China Nationalizes Rare Earth Reserves. What Does It Mean for the Chip Industry?
PRC stated about the intention to establish control over the extraction of rare earth metals. First of all, the Chinese will keep records of gallium and germanium, which play an important role in the development and production of chips. China will not only monitor the deposits where these metals are mined, but also try to control the logistics chains in order to avoid illegal supplies of valuable resources to other countries.
What is this all for?
First of all, to have tools to counter trade sanctions. Many Chinese companies cannot cooperate with European and American partners precisely because of export restrictions. Experts considerthat if China wisely implements the nationalization of rare earth metals, it can use the resulting resource shortage to weaken trade measures from Europe and the United States.
The Chinese have taken the matter seriously and have planned strict control over the processes of rare earth metals mining, processing, distribution and export. The authors of the project claim that such measures will ensure national industrial and resource security, i.e. prevent the uncontrolled sale of valuable resources to other countries.
But analysts are still sure that all this is China's response to the actions of the United States, which consistently puts pressure on China. Thus, most American and European organizations that produce and supply semiconductor chips are prohibited from cooperating with Chinese companies.
The next stage of establishing control
China's actions are not a surprise to the Western world. For several years now, China has been gradually tightening its rules for exporting rare earth metals. In 2023, China stopped export of gallium and germanium abroad. At the same time, China is the main supplier of these metals. For a long time, the Celestial Empire closed the chains of rare earth materials on itself, and now it is beginning to change everything.
In the same 2023, China stated that the restrictions were being introduced to protect national security and state interests. But even then it was clear that this was a retaliatory move to trade sanctions, including a ban on the supply of powerful AI accelerators, graphics chips, and lithographic machines to China.
Export was only possible for companies that received a special license. This was what the Chinese claimed, but it later turned out that only a few partners received such a license. Be that as it may, the export of the mentioned metals abroad practically stopped. From January to August 2023, 36.48 tons of germanium were exported, and 22.72 tons of gallium. In July, before the restrictions were introduced, exports increased. In just one month, companies exported 8.63 tons of germanium and 5.15 tons of gallium. But in August of the same 2023, not a single ton of these metals was sold on the international market.
As early as November 2023, China required rare earth element exporters to report the types of metals they plan to ship overseas and their destinations. A month later, China banned the export of rare earth processing technology.
How will the new measures affect the electronics industry?
In 2023, China accounted for about 70% of exports of rare earth metals used in the chip manufacturing industry. In recent years, China has been dumping, attracting partners with low prices. But as soon as the government saw that China was the main supplier of some materials, prices began to rise.
As for gallium, China is a complete monopolist, since it owns about 94% of supplies. This means that if China introduces tough measures, this immediately affects the entire industry. True, not in all areas.
If we talk about the production of advanced chips using modern technological processes, then the impact here will be minimal. But the production of power amplifiers, LEDs, power controllers and other elements and systems will be reduced, and the volumes of deliveries will be seriously reduced.
China has its own companies that produce similar elements and systems, which means it has every chance of becoming almost a monopoly in this industry.
PRC plans to introduce measures not only for gallium and germanium, but also, possibly, for lithium. China currently has about 80% of the total market share for lithium. For example, six of the world's ten largest battery manufacturers are in China. It would take several years and hundreds of millions of US dollars to build facilities of similar size. If the EU or the US were to set up similar factories, they would not be able to do so immediately, even if they had the necessary resources. It would take several years to deploy the facilities and fine-tune all the lines.
True, experts believe that China risks losing its place as the leader in rare earth metals supplies. Other countries also have reserves, so if the screws are tightened too tightly, international companies will begin mining and processing the raw materials outside of China. This will be helped by the rise in prices that will inevitably arise with the reduction in supplies. And the higher the cost of an element, the more willingly mining companies will mine it.
