China’s reluctance to restrict metal exports through the chip sector

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Trade officials were assessing the implications of the latest escalation in the technology battle between the United States and China after Beijing said it would impose restrictions on exports of metals used to make chips.

South Korea’s Commerce Ministry held an emergency meeting to discuss China’s decision to control exports of gallium and germanium, metals used in chips, electric vehicles and a range of telecom products.

“We cannot rule out the possibility of extending the measure to other items,” said Go Young-joon, South Korea’s vice minister of commerce.

Japanese Trade Minister Yasutoshi Nishimura said Tokyo is studying the impact on its companies as well as checking Beijing’s plans to implement controls. Tokyo has kept the door open for action in the WTO, warning that it will oppose any breach of international rules.

South Korea and Taiwan are home to Samsung and TSMC, two companies that dominate semiconductor manufacturing, while Japanese groups play an important role in the chip supply chain.

Taiwan’s Vice Foreign Minister Roy Lee said Beijing’s move was likely to have some short-term impact, including an increase in prices. Lee added that the export controls “will be a kind of accelerator for countries like Taiwan, South Korea and Japan to reduce our dependence on China to supply those vital materials.”

In Germany, Europe’s largest metals importer, Wolfgang Niedermark, a board member of industry lobby group BDI, said the controls showed how dangerous Europe’s dependence on China was.

He added that there was an “urgent need for Europe and Germany to rapidly reduce dependence” on China for critical raw materials. The German government will provide Intel with €10 billion in support for a project to build a manufacturing plant in Magdeburg.

Beijing’s announcement on Monday demonstrated the willingness of President Xi Jinping’s administration to target Western interests in response to Washington’s tightening restrictions on China’s access to cutting-edge technology. The restrictions on minerals are important because China dominates the production of many raw materials important for modern technology and infrastructure.

Chinese Foreign Ministry spokesman Mao Ning said Tuesday that China has “always implemented fair, reasonable and non-discriminatory export control measures.” It said the measures were “common international practice and not targeted at any particular country”.

Gallium and germanium are among dozens of metals designated by the US government as essential to economic and national security. The US State Department did not immediately respond to a request for comment.

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The move comes just days before US Treasury Secretary Janet Yellen’s visit to Beijing, which begins on Thursday, on a trip described as an attempt to stabilize troubled US-China relations.

“This sounds like a punchline from China thrown at the US — a warning about what supply chain disruptions can do to inflation, interest rates, and presidential elections,” said CW Chung, an analyst at Nomura, in Singapore.

According to officials and experts in China, Beijing is expected to take further retaliatory measures in response to the expansion of US-led controls on technology exports.

“There will be more retaliatory measures against escalating semiconductor export controls from Western countries,” said a senior official close to China’s Ministry of Commerce.

Shares in Chinese producers of gallium and germanium rose on Tuesday after the announcement, with traders expecting export controls to push up prices for the metals.

Yunnan Lincang Xinyuan Germanium Industrial closed up 10 percent as the maximum allowed in Shenzhen on Tuesday, while Yunnan Zhihong Zinc Germanium shares closed up 6 percent. The combined rise added $350 million to the companies’ combined market capitalization.

“We will see China engage in extraterritorial application of its laws, reneging on treaty obligations, and imposing countermeasures in a reciprocal fashion — all in the name of China’s perceived national security and public interest,” said James Zimmerman. Attorney at Perkins Coie in Beijing.

Zimmerman also noted that last week China passed a foreign relations law that, in Beijing’s view, strengthened the legal basis for countermeasures against Western threats to national and economic security.

Kim Young-paing, a researcher at the Korea Institute of Industrial Economics and Trade, said the restrictions were “concerning” for South Korean chipmakers.

Korean companies can find alternative sources, but it will take time. . . If you lack some material, no matter how important it is, it may affect the production of chips.

Samsung and SK Hynix, the world’s two largest producers of memory chips, declined to comment.

Infineon, the automaker’s largest supplier of semiconductors, said it did not see any “significant impact” on supplies of the material. The Munich-based company added that the ban follows a “multi-sourcing strategy to include suppliers in different geographies.”

The Chinese nationalist Global Times newspaper said the export controls came after the United States and some of its allies “intensified crackdowns on China’s technological development”.

(Reporting by Edward White and Song Jung A. in Seoul, Available here. Qianer Liu, Hudson Lockett, Gloria Li and Greg McMillan in Hong Kong, Kathrin Hille in Taipei, Kana Inagaki in Tokyo and Patricia Nilsson in Frankfurt