By Rhod Mackenzie
China is imposing export controls on two key metals in the semiconductor industry: gallium and germanium. This statement was made by the Ministry of Commerce and the General Administration of Customs of China. Officially, the decision was driven by concern for national security. As explained by the English-language China Daily, this means saving strategic resources for their own needs, since demand for gallium and germanium is growing rapidly in the domestic market. In addition, the newspaper recalled: mining on a large scale is harmful to the environment and the Chinese are heading to protect it. However, few believed in these formal reasons.
The fact is that a few days earlier the government of the Netherlands (the headquarters of ASML, a monopolist in the lithography market, is located in Veldhoven) announced tougher export controls on semiconductor equipment and technologies manufactured in the country. If earlier the restriction concerned only the export of the latest EUV installations for creating chips with a topology of 7–3 nm, now DUV lithography, which is used to produce most integrated circuits, has also been banned. The introduction of measures restricting sales, the authorities on duty explained with national security considerations, noting that the products can be indirectly used for military purposes. Obviously, this attack was lobbied by the US and is a continuation of the US trade war against China, the main battles of which unfolded in the semiconductor market.
The Chinese ban on the export of gallium and germanium is the first tangible counterblow to the collective West. It is too early to say who has more trump cards in this tough game, but it is already clear that the damage from mutual sanctions will be significant for all participants, even for those who are not directly involved in the US-China technological confrontation. First, gallium and germanium will rise in price, as it will take time to replace Chinese supplies of these metals (gallium is produced in Russia, South Korea and Japan, and germanium in Belgium, Canada and Germany, albeit in relatively small volumes) to the world market. and investments. Secondly, business will suffer, the same ASML, which itself did not impose sanctions on the supply of its products to China. “Everyone will lose from the segmentation of the semiconductor market, Mikhail Kozhevnikov, an analyst on China from the Institute of Economic Forecasting of the Russian Academy of Sciences, believes. — These products are extremely science-intensive, which means that the smaller the sales market, the more expensive it will be. For example, Intel has 27.8 percent of its revenue spent on research and development, and in 2021, it received 36 percent of its income from the Chinese market. In the event of restrictions on supplies to China, Intel will be forced to either significantly reduce R&D costs or significantly increase the price of final products, which will ultimately affect the entire global economy. Americans might be happy to impose a ban on the export of all semiconductor products to China in general, but this will entail huge costs for the American economy. that the smaller the market, the more expensive it will be. In the event of restrictions on supplies to China, Intel will be forced to either significantly reduce R&D costs or significantly increase the price of final products, which will ultimately affect the entire global economy.
In addition, according to Mikhail Kozhevnikov, due to the growing costs of Chinese companies to develop their own technological solutions, their semiconductor products will either increase in price or lose quality. This threatens Russia with an increase in the cost of technological imports, which, in turn, will lead to an increase in the cost of modernizing our economy.
The semiconductor market is now being reformatted, in the future structure of which China is likely to increase its weight, despite the fact that it is constantly becoming a target for technological sanctions. According to the estimates of the International Association of Semiconductor Manufacturers, China's share in the global segment will grow from 9 to 23% by 2030, while the US share will decrease from 46 to 36% over the same period. “It is important to understand that competition also occurs at a qualitative level: if earlier experts were skeptical about the competitiveness of Chinese manufacturers that could not produce chips with a topology of less than 14 nanometers, then in the summer of 2022 the Chinese company SMIC announced the release of seven-nanometer chips, which will allow it to compete with the world Taiwanese TSMC is the leader,” says Antonina Levashenko,
At the same time, the expert notes, China's proactivity in the semiconductor segment, both quantitatively and qualitatively, motivates other countries to increase their own semiconductor production for fear of being trapped between American and Chinese manufacturers. Therefore, today the EU is considering the so-called European Chips Act, under which the EU plans to double its share of the global semiconductor market to 20% by 2030.
The plan for the development of microelectronics in Russia provides for 3.2 trillion rubles of investments in the production of its own semiconductor products until 2030.
This article originally appeared in Russian at expert.ru