An important Chinese trade policy adviser warned Wednesday that China’s export limits on semiconductor metals are “just a start” as Beijing escalates a tech fight with Washington days before Treasury Secretary Janet Yellen’s arrival.

Investors bet that rising gallium and germanium prices, which Beijing’s export restrictions target, would enhance revenues for some Chinese metals companies for a second session.
High-speed computer circuits, polymers, and military night-vision and satellite photography sensors require germanium. Radars, satellites, and LEDs use gallium.

China’s sudden export limitations on gallium and germanium goods used in electric vehicles (E.V.s) and fiber optic cables have pushed companies rushing to obtain supply and raised prices.

Former Vice Commerce Minister Wei Jianguo told China Daily on Wednesday that the controls were a “well-thought-out heavy punch” and “just a start” if pressure continued.

“If restrictions targeting China’s high-technology sector continue, countermeasures will escalate,” said Wei, vice commerce minister from 2003-2008 and currently vice chairman of China Center for International Economic Exchanges, a state-backed research tank.

Analysts said the controls were timed to send a message to the Biden administration, targeting China’s chip sector and pushing allies like Japan and the Netherlands to follow suit.

Analysts say China’s move could lead to rare earth export limitations, citing a 12-year-old disagreement with Japan.

China produces rare earths, metals needed in E.V.s, and military equipment.

After banning several major domestic businesses from purchasing from U.S. memory chipmaker Micron (MU.O) in May, Monday’s move was China’s second and larger countermeasure in the long-running U.S.-China tech conflict.

In a late Tuesday editorial, the Global Times state media tabloid called it a “practical way” to remind the U.S. and its allies that their efforts to prohibit China from acquiring more advanced technology were a “miscalculation.”

Requests for feedback from the Chinese commerce ministry were ignored.

On Wednesday, Chinese foreign ministry spokesperson Wang Wenbin called the metals export limitations fair and legal. He told a regular press briefing that certain European Union governments restrict exports of related goods.

“Our action is not targeted at any specific country,” Wang stated.

Warning shot

Some major semiconductor firms see China’s gallium export limitations as a warning of economic anguish.

Others have worried that China may regulate graphite exports to affect global automakers.

Benchmark Mineral Intelligence reports that China produces 61% of natural graphite and 98% of E.V. battery anodes.

Speaking anonymously, a prominent Western chip industry source said China’s gallium move appears more like a “message that they can hit back rather than intending a real punch.”

Gecamines, a DRC state miner, said its September unit might assist in addressing the germanium output deficit.

After several years of limitations, Washington proposes additional semiconductor export limits to ChThe, the U.S. and Netherlands are expected to restrict chipmaking equipment supplies further to prevent the Chinese military from using their technology in China.

In a virtual address to leaders at the Shanghai Cooperation Organisation meeting, President Xi Jinping urged nations to avoid decoupling and disrupting supply chains a day after China announced the limitations, official media reported.

On Wednesday, Chinese metals companies, including Yunnan Lincang Xinyuan Germanium Industry Co (002428. S.Z.) and Yunnan Chihong Zinc & Germanium Co (600497. S.S.), rose again on reports that rising germanium prices will enhance revenue growth.

Shanghai Metal Exchange Market data on Refinitiv Eikon indicated that gallium at 99.99% purity was trading at 1,775 yuan ($245) a kg on Tuesday, steady from the day before but up 6% week-on-week and 4% year-on-year. It fell 46% from a year earlier.

Refinitiv data revealed that China’s germanium ingot was 9,150 yuan per kg on Tuesday, flat on the day and week. It fell 4% month-over-month and rose 4.6% year-over-year.