China's restrictions on chip-making materials are 'just the start', warns ex-vice minister

China's export control measures of chip-making materials is "just the start" and the country has more sanction measures and tools available, China Daily reported former Vice Commerce Minister Wei Jianguo as saying.

"(China's) export control of chip-making materials was a well-thought-out heavy punch," Wei said in an interview with the state-backed newspaper published on Wednesday, reported Reuters.

If restrictions targeting China's high-technology sector continue then countermeasures will escalate, Wei said. 

Meanwhile, according to Wall Street Journal, China set export restrictions on two minerals the US says are critical to the production of semiconductors, missile systems and solar cells, a show of force ahead of economic talks between two rivals that increasingly set trade rules to achieve technological dominance.

Companies affected by China's recent decision to limit the export of two metals commonly utilized in semiconductors and electric vehicles are scrambling to secure alternative supplies. 

Concerns are rising among industry suppliers that this move could be followed by restrictions on rare earth exports. The sudden announcement of export controls, set to take effect from August 1, has further escalated the trade tensions between China and the United States, potentially leading to significant disruptions in global supply chains.

Observers interpreted the Chinese commerce ministry's decision, justified on grounds of national security, as a reaction to the increasing measures taken by Washington to limit China's technological progress.

"China has hit the American trade restrictions where it hurts," said Peter Arkell, chairman of the Global Mining Association of China.

China is the primary global producer of gallium and germanium.

According to customs data reported by news website Caixin, in 2022, the leading importers of China's gallium products were Japan, Germany, and the Netherlands. Similarly, the top importers of Chinese germanium products were Japan, France, Germany, and the United States.

The commerce ministry is scheduled to hold a meeting with major metal producers on Thursday to discuss the recently imposed export restrictions, according to four individuals familiar with the matter as reported by Reuters.

As indications of potential new production outside China emerge, Nyrstar has expressed its intention to explore germanium and gallium projects in Australia, Europe, and the United States.

According to Constantine Karayannopoulos, the CEO of Neo Performance, meeting market demand for gallium without Chinese supply would be challenging. However, he suggests that potential workarounds could be achievable with the implementation of appropriate industrial public policy incentives.

"This was probably the least consequential measure that China could take, since it does not hurt as much as much as other options could," Karayannopoulos said, adding,  “On the other hand, it could give very significant impetus to North American and European governments along with producers and consumers of high-purity gallium outside of China to consider more seriously what it takes to establish supply chain optionality.”

According to analysts at Jefferies, the export controls implemented by China are perceived as the country's second major countermeasure, following the ban on Micron. "The risk of a rapid escalation of US-China tension is not small. If this action doesn't change the US-China dynamics, more rare earth export controls should be expected."

In response to the news, shares of Teck Resources, the largest germanium producer in North America, briefly rose over 1% in early trading before settling with a gain of 0.11% on Tuesday.

Furthermore, shares of 5N Plus Inc, a Canadian company specializing in semiconductor production and performance materials, saw a notable rally of 8.9%, while Neo Performance Materials, a gallium recycler and manufacturer of gallium trichloride, witnessed a rise of 5.73%.