them in large quantities to Taiwan, where the world’s most advanced semiconductors are produced.
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However, if Beijing were to restrict exports, domestic customers could soon run out of supplies. Because factories for such chips do not exist in the People’s Republic. Export restrictions would therefore have serious consequences for the already weakening Chinese economy.
That’s not all: According to consultant Burkacky, China could also affect wafer production in the important producing nations Japan and Taiwan if the country restricts the export of high-purity silicon. This is the material that the wafers are made of. Here, too, China is dependent on imports.
Recently, the semiconductor dispute between the world’s largest economies has escalated. The USA has been trying for a long time to prevent China from setting up advanced chip production. The government in Washington has recently achieved an important success and brought Japan and the Netherlands to its side. Alongside the USA, these are the most important manufacturing countries for semiconductor equipment.
The People’s Republic is thus as good as cut off from the most modern machines and also from spare parts and service for systems already installed.
Chinese chipmakers cannot expand
This is painful for China. The domestic companies could not expand as planned, says Everstream expert Woitzik. This is not having an effect at the moment because business in large parts of the semiconductor industry is going badly anyway. But in the coming years there could be a lack of capacity, even for customers from the West.
In addition, the government of US President Joe Biden recently further restricted the export of high-performance chips to China, at least on paper. On the one hand, more and more companies in China are no longer allowed to be supplied. On the other hand, certain chip models are subject to export controls, especially those of the US processor specialist Nvidia.
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In practice, the United States has so far treated export licenses rather favorably, explains Everstream expert Woitzik. This was the result of an analysis of his company. “The US approved more than two-thirds of all export license applications to China last year. That surprised us.” Sometimes, at best, the delivery was delayed.
China only intervenes in niche markets
Experts assume that China will initially be just as generous with the export licenses for gallium and germanium. “It looks like this is negotiable with the authorities,” says Gartner analyst Srinivasan. The prices for the materials would already be rising. But these are only niche markets anyway.
In addition, gallium can also be produced outside of China. So far no one in the chip industry has been interested in this because the material is available very cheaply in the People’s Republic. McKinsey expert Burkacky is convinced that “it will take one to two years to ramp up capacities for the production of gallium and germanium outside of China again.”
Chips made of gallium nitride (GaN) are considered to be the industry’s greatest hope for growth. One of the most important providers is the Munich-based Dax group Infineon. Electronic devices can be charged faster and with less loss with GaN chips. For example, manufacturers can offer much more compact and efficient battery charging units for smartphones or electric vehicles.
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Market researchers expect sales of GaN chips to be two billion dollars in 2027. Until then, however, the manufacturers still have enough time to develop alternative sources of supply for gallium. That could be producers in Australia, Brazil or India, according to Gartner expert Srinivasan.
However, the experts firmly believe that the conflict will continue to escalate. “We will see such state interventions more frequently in the future,” warns Srinivasan. Because there are enough raw materials that individual countries can use to put others under pressure.
“The list of critical materials in the chip industry is often 150 to 200 items,” says McKinsey’s Burkacky. “And often 20 to 30 of them come from just one region or just one provider.”
This will lead to the chip companies expanding their supplier base. Ultimately, China’s punitive measures should therefore mean that buyers in the West will no longer rely solely on suppliers from the People’s Republic.
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