Another China challenge

Export controls will affect high-tech businesses

China’s decision to impose export controls on eight gallium products and six germanium products has set off supply-chain uncertainties across the semiconductor industry and, by extension, all the high-tech areas in which chips are essential components in the value chain. This is in apparent retaliation to the blocking of the export of high-end semiconductor manufacturing equipment to China by the US, Japan, and the European Union. For India, production-linked incentive initiatives like the Rs 76,000 crore “Semicon India Programme” could hit a hurdle. Supply constraints may also affect downstream production in multiple industries. Export from China will need licences and it is unclear exactly how onerous that process may be. In 2022, China produced over 98 per cent of global gallium and over 67 per cent of germanium. India produces a little amount of gallium as a by-product of aluminium smelting since this metal is found in bauxite ores. However, it imports all its germanium, though it is found in certain categories of coal and in zinc ores. Both metals are on India’s “critical minerals list”.

Gallium is used in semiconductors, circuit boards, light-emitting diode (LED) devices, thermometers, and barometric sensors. Germanium is used in optical fibres, solar cells, camera and microscope lenses, and infrared night-vision systems. Every business and research and development lab that needs these two metals is scrambling for Chinese export licences. Inevitable fears of supply disruption have led to a spike in prices. This will spark a worldwide hunt for alternative sources. More broadly, it may trigger a search for other critical natural resources, for which China is the go-to supplier. As of now the government has assured industry that India will not suffer a supply crunch in gallium and germanium. However, while the India-US Initiative on Critical and Emerging Technology (iCET) may help source such metals in future, a temporary supply crunch may be likely.

Gallium and germanium are not rare. But China is the only nation to have invested in mining and refining these two metals and, hence, the only cost-effective producer. Other nations that possess reserves will be looking to set up refining facilities. But that could take years and it is an open question whether alternative suppliers can match China in terms of cost. China is also the world’s major supplier of a range of rare earths and lithium, for which it has tied up substantial supplies. Rare earths are indispensable for renewable-energy equipment and semiconductors. Electric-vehicle technology is built around lithium-ion batteries. The sudden policy decision to curb exports of gallium and germanium,thus, may lead to other nations examining the possibility of setting up alternative supplies of these critical minerals for which China holds a monopoly.
 

While fossil-fuel geopolitics is complicated, there are 23 members of the Organization of the Petroleum Exporting Countries (Opec)-plus and non-Opec exporters like the US and Canada. Hence, importers of fossil fuels can find alternatives if there is a diplomatic issue with some exporters. The geopolitics of rare earths, lithium, gallium, germanium, and other such metals could get more complicated, given there is only one large supplier. The transition to green energy and the thrust to develop high-tech industries could be jeopardised if China imposes similar export controls on other minerals. Given the political leverage China possesses as a result of its monopolies and given the difficult relationship between the two Asian giants, India must negotiate this situation carefully.